Biogen Idec Inc. (BIIB) is up about 58% over the past twelve months. The driving force is Biogen’s promising MS drug candidate BG-12 with the belief that earnings can grow exponentially in the years ahead. If one company has a lock on the MS market, it is Biogen Idec.
Shares are up nearly 67% at $90.24 from the 52-week low of $54.13. The consensus price target is $112.17 and the 52-week trading range is $54.13-$109.63. Analyst price targets range from a low of $74.00 to a high of $140.00; the median is $114.00.
Our take is that the consensus price target objective of $112.17 is just not enough upside to merit a new purchase for a biotech giant. We will be the first to admit that consensus price targets are very far from perfect. At $89.40, our own estimate of fair market value falls squarely within this range and indicates that BIIB is currently fairly priced.
The earnings estimates are $5.88 EPS for 2011 (the range is $5.72 to $6.12) and $6.35 EPS for 2012 ($5.82 to $6.75), generating forward earnings multiples of 15.4 times 2011 expected earnings and almost 14.2 times expected 2012 earnings.
Though Biogen is a major biotechnology company, it has a limited product line and pipeline. Thomsom Reuters summarizes BIIB’s activities as follows:
“Biogen Idec Inc. (Biogen Idec) is a global biotechnology company focused on discovering, developing, manufacturing and marketing products for the treatment of neurological disorders and other serious diseases. The Company’s products include AVONEX, TYSABRI, FUMADERM and RITUXAN. Its marketed products address diseases: multiple sclerosis (MS), non-Hodgkin’s lymphoma (NHL), rheumatoid arthritis (RA), Crohn’s disease (CD), chronic lymphocytic leukemia (CLL) and psoriasis. Its primary source of other revenue is derived from royalties received on sales by its licensees of other products covered under patents that it owns. The Medicines Company (TMC) markets ANGIOMAX in the United States and the European Union for use as an anticoagulant in patients undergoing percutaneous coronary intervention. On December 17, 2010, the Company completed the acquisition Panima Pharmaceuticals AG (Panima).
AVONEX is a therapeutic for relapsing forms of MS. AVONEX is a recombinant form of the interferon beta protein produced in the body in response to viral infection.
TYSABRI is a treatment for MS. TYSABRI is a monoclonal antibody that was initially approved by the United States Food and Drug Administration (FDA) to treat relapsing MS. TYSABRI is also approved in the United States to treat CD, which is an inflammatory disease of the intestines. In March 2010, it began enrolling patients in two Phase IV studies, known as STRATIFY-1 and STRATIFY-2, to evaluate the utility of a blood test that is designed to detect antibodies to the JC virus.
RITUXAN is an oncology therapeutic. RITUXAN is a monoclonal antibody used to treat NHL, CLL and RA. It collaborates with Genentech on the development and commercialization of RITUXAN. In February 2010, the FDA approved RITUXAN for the treatment of CD20-positive CLL in combination with fludarabine and cyclophosphamide, expanding the label beyond the treatment of NHL and RA.
FUMADERM is approved for the treatment of severe psoriasis in Germany. Psoriasis is a skin disease.
FAMPYRA (prolonged-release fampridine) is an oral compound that is being developed as a treatment to improve walking ability in people with MS. In January 2010, FAMPYRA was approved in the United States and is marketed by Acorda Therapeutics, Inc. under the trade name AMPYRA (dalfampridine) Extended Release Tablets 10 milligrams. AMPYRA is indicated to improve walking in patients with MS. It collaborates with Acorda on the development and commercialization of FAMPYRA in markets outside the United States.
BG-12 is an oral compound that is being tested in relapsing MS. It has completed patient enrollment in two Phase-III studies of BG-12 in relapsing MS, known as DEFINE and CONFIRM, one of which includes a glatiramer acetate (COPAXONE) reference comparator arm.
Daclizumab is a monoclonal antibody that is being tested in relapsing MS. During the year ended December 31, 2010, a Phase II-b trial of daclizumab in MS, known as SELECT was completed enrollment. In May 2010, it began patient enrollment in a Phase-III study of daclizumab in relapsing MS, known as DECIDE, evaluating the efficacy and safety of daclizumab compared to interferon beta-1a (AVONEX).
PEGylated interferon beta-1a is designed to prolong the effects and reduce the dosing frequency of interferon beta-1a. It has begun patient enrollment in a Phase III trial of PEGylated interferon beta-1a in relapsing MS, known as ADVANCE. The FDA has granted PEGylated interferon beta-1a fast track status, which may result in an expedited review.
Dexpramipexole is an orally administered small molecule in clinical development for the treatment of amyotrophic lateral sclerosis (ALS). It has entered into a license agreement with Knopp Neurosciences, Inc. for the development, manufacture and commercialization of dexpramipexole.
The Company collaborates with Swedish Orphan Biovitrum AB (Biovitrum) on the development and commercialization of long-lasting recombinant Factor VIII and Factor IX. In February 2010, it amended its collaboration agreement with Biovitrum. In December 2010, it began patient enrollment in a registrational trial of Factor VIII in hemophilia A, known as A-LONG. During 2010, it began patient enrollment in a registrational trial of Factor IX in hemophilia B, known as B-LONG.
GA101 is a monoclonal antibody that is being tested in CLL and NHL. In April 2010, it began patient enrollment in a Phase-III trial of GA101 combined with bendamustine compared with bendamustine alone in patients with rituximab-refractory, indolent NHL. It collaborates with Genentech on the development and commercialization of GA101.
The Company competes with Teva Pharmaceutical Industries Ltd., Sanofi-Aventis, Merck Serono, Pfizer Inc., Bayer Schering Pharma AG, Novartis AG, Cephalon, GenMab, GlaxoSmithKline, Johnson & Johnson, adalimumab, Abbott Laboratories, Amgen, Inc., Pfizer, UCB, S.A., Bristol-Myers Squibb Company and Roche Group.”
Worldwide AVONEX revenue totaled $659.2 million in the second quarter of 2011, representing an increase of 5.0% over the same period in 2010. BIIB’s share of TYSABRI revenue totaled $281.4 million in the second quarter of 2011, representing an increase of 28.4% over the same period in 2010. BIIB’s share of RITUXAN revenue totaled $216.5 million in the second quarter of 2011, representing a decrease of approximately 29.3% over the same period in 2010. This decrease was primarily the result of an accrual for estimated compensatory damages (including interest) relating to an intermediate decision by the arbitrator in Genentech's ongoing arbitration with Hoechst GmbH. Accordingly the Company reduced its share of RITUXAN revenue from unconsolidated joint business by approximately $50.0 million in the second quarter of 2011. This decrease was also driven by royalty expirations in other “rest of world markets,” a decrease in selling and development expenses incurred and reimbursed by Genentech, which are included within total unconsolidated joint business revenue, and the recognition of a $21.3 million cumulative underpayment of royalties owed by Genentech in the second quarter of 2010. These decreases were offset in part by an increase in share of net U.S. RITUXAN product revenue, which increased 5.9% over the same period in 2010.
Total cost and expenses decreased 2.3% in the second quarter of 2011, compared with the same period in 2010. Cost of sales and research and development expense decreased 6.1% and 13.9%, respectively, for the second quarter of 2011 over 2010. These decreases were offset by a 40.5% increase in collaboration profit sharing expense due to TYSABRI revenue growth. Biogen generated $683.2 million of net cash flow from operations for the six months ended June 30, 2011, which was primarily driven by earnings. Cash and cash equivalents and marketable securities totaled approximately $2,510.3 million as of June 30, 2011. In February 2011, the Board of Directors authorized the repurchase of up to 20.0 million shares of common stock. Under this authorization, they repurchased approximately 2.2 million and 5.0 million shares of common stock at a cost of $191.3 million and $386.6 million, respectively, during the three and six months ended June 30, 2011.
Several days ago, Biogen announced it has taken control of two joint ventures it has with Italian biotechnology company Dompe Group to sell Biogen's multiple sclerosis drugs Avonex and Tysabri.There is a lot to recommend Biogen. It is a large company with a market cap of about $21,871.82 million. Free cash flow has grown steadily from $1.04 in FY2004 to $5.56 in the trailing twelve months, down just slightly from $5.70 in FY10. Free cash flow has grown at the rate of 38.4% over the past seven years. Long-term debt to free cash flow is about 0.79X, implying that BIIB could pay off its debt in less than one year. Long- term debt is about 61% of working capital.
The seven year growth rate for EPS from continuing operations is 15.9%. EPS growth rate for the next 3-5 years is 8.96%. At 31.9%, the long-term sales growth rate supports estimates of future EPS growth. Additionally, operating margins continuously expanded from 2.0% in 2004 to 29.4% in 2009. Margins contracted to 26.0% in 2010 but resumed expansion to 28.4% for the TTM ending 06/11. The Company offers a Cash return on Invested Capital of 18.88% and a return on Equity of 19.5%.
Biogen Idec offers the patient investor a healthy balance sheet that supports continuing growth in sales and earnings. Management effectiveness in utilizing the company’s assets is evidenced by consistent expansion of margins and returns on equity and assets. The company does not pay a dividend but does have a share repurchase plan.
At a share price of $90, we think the company is fairly priced and we are not buyers. However, there is nothing wrong with a strategy of buying quality companies at a fair price.