Biogen Idec: Q3 Clues to Value

When I wrote "Biogen Idec PML Test Approved in Europe, Changing Tysabri Outlook" on March 15, 2011, the price per share of BIIB was $69.56. When I wrote "Biogen Idec, Is there more Value?" on July 11, 2011, it closed at $105.53, having backed off its recent 52 week high of $109.63. Quite a run. It is headed up today after closing at $114.23 yesterday, so at least those wise people who are in the stock market these days think the answer is yes, there is still more value to be had from Biogen.

So, the eternal investor questions: did something change? Does the run up reflect value that was already there back in March? Could this be another momentum run unjustified by fundamentals? Could there be even more value in the stock?

We have had a number of recent data points to inform our views. BG-12, an oral agent for multiple sclerosis (MS), produced Phase III clinical results that should gain marketing approval from the FDA (of course, there is no guarantee of that). Biogen is generally held to sell the most effective MS drugs, but recently Gilenya by Novartis, became the first oral agent on the market.
In addition Daclizumab HYP showed good Phase 2b trial results. Dexpramipexole for Lou Gehrig's (ALS) disease Phase III trial became fully enrolled recently.

Third quarter (Q3) results released on October 28, along with the analyst conference call, demonstrated that current therapies are still ramping revenues. Biogen Idec's two multiple sclerosis (MS) blockbuster drugs are Avonex, with revenues in Q3 of $682 million, up 6% y/y, and Tysabri, with revenues of $277 million, up 26% y/y. Avonex has been around a long time and dominates the market, but its sales had flattened until the PEN was recently introduced, which makes administering it much easier. On June 22 Biogen had announced the EU approved including JCV status as a risk factor for Tysabri, which we presumed would happen in March. The risk of death or severe injury from PML, a result of JCV getting out of control when immune responses are suppressed (immune responses are the cause of MS), had been a big problem for Biogen. Now patients can test to find out if they are infected with JCV or not and with the help of their doctors make appropriate decisions about the risks versus the benefits of Tysabri.

Given all this good news and the big run up in 2011, are we at a just-right stock price? Of course next year's price will depend on how revenues and profits ramp (or don't) in 2012, and what the outlook looks like for 2013.

I will be surprised if Tysabri revenue growth does not accelerate in the second half of 2012 if BG-12 comes online. I am would not sell the stock in the current price band, and believe BIIB is currently a good bet for new money. However, in aside to the usual macroeconomic and stock market risks, all therapies run some risk from new adverse reactions being discovered and from current and future competing products.

At this point Biogen pays no dividend, but is certainly a profitable enough company that it could. It would also show management's confidence in the company's future. They spend a lot on R&D, over $300 million (GAAP) in Q3, and have a lot of cash, $2.9 billion, and a lot of non-GAAP net income, $395 million in Q3. They do use cash for stock buy backs and to acquire promissing pipeline candidates.

Disclaimer: I am long Biogen Idec. I have no plans to buy or sell in the next 3 days, but do sell stocks I feel have become overpriced.

See also http://www.biogenidec.com/