Biogen Is in the Right Place at the Right Time

Investing in the biopharmaceutical sector is a little like shooting a Class V rapid — an exhilarating test of will and skill aimed at taming the violent currents that crush weaker souls. Unless, of course, your alignment and timing are a wee bit off, or your kayak flips and slams you into a boulder. When investing in bleeding-edge sectors like this one, success — and survival — often depend on how well the company’s products align with critical needs, timing to the market and the quality of your kayak — a.k.a. the company’s fundamentals.

Using that criteria, Weston, Mass.-based Biogen Idec (NASDAQ:BIIB) is one biopharmaceutical company that shows a lot of promise for investors. BIIB, along with competitors like Pfizer (NYSE:PFE), Amgen (NASDAQ:AMGN), TEVA Pharmaceuticals (NASDAQ:TEVA), Life Technologies (NASDAQ:LIFE), Novartis (NYSE:NVS) and privately held Genentech, use living organisms like bacteria or proteins to create breakthrough treatments for intractable diseases.

But because the run from discovery to development to trials to approval is long and expensive, unexpected hazards can pop up at any point along the way. That means the potential risks of investing in these companies are as great as the possible rewards. So, how does Biogen stack up when it comes to those three critical factors of alignment, timing and fundamentals?

Product alignment. Biogen develops, manufactures and markets living organism-based treatments for some of the most difficult and perplexing diseases, including multiple sclerosis (MS), non-Hodgkin’s lymphoma, rheumatoid arthritis and Crohn’s Disease. Perhaps Biogen’s most promising new therapy is its experimental MS pill BG-12, which if approved would compete head-to-head with the first orally administered drug, Novartis’ Gilenya.

In a recent late-stage clinical trial, researchers found BG-12 reduced MS patients’ relapse rate by 44% when given twice a day and 51% when given three times a day. The drug also reduced progression of the disease, which causes debilitating nerve damage and can lead to blindness or paralysis, by as much as 24%. This is a huge deal for BIIB, which already produces the MS injection Avonex and IV-delivered Tysabri.

Market timing. The arrival of Biogen’s oral MS drug could hardly be better timed. One year after Novartis’ Gilenya hit the market, the buzz has hushed to a whisper as current prescribers have grown frustrated with the lack of post-marketing safety data and rigorous monitoring requirements, according a report released this week by the research firm, BioTrends. In an even bigger setback for Novartis earlier this week, Gilenya failed for the second time to prove to the UK’s health-cost agency that the drug — with an annual price tag of more than $30,000 — is cost effective compared to existing therapies.

While one drug’s loss is not always a direct competitor’s gain, Biogen’s BG-12 looks to win big from Gilenya’s stumble. A survey released this week by pharmaceutical research firm Decision Resources found that 74% of surveyed neurologists in the U.S. plan to prescribe Biogen’s BG-12, citing effectiveness, safety and relatively few side effects as reasons for their preference. The survey also found that only about one-third of Gilenya prescribers — and one-fourth of payers — believe the Novartis drug’s annual cost “is commensurate with its clinical value.”

Fundamentals. On Oct. 28, Biogen reported quarterly earnings of $1.61 per share on $1.3 billion in sales — beating Wall Street estimates of $1.53 on the same revenue. At $116.40 a share, Biogen is trading more than 81% above its 52-week low of $64.28 in January. With a market cap of $28.2 billion, BIIB has a price/earnings-to-growth (PEG) ratio of 1.75, indicating that the stock may be overvalued. The company has total debt of about $1 billion and total cash of $1.5 billion. BIIB has a one-year return of more than 78%.

Bottom line: Like Class V rapids, the biopharma sector is hardcore whitewater. Nevertheless, companies that have the right products at the right time — and whose fundamentals are solid enough to support continued growth and development through the arduous drug development pipeline — offer investors an invigorating (and potentially profitable) ride. BIIB is bringing valuable products to the market at the right time — and its solid fundamentals give it a good chance at shooting the rapids successfully.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.   

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