BIIB Makes An Interesting Target

Biogen Idec, Inc. (BIIB - Analyst Report) posted solid results in the first half of 2008 driven by solid sales of both Avonex and Tysabri (for multiple sclerosis). Tysabri looks set to have a great 2008 given the growing prescriber base and the recent approval in Crohn's disease (CD).

Biogen's fundamentals are relatively strong. We can see the stock having a solid 2008 from a financial standpoint. The company has an enormous biologic manufacturing capacity and one of the best pipelines in biotech. These two traits alone make the stock an interesting acquisition target for large-cap pharma.

However, Biogen's growth will begin to slow dramatically starting in 2010 unless the pipeline can deliver. There are several pivotal programs underway and several more to begin this year. The stock price performance will be determined by just how many of these pipeline candidates move from potential to actual sales. We are waiting to see the data before we include the sales in our financial model. Potential suitors may also be waiting.

Biogen's stock is currently trading at 20x 2008 EPS, so any deal would be dilutive from a large-cap pharma standpoint. Still, that pipeline and manufacturing capacity looks very intriguing. Investors will notice our revenue model on page 9 (of the full report) lists most of the phase II / III pipeline drugs. Right now we have $0's across the board for sales. That is leading to a big slowdown in 2011 and 2012 EPS. That said, if the company can deliver on its pipeline, upside is significant.

We currently rate the shares a Hold with a $76 target. As additional data on the pipeline becomes available, this target, and our rating, may prove too conservative.

Plus, investors may one day wake up to a big reward if someone does eventually make a bid on the company. This makes the name a core biotech holding in our view.

Read the full analyst report on BIIB