Biogen Beats by a Wide Margin - Analyst Blog

Biogen Idec (BIIB) reported fourth-quarter earnings per share of $1.41, well above the Zacks Consensus Estimate of $1.23 and the year-earlier figure of $1.18. Excluding the impact of stock-based compensation expense, fourth quarter 2010 earnings came in at $1.42 per share.

Full year earnings came in at $5.03 per share, beating the Zacks Consensus Estimate of $4.89 and the year-ago earnings of $4.03. Excluding the impact of stock-based compensation expense, 2010 earnings came in at $5.15 per share.

Performance was boosted by higher revenues and lower share count. Fourth quarter revenues increased 8.2% to $1.22 billion, with Tysabri and Avonex being the primary growth drivers. Revenues were above the Zacks Consensus Estimate of $1.17 billion. Full year revenues increased 7.7% to $4.72 billion, above the Zacks Consensus Estimate of $4.67 billion.

The Quarter in Details

Fourth quarter Tysabri revenues came in at $242 million, up 12% from the prior period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (ELN), came in at $333 million (up 12%) in the fourth quarter of 2010. Tysabri global sales consisted of US sales of $162 million and ROW (Rest of the World) sales of $171 million.

Biogen estimates that as of the end of Dec 2010, about 56,600 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 55,100 patients reported by the company in the third quarter of 2010.

With Tysabri being an important growth driver for Biogen, we remain concerned that an increase in the number of progressive multifocal leukoencephalopathy (PML) cases associated with its use could lead to a slowdown in Tysabri sales going forward. We note that new patient additions during the fourth quarter declined sequentially at 1,500.

Biogen is currently seeking US and EU approval to update Tysabri's label so as to include anti-JC Virus antibody status as one potential factor that could help stratify the risk of PML occurring in patients treated with Tysabri.

Meanwhile, Biogen's lead multiple sclerosis (MS) product Avonex posted fourth quarter sales of $654 million (up 10%).

We note that both Avonex and Tysabri are facing additional competition in the form of Novartis' (NVS) Gilenya which was launched in early Oct 2010. Results from a study comparing Gilenya with Avonex showed that Gilenya reduced relapse rates by 52% at one year compared with Avonex. Being an oral therapy, Gilenya could find quick acceptance as currently available therapies require injection or infusion.

Rituxan revenues increased 1% to $258 million in the fourth quarter. Biogen and partner Roche (RHHBY) have been working on driving Rituxan growth by expanding the label for additional indications. Rituxan recently gained approval from the US Food and Drug Administration (FDA) as a maintenance treatment for patients with advanced follicular lymphoma who responded to initial treatment with Rituxan and chemotherapy.

Revenues from other products remained flat at $14 million. Royalties increased 9.8% to $45 million.

Share Repurchase

During 2010, Biogen has repurchased 40.3 million shares for about $2.1 billion. The lower share count helped boost the bottom-line.

2011 Outlook

Biogen provided guidance for 2011. While the company expects earnings to exceed $5.70 per share, revenues are expected to remain flat or grow in the low single digits compared to 2010. The current Zacks Consensus Estimate of $5.58 is well below the company's earnings guidance.

While R&D spend is expected to be about 22% to 24% of total revenue, SG&A spend is expected in the range of 20% to 21% of total revenue. The company expects capital expenditure to range between $200 - $220 million.

In November 2010, Biogen had announced its intention to streamline its operations and increase efficiencies through the implementation of a restructuring program. The company's restructuring program includes initiatives like streamlining of operations, shutting down of facilities, and a 13% workforce reduction.

Biogen expects to achieve annual savings of about $300 million through its restructuring program with a major part of the savings expected to come from the R&D line.

Neutral on Biogen

We currently have a Neutral recommendation on Biogen, which is supported by a Zacks #3 Rank (short-term Hold rating). Key products, Avonex and Tysabri, should continue contributing significantly to sales. Additionally, Biogen's restructuring initiative should help drive the bottom line going forward.

We are also pleased with the company's intention to streamline its pipeline development and focus on candidates that represent higher potential. However, we remain concerned about an increase in the occurrence of PML in patients using Tysabri.Moreover, we are concerned about the launch of Gilenya which is competing directly with Avonex and Tysabri. The multiple sclerosis market could become more competitive with the entry of oral treatments being developed by Teva (TEVA) and Sanofi-Aventis (SNY).