Biogen Shares Rebound As Street Has A Change Of Heart

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Biogen Idec heads into its second-quarter earnings report on one of its best rolls in years, as the biotech continues to benefit from heavy demand for its drugs to treat multiple sclerosis, cancer and autoimmune diseases.

The No. 3 biotech by market cap has run off six straight quarters of accelerated sales growth. Year-over-year earnings have risen at least 23% five quarters in a row.

Much of the credit goes toBiogen 's ( BIIB ) blockbuster oral MS drug Tecfidera, which was approved last year. The drug produced more than $500 million in sales during this year's first quarter -- nearly one-quarter of the total -- with the vast majority generated in the U.S.

Earlier this year Tecfidera was approved for sale in Europe, a development that should continue to drive revenue in coming quarters, analysts say.

"That's the drug that has to continue to perform well," Eric Schmidt, a Cowen analyst who covers Biogen, told IBD.

Bullish Outlook

Tecfidera should play a similarly big role in Biogen's Q2 results, which are due to be reported before the open on Wednesday. Analysts polled by Thomson Reuters expect EPS of $2.83, up 23% from the prior year. Revenue is seen rising 26% to $2.16 billion.

"The company has long done what it said it would do, and we think heading into earnings that the financials will look good," Schmidt said.

During its first quarter, Biogen logged a 25% earnings rise and 51% revenue increase -- its biggest top-line gain in years.

Biogen has a long history of producing high-demand drugs that command premium prices and fuel steady profitability.

The company's annual profit has climbed every year since 1998. According to the consensus on Wall Street, that streak is not likely to be interrupted any time soon. Yearly earnings are projected to surge nearly 30% this year and another 25% in 2015, according to analysts polled by Thomson Reuters.

Over the medium term, analysts expect Biogen's top line to get a boost from its rollout of hemophilia drugs Alprolix and Eloctate.

In June, Biogen said the Food and Drug Administration approved Eloctate for the control and prevention of bleeding episodes, surgical management and routine prophylaxis in adults and children with hemophilia A.

Less than two weeks earlier, the FDA approved Alprolix for the same indications in adults and children with hemophilia B.

Longer term, Biogen is developing treatments for diseases such as Alzheimer's and spinal muscular atrophy that could provide a further lift to its financial returns, analysts say.

Biogen did not respond to an interview request. But George Scangos, Biogen's CEO, said at the company's annual shareholder meeting in June that 2014 is "off to a very, very positive start."

He said Biogen's success depends on "scientific and medical excellence" needed to discover and develop new drugs and bring them to the market.

"We are very good at that part of our business," Scangos added.

The risk for Biogen -- or any biotech, for that matter -- is that it might spend many years and millions of dollars on research that fails to lead to a drug that is effective and safe.

"It's really hard to forecast if a drug will work and get approved," Morningstar analyst Karen Andersen said in an interview.

Drug companies are also under pressure to contain price increases at a time when the U.S. and other countries are trying to curb health care inflation. That pressure poses a threat to drug developers' profit potential, Andersen says.

Scangos acknowledged this problem during the shareholder meeting.

"We have to be good at the commercial aspects," he said.

That doesn't just mean marketing and sales, Scangos says. "It's also how we negotiate with the payers around the world -- the insurance companies in the U.S., the governments in the rest of the world -- so that we can maximize the value that we are generating for our products."

Meanwhile, Biogen has spent part of 2014 dealing with a different type of problem -- mainly, perceptions about its stock price.

Sector Sag

Earlier this year, investors cheered biotech stocks. But by the spring, Wall Street decided the group was overheated.

Several companies endured double-digit hits in a sell-off that got underway in March and spanned several weeks. Between March 18 and May 8, Biogen's shares tumbled nearly 20%.

Since then, however, Biogen's stock price has risen about 7% and currently trades near 303.

The company's stock hit had little to do with its fundamentals and more to do with its stock simply getting caught in a sell-off in the biotech market, Cowen's Schmidt says.

"There was a lot of hype" around the biotech sector early in 2014, he said, "and I think all that intangible promise has cooled off a bit. I think we went from a glass-overflowing situation back to more of a glass-half-full situation."

IBD's Medical-Biomed/Biotech group still lags on the lower end of the spectrum compared to other groups. It ranks No. 116 of 197 industries tracked by IBD, although big names such asGilead Sciences ( GILD ) andCelgene ( CELG ) have seen shares rally in recent months.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BIIB , GILD , CELG

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