Avonex Powers Biogen to Record Year
By
Richard McCaffery (TMF Gibson)
January 14, 2000
Biotechnology company Biogen (Nasdaq: BGEN) hopped nearly $3 a share in trading this morning after reporting fourth-quarter net income of $69.3 million and earnings of $0.44 per diluted share, compared to income of $41.9 million, or $0.27 per diluted share, a year ago.
The results were good enough to beat analyst estimates by two cents a share, and add fuel to the biotechnology fire. Biotech stocks surged 105% in 1999 as drugs like Biogen's multiple sclerosis inhibitor Avonex gained momentum.
Avonex sales soared 57% to $621 million, up from $395 million in 1998. The drug, which has been on the market for four years, is well on its way to breaking the $1 billion barrier, the benchmark for so-called blockbuster drugs. More than just an indication of how well Avonex works, the sales indicate Biogen has an effective sales force, which is just as important as having good drugs.
These kinds of sales are impressive when you consider the facts. There are between 6,000 and 7,000 prescription drugs in the United States and only about 250 achieve $100 million in sales, according to one analyst at Banc of America Securities. Since it takes from seven to ten years and perhaps $250 million to bring a new drug to market, every company needs a few big hits.
Of course, Avonex's success is priced into Biogen's stock, which trades at a 1999 price-to-earnings ratio (P/E) of 58, and a forward P/E of 47. What else does the company have up its sleeve?
The knock on Biogen has been that it's a one-trick pony, raised high by the success of Avonex but short in the drug-development pipeline. That idea was reinforced in October when the company halted Phase II trials of hemophilia drug Antova after patients experienced negative side effects.
But Biogen rallied to finish the year strong after reporting positive results from Phase II clinical trials for its psoriasis (a skin disorder) drug Amevive, the most promising product in the company's pipeline. In a study involving 229 patients in the U.S., Amevive was "well tolerated and showed significant therapeutic effect," the company said. Phase III clinical trials have begun.
Dermatology is kind of in the backwater when it comes to capturing the attention of big pharmaceutical companies, at least compared to mass-market areas like antidepressants, cardiovascular products, and cholesterol-lowering drugs. This doesn't mean Amevive won't face competition, but I like the company's targeted approach.
From 1% to 2% of people in the U.S. and Europe suffer from psoriasis and as many as one million have a moderate to severe form of the disease, which is chronic, according to Biogen. In addition, current treatments for severe cases can produce harmful side effects.
So what does this mean in terms of sales? Avonex has fewer than 120,000 users worldwide and is generating nearly $700 million in revenues, so the numbers look promising for Amevive. A Merrill Lynch analyst expects the drug to become available in early 2002 and achieve $85 million in sales its first year.
Of course, Amevive still has to get through Phase III trials, and it ain't over 'til it's over. The company also needs to fatten its pipeline since it's been living off Avonex for several years. A new, 210,000-square-foot research and development facility under construction will double Biogen's current capacity, and the company expects to pour $300 million into research for new drugs in 2000, up from $221 million last year.
The company is moving in the right direction, and it's proven -- once -- that it can deliver big. Investors should approach Biogen as an intriguing company but an extremely high-risk investment. Further research should focus on other drugs Biogen is developing. Here's a link to the company's R&D page.
