Bullish on Biogen Idec

At 12.6x our 2009 EPS of $4.10 per share, we believe that Biogen Idec's (BIIB - Analyst Report) stock is too attractive to ignore. This is below the biotech peer-group average, which includes several names trading at a significant premium -- Genzyme (GENZ - Analyst Report), Gilead (GILD - Analyst Report) and Celgene (CELG - Analyst Report).

The company should post non-GAAP EPS up roughly 12% in 2009, even with all the Tysabri PML issues. However, valuation alone is not enough of a reason to buy the stock.  We are comfortable with owning the name here based on two other reasons.

In our opinion, Biogen has the best pipeline in all of biotech. Plus, Biogen has one of the largest biologic manufacturing capacities in the world. There are significant operations on both the East and West Coast of the U.S., as well as internationally. Independent sources (Evaluate Pharma) predict that by 2012, biotechnology products will account for nearly a fourth of the entire market, up from only 16% in 2007.

As large pharmaceutical companies move with greater and greater force into the biologic market, manufacturing capacity and intellectual property become highly coveted assets. Biogen possess perhaps the strongest acquirable biologic platform in the world now that Roche has acquired Genentech and Pfizer (PFE - Analyst Report) is acquiring Wyeth.

When normalcy returns to the financial markets, and well-capitalized large-cap pharmaceutical companies look to go shopping in 2009, we believe Biogen will be at the top of the list. We have already seen three significant deals with Pfizer-Wyeth, Merck-Schering, and Roche-Genentech. Biogen's worldwide Tysabri partner, Elan Pharmaceuticals, is currently negotiating selling a stake to Bristol-Myers (BMY - Analyst Report).

Clearly there is interest from big pharma in biologics. We think Biogen should be at the top of anyone's shopping list. Names including AstraZeneca (AZN - Analyst Report), Novartis (NVS - Snapshot Report), Eli Lilly (LLY - Analyst Report) and Sanofi-Aventis (SNY - Analyst Report) seem to make the most sense.

Today, at less than $52, the name is significantly under-valued. Carl Icahn agrees. Our target is $62 per share.