The Food and Drug Administration has long been a necessary thorn in the side of biotech and pharmaceutical companies, including Biogen (NASDAQ: BIIB) maker of treatments for multiple sclerosis, Crohn’s disease, non-Hodgkins Lymphoma, rheumatoid arthritis, and psoriasis.

But lawmakers in Washington are hoping to alleviate some of the stress it is causing. Members of the House Energy and Commerce Committee are debating renewal of a bill that provides the FDA more oversight for approving drugs before they are put on the market, and Republicans are leading the charge to let it die, sighting the tediousness of the process and how it hampers the industry.

With Biogen slated to release its quarterly earnings report later this month and the FDA’s authority in question, is now a good time to buy in?

Three reasons exist to consider buying the company’s stock:

• Consistently Strong Earnings Reports.  Biogen has managed to beat analysts’ expectations in four out of the last five quarters by an average of 10%. If it can continue to beat expectations, its stock price may continue to improve.
• Out-earning its capital cost. Biogen earned more operating profit than its cost of capital but it has no EVA Momentum, which measures the change in “economic value added” (essentially, profit after deducting capital costs) divided by sales. In 2010, the company’s EVA momentum was 0%, based on 2009 revenue of $4.4 billion, and EVA that improved from $393 million in 2009 to $404 million in 2010, using a 7% weighted average cost of capital.
• Long-term financial strength, though growing debt is a concern. Biogen has grown strongly. Its $4.8 billion in revenue has increased at an average rate of 14% over the last five years and its net income of $1.1 billion has risen at a 41.2% annual rate over that period. However its debt-to-equity ratio of 0.2 and long-term debt of $1.1 billion rank it 152nd out of 155 in long term debt and 92nd out of 128 in debt/equity ratio within its industry. And that debt has risen at an 82% annual rate since 2006. Somewhat offsetting that bad news is that the company’s cash grew at a 7.5% annual rate between 2006 ($903 million) and 2010 ($1.21 billion).

Biogen’s price-to-earnings-to-growth ratio of 4.22 is very high given that a PEG ratio of 1.0 is considered fairly priced, which means that the stock is expensive. Currently, Biogen has a P/E of 24.45 and its profit is only expected to grow 5.8% in 2012.

While the price may drop thanks to the current debate over the FDA’s oversight abilities and the likely instability from the debt ceiling debate, it is likely that the PEG ratio will stay relatively high, keeping it an expensive stock.

Peter Cohan has no financial interest in the securities mentioned.