Monday, May 7, 2007

Biogen Idec (BIIB) and Tysabri

Biogen Idec (BIIB) is a successful biotechnology company. I do not own any of the stock, but I have been following it closely for a couple of years now. There are a lot of lessons to be learned from this company. Its web site is

Biogen Idec's Q1 results were reported on May 2, and of course they had an analysts' conference (which anyone can listen to). My summary of this analyst conference is a good place to start deepening your knowledge if you think you might be interested in this company. For quick stats on companies I have my online broker, but I often find the NASDAQ site,, to be quicker and easier to use.

Biogen reported $716 million in revenue for the quarter. That was up 16% from year earlier but only 1% sequentially, so asking if and why the stall in rapid growth took place should be your basic question. After all, NASDAQ gives Biogen a P/E ratio of 70 at today's price. That is fine if there is rapid profit growth, but a dizzying height from which to fall if profits flatten out. GAAP net income was up only 7% from year earlier, so expenses faster more than revenues.

So why the go-go PE ratio? The simplest answer is the BIIB is a biotechnology stock. The price is only a bit about past performance; it is mostly about future expectations.

So what does Biogen Idec peddle, such that its investors expect a rosy future? It sells three blockbuster drugs, Avonex (Q1 revenues $449 million), Rituxan (Q1 revenues $207 million), and Tysabri, with Q1 revenues of $30 million. It is important to note that global Tysabri sales were actually $48 million; Biogen Idec is in a partnership with Elan for this drug and only recognizes its own share as revenues.

Rituxan is used to treat non-Hodgkins B-cell lymphoma (cancer). Both Avonex and Tysabri are used to treat multiple sclerosis (MS). But in the strange (to laymen) world of the FDA, drug approvals are often very specific. Avonex is approved for both relapsing forms and monosymptomatic MS. Tysabri is approved as a monotherapy for relapsing forms.

So if you are going to invest in Biogen you might want to know the basics about Multiple Sclerosis. Good places to get basic information include the Wikipedia article on MS and the NINDS site. In the Wiki article the section on treatment mentions both Avonex and Tysabri, and a term that was much used at the analyst conference: PML, or progressive multifocal leukoencephalopathy.

Prior to the introduction of Tysabri, the viral disease PML was seen almost exclusively in immune deficiency patients, including AIDS patients.

The balancing act here is that MS is an auto-immune disease; keeping the immune system at bay can result in it not being able to do its normal job with infections. Tysabri now carries a warning that it may cause PML, which has slowed adoption. Biogen management believes that as physicians and patients understand the benefits of Tysabri and the risk of PML they will continue to adopt Tysabri. Patients apparently find Tysabri to be very beneficial.

So the slowdown in Biogen's growth can be attributed to the PML scare. But what about the future?

BIIB has a truly extensive pipeline of drug candidates. They have invested heavily in research, including clinical trials. While drug candidates more often than not bomb out because of safety issues or inability to prove effectiveness, in the case of Biogen they are highly likely to have some winners in the mix.

If you are an individual investor and are interested in biotechnology you can gain a considerable advantage by doing careful research. There are two basic strategies you can try. One is to wait until a small biotech company has its first FDA approval, then jump in. That results in substantial risk reduction, but it often means paying a high price and still having substantial risk. You can also bet on pipeline drugs that have not been approved. In that case keep in mind that if you look at the full spectrum from preclinical trials to final FDA approval, success is quite rare. Phase II trial results are usually the minimum data you need to be able to start accurately weighing risks against potential rewards.

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