SSB: BIIB: Plans to File Antegren for MS; Raising Target Price
HOLD (2) High Risk (H)
Mkt Cap: $16,707 mil.
February 18, 2004
* BIIB and partner, ELN, announced their intent to file
Antegren for MS based on positive 1-year interim results
from two clinical studies. This is an upside surprise as
BIIB had previously indicated that there was a low
probability of this outcome occurring although there was
much speculation in the market. The companies will file by
Q204 given positive FDA feedback on the preliminary data.
The one-year data will not be released at this time but the
company may present the results in H204 at an appropriate
medical meeting.
* The future potential of Antegren also rests upon the
outcome of two ongoing Phase III studies which final
results are not expected until Q205. We note that the
2-year data will be important for the competitive
positioning of Antegren.
* We have yet to include Antegren into our financial model
and thus, the product is likely to represent some upside.
We are raising our target price to $55 from $50 per share.
FUNDAMENTALS
P/E (12/03E) 46.4x
P/E (12/04E) 34.0x
TEV/EBITDA (12/03E) NA
TEV/EBITDA (12/04E) NA
Book Value/Share (12/03E) NA
Price/Book Value NA
Revenue (12/03E) $679.1 mil.
Proj. Long-Term EPS Growth 20%
ROE (12/03E) NA
Long-Term Debt to Capital(a) NA
BIIB is in the S&P 500(R) Index.
(a) Data as of most recent quarter
Price (2/18/04) $51.00 Rating (Cur/Prev) 2H/2H
52-Week Range $45.61-$28.09 Target Price (Cur/Prev) $55.00/$50.00
Shares Outstanding(a) 327.6 mil. Expected Share Price Return 7.8%
Div(E) (Cur/Prev) $0.00/$0.00 Expected Dividend Yield 0.0%
Expected Total Return 7.8%
OPINION
This morning, Biogen IDEC and partner, Elan, announced their intent to file
Antegren for multiple sclerosis (MS) based on positive 1-year interim results
from two clinical studies. This is an upside surprise as Biogen IDEC had
previously indicated that there was a low probability of this outcome
occurring although there was much speculation in the market.
The companies indicated that they will file by Q2-2004 given positive FDA
feedback on the preliminary data. The one-year data will not be released at
this time but the company may present the results in the second half of 2004
at an appropriate medical meeting. In addition, the future potential of
Antegren also rests upon the outcome of two ongoing Phase III studies in
multiple sclerosis for which final two-year results are not expected until Q2
2005. We note that the 2-year data will be important for the competitive
positioning of Antegren. Data on Antegren's effect on disease progression
and combination data with Biogen IDEC's Avonex compared to Avonex alone will
be available at that time. Thus, these data will help clarify whether
Antegren will cannibalize Avonex sales or be additive to Avonex franchise.
We have yet to include Antegren into our financial model and thus, the
product is likely to represent some upside. We project that the product
represents at least a multi-hundred million-dollar opportunity but note that
the bottom-line leverage is limited by the profit-sharing arrangement with
Elan. Biogen IDEC will share in the profits 50/50 with Elan under their
agreement.
Given the upside surprise on the announcement for the intent to file Antegren
with the FDA, we are raising our target price for Biogen IDEC to $55 from $50
per share. Our target price of $55 is based on applying an approximate PEG
(PE to growth) ratio of 1.5x (previously 1.4x), which is in line with the
group average for our coverage universe of large-cap biotech companies (1.4-
1.5x), and is equivalent to a P/E multiple of approximately high-20s
(previously P/E ratio also in the high-20s) to our 2005 EPS estimate of
$1.85.
NTEGREN IN MULTIPLE SCLEROSIS
The Phase III program for Antegren in MS includes two clinical trials, one
examining the antibody as a monotherapy and another study testing the drug in
combination with Avonex. The monotherapy trial, AFFIRM (Antegren safety and
efficacy in relapsing-remitting MS), which is a two-year, randomized, multi-
center, placebo-controlled, double-blind study, is designed to determine the
impact of Antegren on slowing the rate of disability in MS and reducing the
rate of clinical relapses. The study has enrolled 941 patients. Patients
are receiving monthly 300 mg infusions of Antegren for up to 116 weeks. The
second study, called SENTINEL (safety and efficacy of natalizumab in
combination with Avonex (Interferon beta-1a) in relapsing-remitting MS) will
test the rationale for using a combination treatment approach of Antegren
with Biogen's Avonex. The SENTINEL trial is also a two-year, randomized,
multi-center, placebo-controlled, double blind study and has enrolled 1,198
patients with relapsing-remitting MS. It is designed to determine if the
combination of Antegren with Avonex is more effective than Avonex treatment
alone in slowing the rate of disability in MS as well as in reducing the rate
of clinical relapses. This trial completed enrollment at the end of 2002.
The co-primary efficacy endpoints for both studies are relapse rate at one
year and EDSS (Expanded Disability Status Scale) with secondary efficacy
endpoints including change in MSFC (Multiple Sclerosis Functional Composite)
score, MRI measurements, and the proportion of relapse-free subjects at one
year. Slowing of progression of disability at two years will be measured by
either an equal or greater than one point increase on EDSS from baseline EDSS
>=1 (sustained for 12 weeks) or an equal or greater than 1.5 increase on EDSS
from baseline EDSS=0 (sustained for 12 weeks).
UPCOMING MILESTONES
* Financial results and FY04 guidance conference call March 2
* Results from Phase III maintenance study for Antegren in Crohn's May 15-20
disease at DDW
* Two-year results from Phase III Antegren studies in MS Q2 2005
INVESTMENT THESIS
Our rating on the shares of Biogen IDEC is Hold / High Risk (2H) as the
company is expected to generate revenue growth of 15% and long-term earnings
growth of 20%. We expect Rituxan, which has demonstrated solid growth and
exceeded sales expectations, to remain the primary driver of earnings growth.
We believe Rituxan sales will continue to be strong, driven by increasing
penetration in existing and new indications. In particular, Rituxan for non-
Hodgkin's lymphoma and chronic lymphocytic leukemia will help to offset the
decelerating growth of Avonex, the company's other leading product in
multiple sclerosis, which has been facing increasing competition and a
maturing market. The contribution from the pipeline remains uncertain as the
recent launch of Amevive for psoriasis and Zevalin have both demonstrated
slow market launches.
VALUATION
Our target price of $55 is based on applying an approximate PEG (PE to
growth) ratio of 1.5x (previously 1.4x), which is in line with the group
average for our coverage universe of large-cap biotech companies (1.4-1.5x),
and is equivalent to a P/E multiple of approximately high-20s (previously P/E
ratio also in the high-20s) to our 2005 EPS estimate of $1.85.
We have also applied a second valuation approach utilizing an analysis of
residual earnings. In other words, the value of the equity is assessed by
adding the present value of the residual earnings plus the book value of the
company. Residual earnings is defined as the earnings stream remaining after
accounting for the required return on investment, and is determined by
subtracting the multiple of the required return on investment times the book
value from projected earnings per year.
Using this analysis for Biogen IDEC, we calculated a book value per share of
$6.35 and assumed a time horizon of three years. Our estimate for the
discount rate is 9.6%, which assumes a beta of 1.12 for Biogen IDEC, a market
risk premium of 5.0% and a risk free rate of 4.0%. In addition, we assume a
constant growth rate of 7.5% for the biotech industry. Using this approach,
we arrive at a target price of approximately $55 per share.
RISKS
We believe Biogen IDEC should have a High Risk rating due to recent
disappointment in late-stage product pipeline with Antegren in Crohn's
disease, the lack of visibility of the company's earlier-stage pipeline, and
the uncertainty associated with the long-term prospects of Biogen IDEC.
Based on these parameters of the rating system, we believe Biogen IDEC
warrants a High-risk rating. Risks to Biogen IDEC achieving our valuation
target include the following: any delays in the clinical development or lack
of efficacy of product candidates will likely negatively impact the shares of
Biogen IDEC. Other biotechnology companies, such as Corixa, are developing
products that will compete with Zevalin and Rituxan. From time to time, the
Centers for Medicare/Medicaid Services (CMS) proposes the limitation of
reimbursement for hospital outpatient oncology drugs, such as Rituxan and
Zevalin, which could limit the pricing and use of these drugs.
I, Elise Wang, hereby certify |
