Biogen Idec, Inc. (BIIB)

Biogen Idec Inc. is a biotech giant with market capitalization of $27.47 billion (on December 02, 2011). The history of this company went back into 1978. It is one of the first companies to develop recombinant proteins using genetic technology. The pioneers of Biogen brought Avonex (interferon beta-1a) and pioneers of IDEC brought Rituxan (Rituximab) to the market. Biogen and Idec mergered in 2003 and thus Biogen Idec Inc. was born.

Both Avonex and Rituxan have generated considerable revenues for Biogen Idec in the last 6 year. Sales from the two blockbusters make 79% of the total annual sales in the fiscal year of 2010. (Illustrated in the figures below).

Rituxan, a Monoclonal Antibody used to treat Rheumatoid Arthritis (RA) and Previously Untreated Chronic Lymphocytic Leukemia (CLL) et al, brought in $1.08 billion domestic revenue for Biogen last year. However, Roche brought in $6.75 billion outside of the U.S. over the same period. There are good potential for Biogen to promote its marketing scale.

The third important drug is Tysabri (Natalizumab), an alpha 4 Integrin Inhibitor. It was approved by the United States Food and Drug Administratoin, or FDA in November 2004 to treat relapsing forms of MS to reduce the frequency of clinical relapses. However, in February 2005, Biogen voluntarily suspended the marketing and commercial distribution of Tysabri because of two serious adverse events in clinical studies. The stock price plunged from $67.25 per share on February 18, 2005 to $37.53 on March 04, 2005 on this news. Almost half of the market value of Biogen was evaporated in two weeks. However, Biogen and its partner Elan Corporation, plc (ADR) had reacted the crisis well. In February 2006, Biogen and Elan announced that the FDA informed the companies that the FDA removed the hold on clinical trial dosing of Tysabri. On June 5, 2006, Biogen and Elan announced the FDA’s approval of the sBLA for the reintroduction of TYSABRI as a monotherapy treatment for relapsing forms of MS to slow the progression of disability and reduce the frequency of clinical relapses. On June 29, 2006, EMEA had approved TYSABRI as a similar treatment. The sales performance shows a fast growing pattern:

These three drugs have contributed the majority of Biogen Idec’s total revenue. Although the sales have kept going up, investors are concerned about the pipeline. That’s why the Board of Directors let James Mullen go, who had served this firm since 1989, and had been as the CEO since 2000, he should get the credits of making the total revenue of Biogen Idec from $132 million in 2000 to $4547 million in 2010. But the investors are not happy with his incapability of fulfilling the pipeline.

I don’t think Biogen Idec should be so worried on pipeline issue. As is the case of Amgen, Inc. (AMGN), both companies’ blockbusters are recombinant genetic proteins, which are very hard to imitate by competitors, and the FDA has never approved any biosimilar yet, so there is threat when the patent expiration date is approaching, but not so scaring as investors thought. Take a look at Avonex, it was already expired on May 1, 2008, however, the drug sales kept going up from $2.3 in 2009 to $2.5 billion in 2010.

George A. Scangos, Ph.D. was picked out by the Board of Directors and on July 15, 2010, he began serving as the CEO and member of our Board of Directors. Dr. Scangos is very strong on both research and management. In order to convince him to be the CEO of his last employer, Exelixis, Inc (EXEL), the Board of Directors had moved the whole company from Cambridge to California, where he wanted to stay. He didn’t let the investors down too. Over the next 14 years, Scangos had built up a broad and plenty pipeline of new cancer drugs, and the partnership formed based on these candidates, brought in $185 million in 2010. Biogen Idec’s stock has been rising up tremendously since Dr. Scangos was on board, starting from $51.86 per share then to $113.24 today (December, 2, 2011).

So what’s in the pipeline that makes investors so optimistic?

In the third quarter of 2011, positive top-line results of clinical trial phase 3 were announced for compound BG-12 (dimethyl fumarate) in patients with relapsing-remitting multiple sclerosis. This candidate came from the acquisition of Fumapharm AG in 2006. It’s strange to me that James (CEO at that time) would acquire these chemical compounds products that divert from its biotechnology core advantage. On the other hand, dimethyl fumarate is an old compound that is used to treat psoriasis, applying it to treat MS will eat away Avonex’s market share. The positive result on BG-12 may actually not benefit Biogen Idec.

Another drug called Fampyra AMPYRA is an oral compound indicated as a treatment to improve walking ability in people with MS. It’s in-licensed from Acorda Therapeutics, Inc. (Acorda). Similarly, I don’t think such a giant biotech firm went for a chemical compound is a correct strategy.

Even though the market has given positive reaction to Biogen Idec by now, I still have big concern on its pipeline. However, since I think this company can keep generate considerable revenue from the existing three blockbusters, the value of this company still hold strong.

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