Tysabri Brings Big Upside Potential To This Biotech

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Biogen Idec (NASDAQ: BIIB) recently reported its results and provided an update on its drug development pipeline. This, together with its acquisition of the full rights to Tysabri, gives us a good chance to evaluate its investment potential.

Biogen Idec has announced results for the fourth quarter of 2012 as well as the full year. Total revenues for the full year grew 9% to $5.5 billion compared to 2011. GAAP diluted EPS for 2012 came to $5.76 a share which is an increase of 14% in comparison to the previous year. GAAP net income attributable to shareholders for the year was $1.4 billion which is an increase of 12% year on year. Non-GAAP diluted EPS for the year was $6.53 per share which represents an increase of 11% over the previous year. Non-GAAP net income was $1.6 billion, 8% more than 2011.As of December 31, 2012, Biogen Idec had cash, cash equivalents and marketable securities of roughly $3.7 billion.

Global sales of Tysabri for the full year 2012 amounted to $1.6 billion representing an increase of 8% over the previous year and Avonex (interferon beta-1a) revenues at $2.9 billion showed an increase of 8% year on year.  Rituxan (rituximab) revenues from the unconsolidated joint business arrangement at $1.1 billion showed a growth of 14% over the previous year.  The company estimates that over 72,000 patients were on Tysabri therapy globally, and that a cumulative total of over 112,000 patients have been treated with Tysabri since it was launched. 

Fourth quarter revenues at $1.4 billion were 7% more than the same quarter of the preceding year. Tysabri revenues grew 10% r to $295 million while Avonex revenues grew 7% to $753 million. Rituxan revenues were $281 million for the quarter representing a growth of 9% over the same quarter of the previous year.

Global revenues from Tysabri for this quarter of 2012 were $433 million, an increase of 14% over the same quarter of the preceding year Revenues from other products in the fourth quarter of 2012 were $26 million, compared to $24 million year on year. Royalties for the quarter of 2012 grew by 7% to $56 million.  Fourth quarter GAAP diluted EPS were $1.23 a share an increase of 1% over the same quarter of the previous year.

GAAP net income attributable to shareholders for the quarter was $292 million 3% less than the fourth quarter of 2011.Non-GAAP diluted EPS for the fourth quarter of 2012 were $1.40, a decline of 7% over the same quarter of 2011. Non-GAAP net income attributable to Biogen Idec for the fourth quarter of 2012 was $335 million, a decline of 10% over the same quarter of 2011.

Product pipeline updates

Biogen Idec announced the primary efficacy analysis and safety data, from its Phase 3 pivotal clinical trial, Advance and these results support peginterferon beta-1a as a potential treatment for relapsing-remitting multiple sclerosis.  The company plans to apply for regulatory approval in Europe and the United States in mid-2013.

The company has also submitted a Biologics License Application (BLA) for marketing approval of recombinant factor IX Fc fusion protein (rFIXFc) for the treatment of hemophilia B. this is the first product candidate in a new class of long-lasting clotting factor therapies that will enhance the protection from bleeding. Top-line results from, a Phase 3 trial examining dexpramipexole in people with amyotrophic lateral sclerosis (ALS) did not meet primary endpoints and the company has discontinued development of dexpramipexole for the treatment of ALS.  In my opinion, the pipeline may be a little thin but the multiple sclerosis franchise should compensate.

Acquisition of full interest in Tysabri

Biogen Idec more recently announced that it has agreed to purchase the interest of its partner Elan’s interest in Tysabri (natalizumab) and, on closing of the deal, will control full rights to Tysabri.  The previous agreement between the two companies under which worldwide Tysabri profits were shared equally will be ended along with its permissions for change of control Biogen Idec will use its existing cash to pay $3.25 billion to Elan tiered royalty payments for the first 12 months.

The company predicts that the transaction will add approximately $0.20 to $0.30 a share to 2013 GAAP EPS and $0.50 to $0.60 a share to non-GAAP EPS and will continue to be accretive thereafter depending on Tysabri revenues. The deal gives Biogen the asset it is most interested in acquiring without having to acquire the rest of Elan. 

Though the company is poised to launch a new MS drug, BG-12, at the end of March. The drug, if approved, will be sold under the brand name Tecfidera and is expected to become a market leader in the treatment of multiple sclerosis.  Experts believe that Tysabri is a long-term asset that cannot be easily affected by generic competition. I believe that the acquisition of full rights at a satisfactory price should maximize the returns from one of the company's most valuable long-term assets.

Other biotech players

Teva Pharmaceutical (NYSE: TEVA) is a one of a kind company that generates revenues from generic drugs as well as its own proprietary drugs. It is probably best known to investors for its generic versions of drugs which lose patent protection.  This expertise in genetics does not deter innovation and Teva also develops branded drugs. Its blockbuster product is Copaxone which is used to treat multiple sclerosis. Teva has filed a citizen's petition with the FDA to try and block the approval of Biogen BG-12 treatment for MS, which, if it is approved, will compete against Copaxone.

Gilead Sciences (NASDAQ: GILD) is the largest manufacturer of HIV drugs in the world but is mounting significant initiatives to make an impact on other areas of treatment. Investors are enthusiastic about the potential of its experimental hepatitis C drug which was one of the main reasons for its $10.8 billion acquisition of Pharmasset Inc. In a much more low-profile manner, Gilead has put together a number of other deals including the acquisition of four blood cancer treatment companies and the company is clearly aiming at blood cancer treatment in addition to hepatitis C HIV.  The business of treatment of leukemia and other blood cancers is one of the most promising markets in the treatment of cancer.

XenoPort is working on a pipeline drug candidate, XP23829 which will treat multiple sclerosis.  It is believed to be similar to the Biogen BG-12 product but with better profiles for dosing and tolerability.

Conclusion

In addition to its dominant multiple sclerosis franchise as well as the move to acquire a larger share of Tysabri, Biogen Idec is demonstrating smart strategy in expanding its areas of business. This is definitely a growth stock to consider now. I recommend this stock if you are looking for exposure in the healthcare business.


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