Biogen Idec

Positive earnings estimate revisions, a strong second quarter and an upbeat guidance for 2012 helped Biogen Idec, Inc. ( BIIB - Analyst Report ) hit its 52-week high on September 20, 2012. Moreover, this Zacks #1 Rank (Strong Buy) biotechnology company has delivered positive earnings surprises in six of the last eight quarters with an average beat of 5.6%.

The stock’s momentum should continue, given the strong performance of key products Avonex and Tysabri, the potential approval and launch of pipeline candidate BG-12 and positive pipeline updates.

Solid Second Quarter Results

On July 24, Biogen reported second quarter earnings per share of $1.82, 16.7% above the Zacks Consensus Estimate of $1.56 and 34.8% above the year-ago earnings of $1.35. Higher revenues and a lower share count contributed to the increase in earnings.

Second quarter 2012 revenues increased 17.6% year over year to $1.4 billion, well above the Zacks Consensus Estimate of $1.3 billion. The multiple sclerosis product Avonex was a major contributor to the increase in revenues. The introduction of Avonex Pen and the AVOSTARTGRIP titration dosing regimen has increased interest in the product.

Guidance Raised on Strong Results

Following the release of strong second quarter results, Biogen raised its earnings guidance for 2012. The company now expects to earn more than $6.20 per share. Previously, it had expected earnings to exceed $6.15.

Upcoming Catalysts

Biogen has some important data read-outs lined up in the coming months. These include data on the company’s hemophilia candidates, dexpramipexole for amyotrophic lateral sclerosis (or Lou Gehrig’s disease) and PEGylated interferon beta-1a for multiple sclerosis. Moreover, a decision on the regulatory status of Biogen’s oral multiple sclerosis candidate, BG-12, should be out in the coming months.

Upward Trend in Earnings Estimates

With the increase in guidance and the impressive second quarter results, earnings estimates for Biogen have moved up over the last 60 days. The Zacks Consensus Estimate for 2012 rose 4.7% to $6.44 per share, implying year-over-year growth of 10.3%. For 2013, the Zacks Consensus Estimate moved up 3.4% to $7.27 per share over the same time frame, reflecting year-over-year growth of 12.9%.

Earnings should be driven by the strong performance of Avonex and Tysabri. Longer-term growth should be driven by BG-12, which is currently under regulatory review. Biogen is looking to launch BG-12 in early 2013, provided it gains Food and Drug Administration (FDA) approval.

Premium Valuation

Biogen is currently trading at a forward price-to-earnings (P/E) of 24.9x, a 28.4% premium to the peer group average of 19.4x. The company is trading at a premium on a price-to-book (P/B) basis as well. Biogen’s P/B multiple of 5.96 represents a 23.1% premium to its peer group average of 4.84. The premium valuation is justified given the company’s track record and its impressive pipeline. Moreover, the long-term expected earnings growth of 14.1% looks impressive.

A Look at the Chart

Biogen’s shares have gained 11.9% since the announcement of solid second quarter results and the upbeat guidance. The chart below shows that the stock has been trading above its 200-day moving average and the S&P 500 consistently. Apart from a few pullbacks, the stock has been trading above its 50-day moving average as well.

Biogen is currently above its 50 and 200-day moving averages of $147.00 and $130.40, respectively. Volume is quite strong, averaging roughly 765K daily.

Based in Weston, Massachusetts, Biogen is one of the world’s largest biotechnology companies. The company, which has a market cap of $36.64 billion, focuses mainly on neurology, immunology and hemophilia. Multiple sclerosis products such as Avonex and Tysabri currently drive the top line. Other marketed products include Fumaderm (treatment of severe psoriasis) and Fampyra (improvement of walking in multiple sclerosis patients). The company also generates significant royalties from partnering agreements with other pharmaceutical and biotech companies. The company has collaborations with companies like Roche Holding (RHHBY) for Rituxan, Elan Corporation (ELN) for Tysabri, Acorda Therapeutics, Inc. (ACOR) for Fampyra, Biovitrum for factor VIII and IX and Abbott Labs (ABT) for daclizumab.

Founded in 1985, Biogen has several candidates in its pipeline, including BG-12 (multiple sclerosis), daclizumab (multiple sclerosis), Factor VIII (hemophilia A) and Factor IX (hemophilia B) among others.

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