Biogen's Results Cure Some Pain

Jul.23.14 | About: Biogen Inc. (BIIB)


The biotech sector sold off last week on comments from Yellen about stretched valuations.

Biogen's strong earnings results are helping the group stage a rebound.

The company's earnings were driven by growth in their MS drug franchise.

There is nothing like a good earnings quarter to dispel valuation concerns.

What a difference a week can make. Last Tuesday, biotech stocks were selling off on Janet Yellen's congressional testimony when she voiced concerns about the valuation levels of smaller biotech and social media names calling them "substantially stretched." Her comments sent the Biotech Index and bellwethers like Biogen (NASDAQ:BIIB), Celgene (NASDAQ:CELG), and Gilead (NASDAQ:GILD) all down 5% or more.

In response, ISI's biotech analyst Mark Schoenebaum sent Yellen a nice open-letter rebuttal with a chart demonstrating the current P/E ratio for biotech stocks in the Russell 1000 is roughly in-line with historical norms and are actually 80% below peak level.

Now in fairness, Yellen's valuation comments were targeted at smaller-cap biotech names, not the large cap names. Clearly, Biogen Idec's "valuation" is less of a concern given the strong earnings results it just reported.

The company crushed Q2 earnings estimates, reporting EPS of $3.49, which beat the FactSet consensus by $0.65. It also raised its full year guidance significantly to a range of $12.90-$13.10 from $11.35-$11.45 vs. the consensus of $11.62. The stock traded up more than 10% on the results.

Founded in 1978, Biogen Idec has the distinction of being the world's oldest independent biotechnology company. Biogen Idec discovers, develops and delivers innovative therapies to patients worldwide for the treatment of neurodegenerative diseases, hemophilia, and autoimmune disorders.

Biogen Idec's premier drug franchise is for the treatment of multiple sclerosis ((MS)), with its approved drugs AVONEX, TYSABRI, and TECFIDERA. These drugs combined have the leading share of the worldwide $16 billion multiple sclerosis market. It also discovered Rituxan, the most-prescribed treatment for non-Hodgkin's lymphoma and an approved treatment for rheumatoid arthritis.

Dissecting Biogen Idec's results, its MS franchise was the main driver of the earnings upside. TECFIDERA's sales totaled $700 million worldwide, trouncing estimates of $558 million. TECFIDERA's launch in Europe was stronger than anticipated, especially in Germany, which accounted for nearly 75% of the $115 million in overseas sales. AVONEX sales were also quite strong, coming in at $774 million. And while TYSABRI sales are declining due to the better efficacy of other drugs, it still managed to generate sales of $533 million this quarter.

There is nothing like a good quarter to dispel valuation concerns. It is also a reminder as we head into the heart of earnings season, strong earnings results can also serve as a good antidote for all the geopolitical ills contaminating the globe.

Best Stocks Now Analysis

Biogen Idec stock has a market capitalization of $72 billion and falls under the Conservative risk category. Biogen Idec generates annual revenue of $7.65 billion and has a 5-year annual growth rate of 19%.

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On a valuation basis, especially given the company's superior growth prospects and total return potential, the stock receives a Value Grade of A.

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Biogen Idec stock's returns have significantly outpaced those of the S&P 500. The stock has posted a 12 month total return of 31.1%. Despite an overall sell-off among biotech names this year, investors should continue to reward the value of its MS drug franchise and the potential future growth prospects for its new pipeline of drugs.

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Biogen Idec ranks #513 out of 3800+ stocks in our universe and receives a Stock Grade of B+. We re-initiated a position in the stock in June as quality, valuation and fundamentals at the stock level ultimately prevail.

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Sentiment for the biotech sector has also improved and now rates an A- among my 60 sector ranks.

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Follow me on Twitter @billgunderson for a change of opinion on this stock.

Disclosure: The author is long BIIB. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.