Biogen Tops, Raises Forecast - Analyst Blog

Biogen Idec Inc. (BIIB) reported second-quarter earnings per share of $1.27, well above the Zacks Consensus Estimate of $1.08 and the year-earlier figure of 73 cents. Excluding the impact of stock-based compensation expense, second quarter 2010 earnings came in at $1.31 per share. Performance was boosted by higher revenues. Revenues increased 11% to $1.2 billion, with Tysabri and Rituxan being the primary growth drivers.
 
Revenue by Major Products
 
Second quarter Tysabri revenues came in at $219 million, up 17% from the prior period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (ELN), came in at $298 million (up 17%) in the second quarter of 2010. Tysabri global sales consisted of US sales of $145 million and ROW (Rest of the World) sales of $153 million.
 
Despite carrying a black-box warning for the risk of progressive multifocal leukoencephalopathy (PML) and other cautionary language, Tysabri continued to see an increase in patients. Biogen estimates that as of the end of June 2010, about 52,700 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 50,300 patients reported by the company in the first quarter of 2010.
 
With Tysabri being an important growth driver for Biogen, we remain concerned that an increase in the number of PML cases associated with its use could lead to a slowdown in Tysabri sales going forward.
 
Meanwhile, Biogen’s lead multiple sclerosis (MS) product Avonex posted second quarter sales of $628 million (up 6%). Rituxan revenues increased 11% to $306 million. Biogen is looking to expand Rituxan's label to drive growth. Biogen and partner, Roche (RHHBY), are currently seeking US Food and Drug Administration (FDA) approval for the use of Rituxan as a maintenance treatment for treatment-naïve patients with advanced follicular lymphoma.
 
Revenues from other products remained flat at $12 million. Royalties increased 20% to $30 million.
 
Share Repurchase
 
Biogen continued to repurchase shares during the second quarter and said that it repurchased about 20.8 million shares for $1 billion. Another 4.7 million shares were repurchased by the company till Jul 16 bringing the total number of shares repurchased in 2010 to 36 million. The repurchase of shares should help boost the bottom-line.
 
Earnings Guidance Raised
 
Following the release of strong second quarter results, Biogen announced that it has revised its earnings guidance for fiscal 2010. Although the company still expects revenues to grow in the mid single digits, Biogen now expects earnings to exceed $4.70 per share. This is well above the company’s earlier expectations of delivering earnings above $4.55 per share.
 
Operating expense guidance remained unchanged with Biogen expecting operating expenses to grow in the low single digits. While the company still expects R&D expense in the range of 24-27% of revenues, SG&A spend is now expected at the upper end of the company’s previously issued guidance of 20-22% of revenues.
 
Biogen also provided an update on its pipeline. The company said that it has started enrolling patients for its phase II study with BG-12 which is being developed for the treatment of patients with relapsing-remitting multiple sclerosis (RRMS). Biogen and partner Abbott Laboratories (ABT) have also commenced patient enrollment for a phase III trial that will compare the efficacy and safety of daclizumab versus Avonex in patients with RRMS.
 
Our Take
 
We currently have a Neutral recommendation on Biogen which is supported by the Zacks Rank #3 (Hold). We are encouraged to see that the company is working on expanding its multiple sclerosis (MS) and oncology pipeline. Besides this, Biogen has a number of other mid-to-late stage drugs in other therapeutic areas that could contribute sizably to growth in the next several years.
 
Although Biogen’s core business should remain stable in the coming quarters, we believe investor focus will remain on the occurrence of additional cases of PML associated with the use of Tysabri. This could remain an overhang on the shares in the coming quarters.
 
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