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Biogen Idec Inc. (BIIB): What Goes up Must Come Down

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Biogen Idec Inc. (NASDAQ:BIIB) is one of those rare companies in the healthcare sector whose stock has relentlessly outperformed the broader market continuously for as long as one can remember. Year-to-date, it has gained almost 33% against less than 12% of S&P 500. Over five years, it has returned 202%. It has even outperformed the Health Care SPDR (ETF) (NYSEARCA:XLV) by almost 100%.

Biogen Idec Inc. (NASDAQ:BIIB)On March 27, 2013, another dimension was added to Biogen Idec Inc. (NASDAQ:BIIB)’s growth story with FDA’s approval of Tecfidera (dimethyl fumarate) capsules to treat adults with relapsing forms of multiple sclerosis (MS). This article looks at Biogen to understand if it has topped out, or is there still some more scope for further gains.

Biogen Idec

Biogen Idec Inc. (NASDAQ:BIIB) is a global pharmaceutical company with a focus on development, manufacture, and commercialization of therapies for treatment of neurodegenerative diseases, autoimmune disorders, and hemophilia. Biogen offers a range of therapies for multiple sclerosis (MS).

  • Avonex (Interferon beta-1a), for relapsing forms of multiple sclerosis (MS).
  • Fampyra (prolonged-release fampridine tablets), indicated to improve walking in MS patients with walking disability. Biogen has a license from Acorda Therapeutics Inc (NASDAQ:ACOR) for markets outside the U.S.
  • Tysabri (natalizumab), approved for treatment of relapsing forms of MS in the U.S., and relapsing-emitting MS in the European Union.
  • Tecfidera is the latest addition to the company’s portfolio of MS drugs. It is a new oral therapy for the treatment of relapsing forms of multiple sclerosis, including the most common form of the disease, relapsing-remitting multiple sclerosis.

Apart from MS therapies, Biogen has Rituxan (rituximab) for treatment of certain types of non-Hodgkin’s lymphoma.

On April 2, 2013, the company announced that it had completed the transaction relating to the purchase of Elan Corporation, plc (ADR) (NYSE:ELN)’s interest in Tysabri.

What Tecfidera means to Biogen Idec Inc. (NASDAQ:BIIB)

The question is relevant in light of the fact that there are already a number of in-house MS drugs as well from competitors. Novartis AG (ADR) (NYSE:NVS) MS drug is Gilenya, while Sanofi SA (ADR) (NYSE:SNY) offers Aubagio.

MS is a chronic inflammatory autoimmune disorder of the central nervous system that disrupts communication to the brain and other parts of the body. It can impair movement, sensation and thinking, and affect the quality of life in a big way. The most common form of MS is relapsing-remitting – scattered and irregular neurological attacks followed by periods of recovery.

According to the National Multiple Sclerosis Society, MS affects 2.5 million people worldwide and roughly 400,000 in the U.S. Multiple sclerosis cannot be cured, which makes it imperative to “have a variety of treatment options available for patients.” As per the MS society’s chief research officer, Timothy Coetzee, “It really is going to be a great addition to the toolbox.”

During clinical studies, patients taking Tecfidera either twice or thrice a day experienced a 49% reduction in annual relapse rate. Biogen’s Avonex and Tysabri are administered through injection and intravenous infusion, respectively. Tecfidera is an oral medication like the MS drugs of Novartis AG (ADR) (NYSE:NVS) and Sanofi SA (ADR) (NYSE:SNY). Considering the efficacy, safety, and ease of dosage, Eric Schmidt, an analyst with Cowen & Co., estimates that Tecfidera may capture as much as 20%of the market in the first year itself.

Tecfidera will cost $54,900 per patient per year. This is less expensive than Novartis AG (ADR) (NYSE:NVS)’ Gilenya, the first MS pill. Most of the cost is covered by health insurers. Biogen Idec Inc. (NASDAQ:BIIB), like other major drug producers, has sponsored programs for assisting patients where all or part of the cost is not covered by private or public insurers. As per estimates arrived at by Bloomberg analysts, Tecfidera is likely to generate an annual revenue of $3.25 billion by 2017.

The success of Tecfidera is important for Biogen, particularly in light of the purchase of the Tysabri rights. Biogen has paid Elan $3.25 billion upfront in cash. This is of particular importance as it wipes off almost all of Biogen’s short-term and long-term investments in its balance sheet as of Dec. 31, 2012.

In addition to the cash payment, Biogen will pay double digit tiered (12% of in-market sales for the first 12 months and 18% thereafter) royalty payments on all indications for the life of the complete Tysabri asset. Sales of Tysabri in 2012 exceeded $2 billion.

A strong pipeline

Apart from approved drugs, Biogen Idec Inc. (NASDAQ:BIIB) has a strong pipeline of under-development candidates for treatment of a range of serious ailments, including MS, neuropathic pain, leukemia, pulmonary fibrosis, and Alzheimer’s.

On April 4, the company announced positive results from the phase 2 study of daclizumab HYP, another drug for MS which Biogen is developing in partnership with AbbVie Inc (NYSE:ABBV).

Earlier, in March, the company submitted a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA) for the marketing approval of recombinant factor VIII Fc fusion protein (rFVIIIFc), for the treatment of hemophilia A.

Summary

Biogen Idec Inc. (NASDAQ:BIIB) is sometimes referred to as one of the horsemen that drive the biotechnology market. It has a strong balance sheet. In addition, both total revenue and net income have been growing. While total revenue increased from $4.31 billion in FY 2010 to $5.52 billion in FY 2012, net income increased from $1 billion to $1.38 billion during the same period.

While good financials, FDA approvals, and positive results of under-development candidates showcase that the excellent performance of Biogen is supported by strong fundamental factors, the question is whether the stock has gained too much too fast.

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