Started BIIB @38.72 with small initial position. Morningstar said the Tysabri withdrawal would only take 1-2 off their fair value estimate: MORN 02-28-05 "At first blush, it seems that Tysabri's withdrawal from the market should inflict minimal damage to our fair value estimate for Biogen IDEC mostly because we'd built fairly conservative Tysabri sales projections into our financial model. We expect to knock only a dollar or two off our fair value estimate ($59.00, Consider Buy $45.50 Moat Wide), assuming that Tysabri will contribute nothing to company sales going forward. Further, Biogen's current multiple sclerosis drug, Avonex, remains a strong competitor in the MS market; Biogen might actually recognize a short-term benefit as a result of the withdrawal of Tysabri because it holds all rights to Avonex, while it shared Tysabri profits on a roughly 50/50 basis with Elan The details surrounding the two cases of serious adverse effects remain fuzzy, and it will take some time for the scientists to figure out exactly what went wrong and pinpoint Tysabri's role in the events. However, it's clear that the rare central nervous system disease one patient developed (after using Tysabri in combination with Avonex) is extremely severe and frequently fatal. If Tysabri did trigger the development of that condition, the drug's future, at least for MS, could be very grim. Biogen and Elan are continuing development of the compound for Crohn's disease and rheumatoid arthritis in addition to assessing whether the compound can be relaunched to treat MS."
I believe their impact estimate is optimistic. Merrill did an interesting probabilistic expected value analysis using 3 scenarios and arrived at a fair value of $38, but I found their weightings somewhat pessimistic. In any event, it's tough to buy a large somewhat diversified biotech [Amgen, Genentech, Biogen-Idec] at near fair value, so decided to place a smallish bet that the panic is overdone. |
