Biogen Idec Outlook Brightens
Now that
Biogen Idec
(BIIB) - Get Report
has snapped back from what Wall Street says was a minor matter, the question remains how well the company recovers from a major matter.
There is some sentiment on Wall Street that investors -- and analysts -- overreacted to both.
The minor matter was Wednesday's release of a letter sent to doctors telling them to beware of possible liver side effects for the multiple sclerosis drug Avonex, which accounted for about 65% of corporate revenue last year.
The major matter was the Feb. 28 announcement by Biogen Idec and its partner
Elan
(ELN)
that they were voluntarily suspending sales of another MS drug, Tysabri, after reports of one death and one case of a rare, deadly central nervous system disease.
The disease was contracted by patients who had taken Tysabri and Avonex for more than two years during clinical trials. Tysabri was approved by the FDA in late November, after the companies sought early approval. Avonex has been available since 1996.
The Tysabri announcement caused Biogen Idec's stock to plunge 43% in one day and prompted 10 analysts to immediately downgrade their stock ratings, while two raised their ratings.
So far, the Avonex announcement has prompted one analyst to raise his ratings.
The Avonex warning, however, didn't look so minor at first on Wednesday, after the company told the public about its warning to doctors and the Food and Drug Administration said the side-effects warning on the drug's label would be strengthened.
In less than 10 minutes, the stock sank to $34.30 from $38.50. But as the afternoon wore on, the stock regained some ground as analysts began telling clients the label changes were similar to warnings posted for similar MS drugs.
That sentiment stuck with the stock on Thursday as it moved past the $38.07 closing price on Tuesday, the day before the liver side-effects warning was unveiled. On Thursday, the stock closed at $38.16, gaining 97 cents, or 2.6%. The stock traded as high as $38.89.
Don't Worry
The revised Avonex label "should have limited commercial consequence," said David Webber of First Albany Capital, in a Thursday report to clients. "This news is not surprising, as Avonex's label already contains a warning regarding potential for liver injury."
Maintaining his buy rating on the stock, Webber points out that several medical journal articles "have indicated detection of liver injury associated with the use of all interferons, including Avonex and its competitors, in patients with multiple sclerosis especially at high doses or in combination with other drugs metabolized in the liver."
Competing interferon-class drugs for MS include Rebif from
Serono
(SRA)
and Betaseron from
Schering AG
(SHR)
. "We believe all of the interferons pose similar risks regarding potential for liver toxicities," said Webber, who doesn't own shares; his firm is a market maker in Biogen Idec's stock.
A similar view with a different stock rating comes from Christopher J. Raymond of Robert W. Baird & Co. "We see little -- if any -- commercial impact to Avonex, particularly given Biogen Idec's sizable body of experience with the drug, its efficacy profile and similar labeling for a competing product," said Raymond in a Thursday research report.
He is keeping to his prediction that Avonex would produce $1.47 billion in sales this year, up from $1.42 billion. He also is keeping his neutral rating, saying there is too much uncertainty about when, if, or it what form, Tysabri will return to the market. He doesn't own shares; his firm says it expects to receive or intends to seek investment-banking related compensation from Biogen Idec in the next three months.
What's Next?
If analysts are confident Avonex won't be hurt, they aren't sure what Tysabri will look like in terms of earnings power when, or if, it returns to the market.
"Is Tysabri poised for a comeback?" asks William Tanner of Leering Swann & Co., who raised his rating on Biogen Idec on Thursday to outperform from market perform.
In a detailed report to clients, he says Biogen Idec's fair value this year is $52 a share, on the basis of his belief that the current price mistakenly assumes Tysabri will have limited sales prospects if it returns to the market. However, his firm's polling of physicians suggests "broad-based usage" if the drug returns to the U.S. market. "Based on patient demographics, the commercial opportunity could be sizable," he says.
The mood has certainly changed from Feb. 28, when Tanner's firm conducted a conference call with three physician-consultants, "and the opinion was uniform that enthusiasm towards using Tysabri, were the drug to re-enter the market, would be minimal at best."
So his firm did more in-depth interviews with 58 doctors who are treating about 22,200 MS patients. Thirty-five percent of the physicians said they believed the drug would re-enter the market in 2006 or later, 17% said the drug would be banned, 42% said they didn't know, and 6% predicted the drug would come back this year. Four-fifths of the doctors polled said they would prescribe Tysabri if no other cases of the rare neurological disease were detected among patients taking both Avonex and Tysabri. Eighty-five percent said they would prescribe Tysabri if no other cases of the rare disease were detected among patients taking Tysabri alone.
On the basis of his latest review, Tanner has revised his estimates for Tysabri's U.S. sales to $150 million, $300 million and $1 billion in 2006, 2007 and 2008, respectively. Before the drug was pulled, those estimates were $930 million, $1.2 billion and $1.46 billion. He also made significant cuts in his predictions for European sales.
If the drug comes back, "we believe Biogen Idec will regain investors' interest and increase in value," he says. Although the stock is not for "the faint of heart," it still can be a "solid performer" if Tysabri "gets back on track."
More Than MS Drugs
There's more to Biogen Idec than Avonex and Tysabri, but Wall Street isn't quite sure how much investors will be able to focus on one big drug and two smaller drugs.
The big drug is Rituxan for non-Hodgkin's lymphoma, which Biogen Idec and
Genentech
(DNA)
co-market. Tanner is keeping an eye on a late-stage clinical trial, whose acronym is Reflex, testing whether the drug can treat rheumatoid arthritis. He expects test results to be revealed in June. Biogen Idec's portion of the Rituxan partnership produced $615 million in sales, or about 28% of corporate revenue, on a GAAP basis last year.
Biogen Idec's two other products are small. Some analysts grouse that they are too small. "Amevive and Zevalin remain disappointments," says Christopher J. Raymond, of Robert W. Baird & Co., referring to drugs for psoriasis and non-Hodgkins lymphoma. "We think these compounds could remain a risk factor until they are revived, repositioned or replaced." Last year, Amevive had sales of $43 million, and Zevalin produced sales of $23 million.