Biogen Idec (NASDAQ:BIIB) generates most of its revenue from drugs for MS (multiple sclerosis), but also receives substantial sums from other disease indications. It recently has gained approval for its hemophilia therapies. Biogen has a high trailing P/E ratio, (38, at $342 per share) consistent with investors expecting continued EPS growth.


Biogen closed at $303.67 on July 22. It then reported Q2 results before the market opened on the 23rd. It rose to $337.60 that day. The results clearly cheered investors.

But do Biogen's longer term prospects justify the current stock price? Is it reasonable to project future earnings growth that would indicate that, for long-term investors, Biogen is undervalued even at the current price?

In the next two years the key to answering that question is in the prospects of Tecfidera. Longer term, the critical factors are likely the hemophilia therapies, another MS therapy, Daclizumab, and the longer-term pipeline.

Tecfidera (dimethyl fumarate) is an oral medication that defends against MS relapses. It is a pill taken twice daily. It does not cure MS, but it does (statistically) reduce the number of relapses, delays physical disability progression, and slows the development of brain lesions. The cost, undiscounted, is $54,900 per patient per year in the U.S. Biogen markets a related medicine, Fumaderm, in Germany as a psoriasis therapy.

The uptake of Tecfidera has been dramatic:











Early revenue was influenced by inventory builds, but by Q2 2014 inventory building was not a significant factor. Given that the latest sequential revenue increase was $194 million, and the international scaling of Tecfidera has just begun, there is good reason to expect revenue to continue to ramp rapidly for at least a few quarters, perhaps even for a few years.

Avonex, a form of interferon that has been a mainstay for relapsing MS patients, generated revenue of $774 million, which was flat y/y. Because Avonex is administered by injection, its use may decline over time. Tysabri, also for relapsing MS, is considered to be more effective than Avonex, and perhaps than Tecfidera. It also can generate more serious side effects, and so tends to be used for patients whose disease is more severe. It is given once a month by IV infusion, so it cannot be self-administered. Despite these issues Tysabri revenue was $533 million in the quarter, up 38% y/y, and may eventually overtake Avonex revenue. Tysabri recently obtained marketing approval in Japan.

All three of these MS therapies taken together generated about $2 billion in revenue in Q2. The bulk of the remaining $2.42 billion in total revenue came from royalties on Rituxan, which is approved for patients with NHL (non-Hodgkin lymphoma), CLL (chronic lymphocytic leukemia) and rheumatoid arthritis.

Alprolix for hemophilia B and Eloctate for hemophilia A are recently approved and just beginning to generate revenue. They are long-lasting clotting factors that should be more attractive to patients than their current options. About 18,000 men in the U.S. have hemophilia and the global proportions are about the same. Since Alprolix is being priced competitively with existing therapies, it should replace them over time or drive their prices down. This could generate $1.2 billion in new revenue by 2017, or about $400 million per quarter.

Daclizumab is yet another treatment for relapsing MS. It has completed Phase III trials and would be administered once a month by injection. Approval by the FDA could come in 2015.

Obinutuzumab was licensed by Biogen to Genentech, now part of Roche, and was been approved for CLL in late 2013, and completed Phase III trials for NHL, and diffuse large B-cell lymphoma. Biogen has not broken out revenue from its royalties yet.

Biogen has six compounds that are in or have completed Phase II trials, and has three more in Phase I. Disease indication include MS, lupus, and Alzheimer's. It is a good pipeline and of course Biogen is generating enough cash to acquire other promising candidates.

I don't put much hope in any Alzheimer's treatments yet. I've seen too many good Alzheimer's ideas crash and burn in clinical trials over the past ten years. However, if by some chance one of Biogen's candidates does produce significant results, it could be worth more than the entire rest of the franchise is right now. For the record Biogen's candidates are BAN2401, BIIB037, and E2609.

Story Source: The above story is based on materials provided by SEEKINGALPHA
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Labels: Rituxan, TECFIDERA, Tysabri