Biogen Idec (BIIB) reported third-quarter earnings per share of $1.59, well above the Zacks Consensus Estimate of $1.51 and the year-ago earnings of $1.33. Excluding the impact of stock-based compensation expense, third quarter 2011 earnings came in at $1.61 per share, up 19.3%.
Third quarter results were boosted by higher revenues which came in $1.3 billion, up 11.4%. Revenues exceeded the Zacks Consensus Estimate of $1.2 billion.
The Quarter in Detail
Third quarter performance was driven by Biogen’s multiple sclerosis (MS) franchise. Third quarter Tysabri revenues came in at $277 million, up 26% from the prior-year period. Global in-market net sales of Tysabri, which is partnered with Elan Corp. (ELN), came in at $393 million (up 28%) in the third quarter of 2011. Tysabri global sales consisted of US sales of $197 million and ROW (Rest of the World) sales of $195 million.
Biogen estimates that as of the end of September 2011, about 63,500 patients were on commercial and clinical Tysabri therapy worldwide. This represents an increase from the 61,500 patients reported by the company in the second quarter of 2011.
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.
Biogen is looking 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. While the EU label has been updated, a response from the US Food and Drug Administration (FDA) should be out in early 2012.
Meanwhile, Biogen’s lead multiple sclerosis (MS) product Avonex posted second quarter sales of $682 million (up 6%). Biogen has been working on driving Avonex sales. Meanwhile, Avonex Pen gained approval in the EU for use in patients with relapsing multiple sclerosis and patients with a single demyelinating event. The availability of Avonex Pen should help improve convenient administration.
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.
However, Biogen is looking to bring BG-12, its oral multiple sclerosis candidate, to market. The company recently reported impressive data on the candidate and expects to file for approval in the first half of 2012. BG-12 could become a leader in the oral MS market once launched.
Rituxan revenues increased 3% to $266 million in the third quarter. Biogen and partner Roche (RHHBY) have been working on driving Rituxan growth by expanding the label for additional indications. In January 2011, Rituxan gained FDA approval for the maintenance treatment of patients with advanced follicular lymphoma who responded to initial treatment with Rituxan and chemotherapy. Rituxan also gained approval as a combination treatment (with corticosteroids) for adults with Wegener’s granulomatosis and microscopic polyangiitis.
Revenues from other products increased 42% to $17 million. Royalties increased 43% to $52 million.
Outlook for 2011
Biogen expects 2011 earnings to exceed $5.70 with revenues expected to increase in the mid-single digits range. While Biogen maintained its earnings guidance, the company was previously expecting revenues to increase in the low to mid-single digit range.
Biogen expects R&D spend towards the higher end of 22% – 24% of sales and SG&A spend towards the higher end of 20% – 21% of sales.
Neutral on Biogen
We currently have a Neutral recommendation on Biogen, which carries a Zacks #3 Rank (short-term Hold rating). Key products, Avonex and Tysabri, should continue contributing significantly to sales. Meanwhile, BG-12 should help drive long-term growth.
Meanwhile, Biogen’s restructuring initiative should help drive the bottom line. We are also pleased with Biogen’s intention to streamline its pipeline. However, we remain concerned about the occurrence of PML in patients using Tysabri.
We are also 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 additional oral treatments.
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