This column was originally published on RealMoney on March 7 at 2:02 p.m. EST. It's being republished as a bonus for 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 Foundation

The 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

Respiratory syncytial virus infiltrates the respiratory system and manifests itself as a common cold in most healthy people. However, it can hit premature babies particularly hard, sending them to the neonatal intensive care unit (NICU) and costing thousands of dollars a day per patient.

In 1998, Medimmune launched Synagis, a prophylactic antibody vaccine against RSV infection for premature babies, children with chronic lung disease, and children with congenital heart disease. By 2005, the drug enjoyed annual sales exceeding $1 billion worldwide.

The strength of the marketing rests in the pharmaco-economics of the drug vs. several days in the NICU, a large expense for the health care system and a heartache for parents.

At this pointm Synagis has matured but should continue to grow in the midsingle-digit to low-double digit percent annually. The competitive outlook for Synagis is relatively benign -- Medimmune's own Numax is the only other antibody vaccine against RSV in development, and the safety record of Synagis makes it a tough act to follow for competitors. Several companies are working on small-molecule RSV drugs, but these will not replace the need for vaccinating this target patient population.

Medimmune's development of Numax precipitated the renegotiation of its partnership with Abbott on Synagis. Medimmune purchased Synagis' promotion rights through a $360 million deal in 2005, which will save the company roughly $150 million to $200 million annually in co-promotion fees. The important takeaway from the new deal with Abbott is that Medimmune's RSV franchise profitability is no longer contingent on Numax's clinical and operational success. No matter the outcome, shareholders win.

Certainly, if Numax is successful, shareholders would win more, but the value of the franchise was cemented with this deal. The drug is being compared with Synagis in a variety of trials.

Flu Vaccine Option

Medimmune 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.

Recognizing that a differentiated product is necessary to successfully compete against a host of other low-priced injectable flu vaccines, the company has been working to generate lots of data to support its next-generation flu vaccine, CAIV-T. Late last year, Medimmune announced CAIV-T prevented flu better than standard flu injection in a statistically significant manner. In addition, CAIV-T was able to protect more patients against flu strains not covered by flu injection, called mismatched strains.

Through these trials, Medimmune believes it has amassed enough safety data to expand the labeling on the next-generation drug to cover children under 5 and adults over 49, the majority of the market. The company plans to file for FDA approval in the second quarter of 2006 and hopes to launch the drug in time for the 2007 flu season.

Roughly 80 million flu vaccines are sold each year in the U.S., translating into a $2 billion market for CAIV-T. This market should expand in the wake of the recent recommendation by the Advisory Committee on Immunization Practices (ACIP) that all children ages 2 to 5 should be vaccinated against the flu. If Medimmune can convince the FDA that CAIV-T deserves a broad label that includes all ages, and if the test data support CAIV-T superiority to injection, I believe the drug could be worth hundreds of millions annually in the U.S.

From an investor's perspective, the math is rather simple. Management is committed to maximizing value for this franchise. Either paring nearly $100 million to $150 million per year in flu-vaccine losses or increasing sales starting in 2007, when CAIV-T is expected to be launched, will increase corporate profitability. We should have an answer on which direction this will go by the end of 2006, when the FDA plans to deliver its verdict.

Deep Vaccine Franchise and Reasonable Value

There 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.

The parts of Medimmune are worth more than its 90 price-to-earnings multiple would tell you.

I estimate the RSV franchise will generate $350 million to $400 million in net income in 2007 on its own. Though it is a slow grower, the strength of the franchise's competitive position and cash flow indicate to me that it warrants a 20 multiple, yielding $7 billion to $8 billion in value alone, accounting for most of the company's current $9.5 billion market capitalization.

Medimmune holds nearly $1 billion in net cash, although it does owe roughly $300 million to Abbott from the co-promotion buyout. I expect the HPV vaccines to become billion-dollar-plus annual sellers, which by my math equates to more than $600 million in net present value to Medimmune.

With Medimmune's 260 million shares outstanding, these figures suggest a current value per share in the $32 to $36 range, not including the flu-vaccine franchise. With the stock currently trading in that range, I would argue that investors are paying very little for what could be a very lucrative product.

I can't be certain that the FDA will grant CAIV-T all the labeling necessary to ensure a successful product, but with the heightened awareness about flu nowadays, I feel reasonably confident that CAIV-T will become a contributor to Medimmune's bottom line.

The company has stated its corporate goal is to earn a minimum of $2 per share in 2009. I believe it has the assets and operating leverage necessary to achieve this with room to spare.

There are certainly some unknowns to be discovered in the quarters ahead, which will shape the company's ability to meet this goal. Nonetheless, the current stock price offers reasonable downside protection and could double over the next couple of years if these opportunities bear fruit.

P.S. from Editor-in-Chief, Dave Morrow:
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our free trial offer to's RealMoney premium Web site, where you'll get in-depth commentary and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice -- try it now.
At the time of publication, Ferayorni was long Medimmune, although positions may change at any time.

Justin Ferayorni, CFA, is the founder and principal of Tamarack Capital Management and was an analyst and portfolio manager at Bricoleur Capital. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ferayorni appreciates your feedback; click here to send him an email.