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For biotech drug maker Biogen Idec (NASDAQ:BIIB), the last couple years have been a bit unsettling, what with activist investor Carl Icahn dropping broad hints about a breakup or sale, ongoing problems with its most promising drug, and the arrival last summer of a new CEO with his own ideas about how the company should be run.

The past several years, Biogen’s shares have tended to trend in concert with those of drug-industry rival Merck, (NYSE:MRK) and the stock has routinely outperformed the S&P.


But in recent months, particularly after its new CEO spelled out a major re-focusing strategy, Biogen shares have moved up sharply.


Even after the latest upturn, however, historical valuation metrics indicate that Biogen Idec shares may be attractive. With the upside potential, of course, come significant challenges.

The company, formed by the not-very-successful 2003 combination of Biogen and rival Idec, draws its revenues from three main drugs. Avonex and Tysabri treat the neurological disease multiple sclerosis, and make the company the leading producer of MS treatments. The third drug, Rituxen, fights cancer and leukemia.

Avonex, introduced in 1996, is by far the company’s biggest-seller, but growing competition from newer products has slowed sales growth. Rituxen, which Biogen co-markets with the Genentech unit of pharmaceuticals giant Roche, is also maturing, and revenues are now in decline.

The growth driver at Biogen is supposed to be Tysabri, the company’s newer MS therapy, which it co-sells with Ireland’s Elan. But the drug ran into trouble: it was pulled soon after entering the U.S. market six years ago, when a few patients using the drug developed a life-threatening brain infection. After more research – and partly in response to an outcry from MS patients who wanted access to the effective drug despite the statistically modest danger it poses – the FDA approved Tysabri’s return to the market in 2006.

Biogen has identified certain “biomarkers” that it thinks will help identify patients who might be vulnerable to the infection. Tysabri sales were up 17 percent through the first nine months of 2010, but it now faces potentially fierce competition from a $48,000-a-year MS drug, Gilenya, that Novartis (NYSE:NVS) recently introduced in the U.S.

Even as Biogen wrestled with assorted issues, profit margins have remained relatively stable, and revenues have continued to grow.


Free cash flow held steady, and of late, the company has been buying back shares.


Amid its difficulties, Biogen put itself on the block in 2007, then dropped the plan. That spurred Carl Icahn, who currently holds a 5.4% Biogen stake, to mount a series of proxy fights, which have over time provided the activist investor with three seats on Biogen’s board.

Six months ago, Biogen’s 51-year-old CEO James Mullen – a longtime target of Icahn’s ire – “retired” and was succeeded by 62-year-old George Scangos, former head of tiny biotech Exelixis (NASDAQ:EXEL). In November, Scangos, saying the company hadn’t “maximized our opportunities,” outlined a restructuring that cuts hundreds of jobs and eliminates certain R&D projects to focus the company’s drug pipeline on promising neurology products.

As a company in a bit of disarray, at a time of drug-sector consolidation, and with Icahn a potential voice for near-term profits, some investors are betting on Biogen as a buyout candidate. Others have been willing to overlook the lack of a dividend, in view of the stock’s modest multiple:


Biogen, like so many bargain stocks, has issues.

Disclosure: No position

Source: Biogen Idec: Fixer-Upper, Priced to Move?