A Leading Biotechnology Company Offering Explosive Growth

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

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to take a look at a leading biotechnology company in the fields of neurodegenerative diseases, hemophilia, and autoimmune disorders: Biogen Idec Incorporated (NASDAQ: BIIB).

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Strengths:

  • Explosive Revenue Growth: In 2006, Biogen reported revenue of $2.68 billion; in 2011, the company announced revenue of $5.05 billion, representing year over year annual growth of 13.51%, a trend that is anticipated to continue into the future, with projections placing 2016 revenue at $8.74 billion (due mostly to a flurry of new products and the integration of these products into major markets)
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  • Institutional Vote of Confidence: 94% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Diversified Product Portfolio: Biogen is not a company relying on one product to produce its entire revenue stream. The company possesses five major drugs that are approved and in the market, with more than a handful of drugs in its pipelines as of the end of 2011, giving the company greater diversification and predictability
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  • Cash & Equivalents: Currently, Biogen holds $451.72 million of cash and cash equivalents on their balance sheets, a minor upside to the business
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  • Double Digit Margins: Due to Biogen’s pricing power, the company carries a net profit margin of 24.27%, which represents a strong and profitable company primed for growth

Weaknesses:

  • Pricy Valuation: At the moment, Biogen carries a price to earnings ratio of 25.24, a price to book ratio of 5.50, and a price to sales ratio of 6.84, all of which indicate a company trading with a pricy valuation
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  • Lack of Dividend: At no time in the company’s history has a dividend been paid to shareholders, and Biogen has expressed no plans to do so in the near future, a major downside to the business
  • Debt: Biogen currently holds about $658.44 million of debt on their balance sheets, a major downside to the business
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  • Operating Expenses: As a business grows like Biogen’s has, the costs related to operating that business will expand, but over the past years operating expenses have outgrown revenues, a troubling sign
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Opportunities:

  • Product Pipeline: As of the end of 2011, Biogen possessed nearly 20 drugs in their pipeline, ranging from being filed for approval to in only phase 1, and this strong pipeline of products should fuel growth into the future
  • Implementing a Dividend: Biogen possesses a relatively large pile of cash on its balance sheets, and implementing a dividend is a (remote) possibility, and could provide some nice returns for investors
  • Results of Research and Development Spending: In 2011, Biogen poured $1.22 billion into research and development, and any results yielding from this spending could fuel growth into the future as new discoveries create revenue streams
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  • Acquisitions: In September 2011, Biogen acquired from the Dompe Group the non-controlling interests in its joint venture sales affiliates in Italy and Switzerland

Threats:

  • Competition: The biotechnology industry is extremely competitive, and the battle to offer the best product for the least amount of money can lead to margin compression
  • Generics: Generics are the nightmare of every biotechnology company, and destroy their pricing power. Any generics that are made to compete with Biogen’s offerings could lead to margin compression
  • Sluggish Economic Landscape: In a sluggish economic landscape, less people have the money to purchase insurance, which is needed to purchase Biogen’s expensive offerings

Competitors:

Major publicly traded competitors of Biogen include Abbott Laboratories (NYSE: ABT), Pfizer (NYSE: PFE), Bristol-Myers Squibb (NYSE: BMY), and Johnson & Johnson (NYSE: JNJ). All of these companies operate in the biotechnology industry. Abbott Laboratories is valued at $102.13 billion, pays out a dividend yielding 0.87%, and carries a price to earnings ratio of 15.71. Pfizer is valued at $192.85 billion, pays out a dividend yielding 3.51%, and carries a price to earnings ratio of 22.86. Bristol-Myers Squibb is valued at $53.15 billion, pays out a dividend yielding 4.35%, and carries a price to earnings ratio of 29.43. Finally, Johnson & Johnson is valued at $192.85 billion, pays out a dividend yielding 3.51%, and carries a price to earnings ratio of 22.86.

The Foolish Bottom Line:

Financially, Biogen is extremely solid. The company possesses accelerated revenue growth, only a slim debt load, and a diversified product portfolio. The company’s future is filled with potential opportunities that could lead to explosive growth. All in all, Biogen is an incredible growth play on the biotechnology industry, and should prosper well into the future, or at least as long as it’s innovative nature sustains.


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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