Biogen Idec, Inc. (BIIB)

Biogen Idec Inc, born in 2003 post the merger of Biogen and Idec Pharmaceuticals, develops, manufactures and commercializes novel therapies. With five approved products viz. Avonex, Rituxan, Tysabr, Amevive, Zevalin and several other products in various stages of clinical trials, it caters to oncology, neurology, dermatology and rheumatology segment.

This Massachusetts based company recorded solid financial performance in fiscal 2006 with revenues of $2.68 billion an 11% growth and 34% increase in its bottom-line on back of its block-buster drugs Avonex and Rituxan which together contributed about 95% to the top-line.

The main driver for the company going forward would be continued strong sales of its blockbuster portfolio besides growing opportunities in oncology segment which the company seems to be well placed to capitalize. The oncology market is the third largest pharmaceutical market, behind the cardiovascular and CNS therapy areas. It is growing 10% annually and slated to be $53 billion market by 2008. This augurs well for biogen as it is a global leader in development of antibody-based oncology therapeutics. The FDA has also granted priority review status to Biogen Idec/Elan’s multiple sclerosis (MS) drug Antegren which is great news for the company as it highlights the block-buster potential in MS space.

However, there are certain issues that should be of some concern. Chief among them would be lack of late stage pipeline in CNS space and pending lawsuit against the company alleging illegal discounts to boost sales.

The company is profitable, generating positive free cash flows, having block buster drugs and promising pipeline. Nonetheless, with a very high price to earning multiple, it is trading at significant premium to its peers. The growth envisaged by the management seems to be already in the price. Its peer group also seems to be attractively priced. Hence, despite the favorable fundamental outlook the stock may still under perform the market.