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More Tightly Focused Biogen Appears to Have Greater Upside

Those investors who think the market might stabilize in the near future might want to take a look at S&P 500 component Biogen Idec (NASDAQ:BIIB). The company’s share price has more than doubled in the 12-month period since former Exelixis (NASDAQ:EXEL) CEO George Scangos took the Biogen helm in July 2010. Like a lot of other biotechs, the stock has been buffeted by the recent market downturn, retreating to $90. But if Scangos and his new management team’s plans pan out, Biogen might be a decent value at its current price.

Already the world leader in drugs for multiple sclerosis, Weston, Mass.-based Biogen is intent on finding new compounds to treat MS and other neurodegenerative diseases, banking on stepped up internal research and outside deals. The goal is to fill the company’s early-stage pipeline, which was depleted when Scangos decided to narrow the focus by cutting 17 research and development programs, most of them in oncology and cardiology drug development.

The cuts left Biogen top-heavy in Phase III compounds, which has its advantages because the drugs being tested are closer to commercialization. Among the six late-stage contenders for either hemophilia or neurological diseases is a potential blockbuster MS treatment that can be taken as a pill instead of the usual infusion method.

The drug, known as BG-12, will probably supplant older injected medications such as Avonex, the Biogen drug used as a first-line treatment for MS. Avonex is far from being put out to pasture, though. The drug continues to produce a lot of cash. During the second quarter of 2011, Avonex sales were $659 million, up 5%. Quickly assuming blockbuster status is another of the company’s MS drugs, called Tysabri. Evidence that Biogen has done a good job helping the drug overcome serious side-effects issues is the $389 million in sales it generated during the second quarter, a 31% gain from the same period a year earlier.

Leerink Swann analyst Joshua Schimmer, who is recommending Biogen, calls BG-12 “one of the most exciting drugs in the MS development space.” However, another MS drug in pill form already has beaten it to market — Gilenya, which was launched by Novartis (NYSE:NVS) late last year. Novartis has high hopes that Gilenya will provide stiff competition to Avonex and, eventually, BG-12.

Others in the financial community think Biogen is a good buy. Last week, the company was upgraded at Oppenheimer from “perform” to “outperform” and assigned a $109 price target. And in a recent article, Mark Sebastian, COO and Director of Education for Option Pit Option Mentoring, said the recent drop in Biogen’s stock price is “a case of market psychology trumping logic and fundamentals.” He thinks the company is a $105-$115 stock.

Billionaire investor Carl Ichan probably would beg to differ. He recently dumped his stake in Biogen and a number of other biotechs. And a Goldman Sachs-managed fund lightened its position in the company by 80% between March and June.

No question that Scangos has done a remarkable job revitalizing Biogen. The big question is: Can he keep up the momentum, or has the company had its big run?

Article printed from InvestorPlace Media, https://investorplace.com/2011/08/biogen-biib-george-scangos-ms/.

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