Massachusetts-based Biogen Idec (Nasdaq: BIIB, $49.98) specializes in
cancer medications and therapies to treat neurological,
cardiac and autoimmune disorders. Its major products include
multiple sclerosis drugs Avonex and Tysabri. Biogen's biggest seller is Rituxan,
which treats patients with non-Hodgkins lymphoma.
These vital drugs
are a big reason why Biogen's annual revenues have topped $3
billion, and why revenue could surpass $4 billion this year. Looking ahead, regulators have just
approved Rituxan to be prescribed as a treatment for rheumatoid
arthritis -- opening up a new target market worth tens of
billions. Biogen could capture a
significant share of this market in the years ahead.
Biogen also
has a full lineup of potential heavy-hitters
in its development pipeline. Several cancer and
cardiopulmonary drugs are final "Phase 3"
development; eight more are close behind in Phase 2 trials.
In the
past, Biogen has
teamed up with other companies,
including Elan (NYSE: ELN) and Genentech (NYSE: DNA) to
develop drugs. But none of the products in Biogen's pipeline
have been developed with another drugmaker. None will be
co-marketed with another company, leaving Biogen as the sole
beneficiary of its medicines' profits.
Those proceeds could drive impressive bottom-line growth. Thanks
in part to the proven efficacy of its drugs, Biogen is able to
charge premium prices and maintain operating margins in the 30%
range -- excellent in absolute terms, but stellar when compared
with companies like Amylin (Nasdaq: AMLN) that still haven't
achieved profitability yet.
Rituxan, for
example, can cost more than $10,000 per treatment course and is
largely insulated from the threat of generic competition. That's
because generic equivalents of these "biologic" treatments -- even those
no longer under patent protection -- aren't legally allowed in the U.S.
marketplace. (These treatments mimic the body's natural
responses to a condition are produced using biological rather
than chemical processes.)
A number of veteran biotech specialists
have made Biogen one of their top picks, with funds like the
Fidelity Select Biotechnology and Eaton Vance Health Sciences
holding concentrated positions in the stock. Billionaire
investor Carl Icahn is also accumulating shares and just
increased his stake to 6% of the company's shares, citing attractive valuation.
I should note
that the company has had safety concerns with Tysabri in recent
years involving rare but deadly brain complications. However,
because the product has been so effective, it is now back on the
market and booming -- sales of the drug rocketed +210% last
quarter, to $147 million. Overall, Biogen has reported three
straight quarters of +25% or better sales growth and just
boosted its full-year earnings forecast.
Unfortunately,
just when Biogen was cruising along, reports of two new brain
infections for Tysabri patients hit the market and sent the
shares to a 52-week low. The risk of
further cases should not be downplayed. But until reports of these
isolated incidents broke, Tysabri had been completely
trouble-free since re-entering the market in 2006 and worked well for
more than 30,000 users worldwide. The drug is still on
track to have 100,000 users by 2010.
In the
meantime, this market pullback has created an opportunity for
investors to own a
piece of this promising company at an attractive
+38% Price Appreciation Potential. (This is a proprietary
metric I use in my
Half-Priced Stocks newsletter
to predict a stock's potential value based on earnings and other
fundamentals.)
Action to Take -->
The recent plummet of Biogen's shares is a textbook example of
the risks that all
biotechs face. However, the FDA is updating Tysabri's
label and the agency doesn't appear to be taking any further action,
as the
potential rewards to the thousands who rely on the drug far
outweigh its risks. I think the market's knee-jerk pullback has
provided an attractive entry point.
For less adventurous investors who still
want a taste of the exciting prospects in the biotech
field, an ETF like PowerShares Dynamic Biotech &
Genome
(AMEX: PBE, $18.50)
that holds a broad basket of stocks might also be worth
considering.
|
Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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