This column was originally published on RealMoney on March 7 at 2:02 p.m. EST. It's being republished as a bonus for TheStreet.com readers.Things aren't what they seem for Medimmune ( MEDI). The biotech giant notched more than $1.2 billion in sales in 2005, but, according to consensus estimates, trades at a price of 90 times 2006 earnings. Continuously bearish calls on the stock have argued that, no matter how you analyze Medimmune, the stock is too expensive to justify. But an earnings multiple is far too simplistic to fairly evaluate this opportunity. Most of Medimmune's revenue is generated from Synagis, its lead product for prevention of respiratory syncytial virus (RSV) in premature babies. However, most of the company's earnings power is hidden by continued investment to the tune of $100 million to $150 million per year on its proprietary influenza vaccine, Flumist, and its next-generation cousin, CAIV-T. While many argue the company should end these unprofitable programs, management is committed to maximizing the value of the flu-vaccine franchise. Finally, an undercovered aspect of Medimmune's prospects is the company's rather deep pipeline of early-stage vaccine programs. So while the bears harp on the earnings multiple, those investors who view the company in toto should see that Medimmune carries a very attractive value considering the opportunities that lie ahead.
The FoundationThe RSV franchise is the cornerstone of Medimmune's value and generates substantial amounts of cash. What's more, its profitability will increase when Medimmune's co-promotion agreement with Abbott Laboratories ( ABT) expires later this year. Its next-generation RSV drug, Numax, could increase profitability further, and prospects for a 2008 launch of Numax look good
Flu Vaccine OptionMedimmune purchased Flumist through its Aviron acquisition in early 2002. It proved to be a costly error. Flumist was launched in 2003 and is the only flu vaccine deliverable as an intranasal spray, which makes it ideal for young children. But the product was burdened with a restrictive label that covers only healthy patients aged 5 to 49, a group that receives the minority of flu vaccines every year. Making matters worse, the product was vastly overpriced, at roughly $60 per dose, and required deep-freezer storage, which most physicians' offices are unequipped to handle. It was a complete failure by any measure.
Deep Vaccine Franchise and Reasonable ValueThere is more to Medimmune than mathematical gymnastics on its largest two franchises. The company has a deep pipeline of mostly early-stage vaccine candidates, including a pandemic flu vaccine. Later this year, the FDA is expected to approve Gardasil, Merck's ( MRK) human papillomavirus (HPV) vaccine, for prevention of HPV in females, which is a known cause of cervical cancer. Medimmune will receive royalties on both Gardasil and GlaxoSmithKline's ( GSK) HPV vaccine, which could total $100 million annually.
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