WACHOVIA SECURITIES BIIB: Q4 2003 Pro Forma Results
Earnings Reported
Biogen Idec, Inc. (BIIB-NASDAQ)
Stock Rating: OUTPERFORM
Martin D. Auster. M.D. / (443) 263-6515
Zev Cohen / (443) 263-6516
Price: $57.64
52-Wk. Rng.: $59-28
Shares Out.:(MM) 365.4
Market Cap.:(MM) 21,061.7
Float:(MM) 315.3
LT Debt:(MM) $917.0
Avg. Daily Vol.: 10,704,800
LT Debt/Total Cap.: 30.0%
S&P 500: 1,149.10
ROE: 14%
Div./Yield: $0.00/0.0%
3-5 Yr. Est. Grth. Rate: 20%
CY2004Est. P/E-to-Grth.: 2.0x
Key Points
* PRO FORMA EPS BELOW ESTIMATES. BIIB announced pro forma EPS of $0.24 compared
to our $0.30 estimate due to lower than expected gross margin associated with an
Avonex write-off and increased operating expenses.
* ANTEGREN BLA FILING ON TRACK FOR MID-2004. BIIB continues its plan to file
Antegren for treatment of multiple sclerosis based on interim data from ongoing
Phase III trials in mid-2004. Given our expectation for a 6 month priority
review due to Antegren's novel mechanism, we believe that Antegren could
reasonably be on the market as soon as early 2005.
* ACCELERATING GROWTH TRENDS MAKE BIIB ATTRACTIVE. Due to Antegren's accelerated
launch, BIIB will be one of few large cap biotechs with accelerating earnings
trends over the next few years, which should place it in the spotlight among
investors looking for high growth opportunities among profitable biotechs.
Valuation Range: $60 to $64
Our $60-$64 valuation range is based on application of the large cap biotech
median PEG of 1.4x to our 2005-2008 estimated growth rate of 20%-21% and 2006
estimated EPS of $2.10. Company-specific risks to our valuation range include
slowing Avonex sales, a more competitive environment for Amevive, and failure of
Antegren to materialize into a marketed product.
Investment Thesis:
We look for stable growth from Avonex and Rituxan, but look for accelerating
trends in 2005-2008 from Antegren's successful penetration of the MS market.
Q4 Shortfall On Avonex Write Off
Biogen Idec reported pro forma Q4 EPS results below our estimates posting pro
forma EPS of $0.24 compared to our estimate of $0.30 due to increased operating
expenses and lower than expected gross margin associated with a one-time Avonex
write off due to manufacturing difficulties. The company preannonced pro forma
combined revenue of $491 million on February 11th. SG&A spending in the quarter
of $137 million was above our $130 million estimate. R&D expenses of $165
million were modestly above our $162 million estimate. BIIB reaffirmed its long
term guidance of 15% compound annual revenue growth and 20% compound EPS growth
through 2007. The company has also announced authorization of a 12 million
share buyback.
While BIIB shares appear expensive based on near-term prospects (38x our 2004
estimate), as growth accelerates due to the launch of Antegren in 2005, we
expect investors will lengthen their time horizon when valuing BIIB shares. We
believe there are few developmental risks associated with Antegren for MS and
expect the compound to become a meaningful contributor to revenues in 2005 and
beyond. Additional indications for Antegren (such as Crohn’s disease and RA)
could provide additional growth opportunities. BIIB will be one of few large
cap biotechs with accelerating earnings trends over the next few years, which
should place it in the spotlight among investors looking for high growth
opportunities among profitable biotechs.
R&D Update
Antegren (Multiple Sclerosis) – Planned BLA mid-2004
BIIB continues its plan to file Antegren for treatment of multiple sclerosis
(MS) based on interim data from ongoing Phase III trials (AFFIRM and SENTINEL)
in mid-2004. Given our expectation for a 6 month priority review due to
Antegren’s novel mechanism, we believe that Antegren could reasonably be on the
market as soon as early 2005. The company has reported that Antegren
manufacturing capacity is in place.
The BLA filing will be based on data from Antegren’s two ongoing Phase III
trials – one as a monotherapy in treatment-naïve patients and one in combination
with Avonex. Currently approved biologics for MS have all been approved based
on EDSS scores, which can only be meaningfully collected following two years of
therapy. Since the interim analysis was taken at one year, BIIB examined
relapse rate, rather than EDSS improvement. Given BIIB’s consultation with the
FDA and support from both ongoing trials, we believe that 1.) Antegren is more
efficacious than beta-interferons as a standalone therapy; 2.) Antegren is more
efficacious in combination therapy with Avonex, than standalone Avonex; and 3.)
Antegren likely possesses a more benign side-effect profile than
beta-interferons.
We believe the FDA would only endorse a filing based on one year relapse data if
the results were compelling enough to warrant superiority over beta-interferons.
While BIIB has not released the results of the interim analysis in order to
protect the integrity of the ongoing trials, we expect presentation of the
interim data from both trials at a major medical conference in H2 2004, possibly
at ECTRIMS 2004, October 6-9 in Vienna.
Antegren (Crohn’s Disease) – Additional trial in induction setting
BIIB and partner Elan are currently planning a confirmatory trial for Antegren
in the induction setting for Crohn’s Disease. Antegren had previously missed
its primary endpoint in a three-month induction trial, but did show activity in
secondary measures. The company then announced positive results from ENACT-2
evaluating Antegren maintenance therapy in CD patients who previously responded
to Antegren induction therapy.
Antegren (Rheumatoid Arthritis) – IND filed / Ph. II initiation expected in H1
2004
We expect initiation of a Phase II Antegren trial in rheumatoid arthritis to
commence in H1 2004, examining Antegren in combination with methotrexate. In
addition the company continues to examine Rituxan for treatment of rheumatoid
arthritis, currently in Phase III trials. |
