The Fastest-Growing Tech Companies
Is There Hidden Value In MedImmune?
Matthew Herper, 02.06.04, 7:00 AM ET
NEW YORK - MedImmune's sales have been strapped to a rocket thanks to one drug, but it shares have sagged under the weight of one of last year's worst product launches. Could Wall Street be missing MedImmune's real value?
In June 1998, MedImmune (nasdaq: MEDI - news - people ) hit the biotech jackpot when the Food and Drug Administration approved Synagis. This drug used a new technology, called a monoclonal antibody, to prevent a serious respiratory infection in newborns. The respiratory syncytial virus, which causes such infections, is ubiquitous, but in high-risk babies, such as premature infants, it can spread deeper into the respiratory tract. Before Synagis was introduced, such infections caused 125,000 hospitalizations a year.
Pediatricians have snapped up the drug. In 2003, Synagis sales totaled $849 million, helping push MedImmune's total revenue past $1 billion for the first time. Abbott Laboratories (nyse: ABT - news - people ) gets a relatively small cut of Synagis sales.
Its rapidly climbing revenue secured Gaithersburg, Md.-based MedImmune a place as the top biotech on our annual list of The 25 Fastest-Growing Technology Companies. Sales have grown at a compounded 53% per year for the past five years.
A big-selling drug leaves executives with a dilemma: Eventually, the market for the medicine will be penetrated, and the company will need another winning drug. In 2001, MedImmune executives made their bet, purchasing vaccine maker Aviron in a $1.3 billion stock deal. The crown jewel in Aviron's portfolio of experimental vaccines was FluMist, a flu vaccine given as a nasal spray, not a shot. Analysts predicted annual sales could eventually hit $1 billion.
In June, FluMist got approval from the Food and Drug Administration. Then it completely failed to take off.
FluMist, the first inhalable nasal vaccine.
In fiscal 2003 MedImmune recorded no sales-related revenue for the vaccine, which is co-marketed with drug giant Wyeth (nyse: WYE - news - people ). What went wrong? Demand for the vaccine was far less robust than expected. At first, many analysts expected that the main constraint on sales would be how many doses MedImmune could make. But even during one of the worst influenza seasons in memory, MedImmune and Wyeth may have sold only 800,000 doses, analysts say, compared to the 4 million in some earlier forecasts. A significant number were sold at a discount.
Wyeth ships the drug to doctors, and a percentage of sales are given to MedImmune. Because of the difficulty of estimating how many doses were sold, returned, or discounted, MedImmune couldn't book sales. When sales are finally recorded, they will likely fall far below the $140 million once expected for 2003. Wyeth and MedImmune may have to relaunch the product from scratch. They will in all likelihood have to seriously cut the wholesale price ($46 per dose), which was three times the cost of a standard flu shot. The terms of partnership with Wyeth may even be changed.
"It's hard enough to go through a disaster like this on your own," says Geoffrey Porges, the biotech analyst at Sanford C. Bernstein, "but particularly with a partner...it's almost impossible to keep it together." An affiliate of Bernstein owns more than 1% of MedImmune shares.
Is the bad news already out on MedImmune? On January 30, Joel Sendek, a sell-side analyst who had been one of the biggest MedImmune bears, upgraded the stock from a "sell" to a "hold." He still sees no potential for FluMist growth until the vaccine is approved for those under the age of 5 and over 50. That might not happen until 2006. But he noted that all of the stumbles built into his "sell" rating had already happened, and the stock is 40% cheaper than it was six months ago. Bernstein's Porges even thinks the stock may be undervalued. Argues Porges: "At the current price, you get FluMist for free."
Porges expects that MedImmune to have nearly $6 per share in cash by the end of the first quarter, and says that whether he applies a multiple to earnings or looks at the company's assets he sees the stock valued at between $27 and $38 (recent price: $24.30). Synagis, Porges says, could still have more room for growth on price increases and population growth. He also sees sales finally taking off outside the U.S. "There's no reason to believe that the international piece isn't just as large as the U.S. piece," he says.
Synagis, for the prevention of a dangerous respiratory infection in infants.
By 2006 Porges sees MedImmune's worldwide revenue from Synagis increasing to $1.3 billion or more. His biggest reason for bullishness is that he thinks FluMist is more effective than conventional flu shots, and that will eventually cause sales to take off.
Porges' optimistic case for MedImmune rests on his idea that the market has completely missed the point of FluMist. Making a vaccine deliverable as a nose spray, not a shot, isn't that appealing to patients, who are left choosing between a jab in the arm and odd-tasting post nasal drip. But he thinks that studies now underway will prove to the FDA that FluMist is more effective than the old vaccines, which are made with dead viruses. The live virus may confer resistance to many different strains of flu that lasts for two years. "That's a real advantage that insurers will pay for."
Many analysts remain neutral on the stock. "I would recommend waiting to see what happens on their March 1 guidance call," says James Reddoch, an analyst at Friedman, Billings, Ramsey, which makes a market in MedImmune.
Thanks to the drop in price, shares of MedImmune currently trade at a lower multiple of both 2003 and estimated 2004 earnings than Amgen (nasdaq: AMGN - news - people ), Biogen Idec (nasdaq: BIIB - news - people ) and Chiron (nyse: CHIR - news - people ). For value hunters, the company may be worth another look.
forbes.com |
