Biogen Idec (BIIB) Growth Accelerating

Biogen Idec just keeps growing revenues and profits. At a time when the entire stock market is melting down, smart people can make money (in the long run) by buying almost anything, but there is a lot of insurance in buying cash rich, rapidly growing companies like Biogen.

Biogen has a lot of cash (and marketable securities), over $2 billion at the end of Q3. Its non-GAAP (cash) net income was $288 million in Q3.

Aside from truly apocalyptic scenarios, I see no reason why profits should not continue to grow rapidly for the foreseeable future. 3rd quarter revenues were up 10% from the second quarter and up 38% from Q3 in 2007. GAAP net income was sequentially flat, but up 73% from $119 million last year, with GAAP EPS at $0.70.

For details of Biogen's Q3, see my Biogen Idec Analyst Conference Summary, Q3 2008.

There are three mostly-independent components to Biogen Idec's future growth. Its main revenue generators include two drugs for Multiple Sclerosis (MS), Avonex ($573 million Q3 sales) and Tysabri ($173 million Q3 sales). Avonex is the older drug, approved and marketed in the U.S., Europe, and many other countries. Tysabri, the newer, even more effective drug, is still in the global approval process. When MS patients switch to a new drug, they switch often switch to Tysabri. In terms of revenue, however, the main component at present is international expansion. It will take years for Tysabri to be approved and for sale in all the world's major markets. MS is a life-long disease at present; you can't stop taking your therapies without it starting to progress, though Tysabri seems to actually cause the disease to regress in many cases.

The second revenue and profit building leg is expanded indications for existing drugs. Rituxan, which had sales of $299 million in the quarter, has been approved for Non-Hodgkin's Lymphoma (NHL) and is in Phase III for Chronic Lymphocytic Leukemia (CLL). Tysabri is in a Phase I trial for multiple myeloma and was recently approved for treatment of Crohn's Disease.

The third leg is the pipeline, which is impressive. There are drugs in every stage of development from pre-clinical to Phase III, and Biogen has the cash to buy rights to promising therapies as well. There are five novel compounds in late stage (Phase III) registrational trials (BG-12, Lumiliximab, Galiximab, Lixivaptan, Adentri).

For those who don't following biotech batting averages, only a relatively few of the drugs that are tried in Phase I trials eventually get good Phase III results and are profitably brought to market. As with any other biotechnology or pharmaceutical company, BIIB will see drugs that don't live up to their early promise. That said, BIIB has a rather exceptional record in actually developing drugs that help patients enough to become revenue blockbusters. Some of BIIBs pipeline candidates will be approved and turn into profit engines in the future.

Every company's stock is risky. Drug candidates can fail, and even successful drugs can be driven off the market by rivals. BIIB should be bought only as part of a portfolio that makes sense to you.

The main risk that remains in BIIB (though I think it has already led to a discount in the stock price) is from the known adverse event associated with Tysabri, PML (Progressive Multifocal Leukoencephalopathy). This was a little-known disease until HIV infections became widespread, resulting in a large pool of people with suppressed immune systems. It is an opportunistic infection, rare even in immune-suppressed patients. There have been several PML cases in patients being treated with Tysabri. Doctors are warned to watch for PML symptoms when they prescribe Tysabri. PML can be deadly.

You might think that would kill sales of Tysabri, but it has not, because doctors and patients, or enough of them, are looking at the bigger picture. MS is an auto-immune disorder. Stopping it involves keying down the immune system. With the choice being between watching MS symptoms progress and taking a drug that stops the progression, most patients are going to want to take the drug. PML is a risk, but a small one, and if detected in time can be survivable. It is sad to have to make choices like that, but when you know you have MS, and what its progress will be if untreated, it is still the best choice for most people.

I hope you have some cash to buy stocks during this giant Wall Street Geniuses' fire sale, but in any case ...

Keep diversified.

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