Growth-oriented investors looking for exposure to the burgeoning biotech sector could find a gem that’s already exploding in Biogen Idec (BIIB).
Although BIIB stock has gained more than 20% year to date, this week’s blockbuster second-quarter earnings illustrate why Biogen stock still has plenty of room to run.
BIIB shares gained nearly 12% Wednesday on monster Q2 earnings. Biogen earned $3.01 per share — 46% higher than the year-ago period, and much better than the Wall Street estimate of $2.83 per share. Meanwhile, revenue jumped 40% to $2.4 billion, which also beat the Street’s expectations for $2.2 billion.
Although Biogen stock has performed well so far this year, here are three reasons Biogen stock is still a buy now:
- Biotech Isn’t Just a Bubble Waiting to Burst. Biogen is a key player in the biotech sector, using living organisms such as viruses, bacteria, proteins or DNA molecules to develop treatments for serious diseases. That’s no fad — that’s something that will become increasingly useful as America’s baby boom generation continues to age. Sure, Federal Reserve Chairwoman Janet Yellen last week sent a chill through the sector with her comments that biotech valuations were “stretched.” However, Biogen’s earnings — and investors’ response to them — seem to say otherwise.
- Blockbuster Multiple Sclerosis Drug. Biogen’s oral multiple sclerosis drug Tecfidera showed its blockbuster status as second-quarter sales of the drug hit $700 million — a huge jump over the $192 million it posted in the same quarter last year. More over, the U.K.’s National Institute for Health and Care Excellence has approved Tecfidera, reversing its contention in February that the drug was too expensive. When the FDA approved Tecfidera as first-line treatment for MS in March 2013, the consensus view was cautiously upbeat because of substantial competition from Novartis (NVS), Sanofi (SNY) and others as well as the high price tag for the treatment. BIIB shareholders, however, are getting what they’ve paid for — a new oral MS treatment that is suitable for newly diagnosed patients and works differently than some other treatments. Tecfidera activates the Nrf2 proteins that exist within all human cells, sending the body’s own immune system into high gear to attack the inflammatory processes and enhancing the central nervous system’s natural response to fight MS-related effects.
- Strong Drug Pipeline. Apart from a very strong portfolio of oral and injectable MS treatments, BIIB is moving into a new therapeutic niche — hemophilia. Biogen launched Alprolix, a long-lasting therapy for hemophilia B, and received FDA approval of its new hemophilia drug Eloctate. Some of the most exciting news for Biogen stock will come from late-stage trial results on Alzheimer’s disease and neuropathic pain treatments over the next year-to-18 months.
It’s tough work developing innovative treatments for dire diseases from living organisms like viruses, bacteria, DNA or other molecules. But biotech drugs eventually are likely to be the source of cures for cancer, MS, diabetes, hepatitis and HIV — drugs that will promote the greater good while beefing up the bottom line (and shareholder returns).
Since only 40% of drugs ever gain FDA approval, biotech stocks like BIIB inherently have a higher risk profile than more mature, Big Pharma companies.
But while it takes longer for companies in leading-edge sectors like biotech to clear all the regulatory hurdles and bring promising new treatments to market, it can pay off big for investors with a longer investment horizon.
BIIB is all the proof you need of that.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.