Biogen Idec Inc. (BIIB) stock price can appreciate to the mid $70s based on five areas of potential upside, according to RBC Capital Markets. The brokerage upgraded its rating on shares of the biotechnology company to outperform from sector perform and increased its price target to $75 from $60.
We think the stock price can appreciate to the mid $70s based on five areas of potential upside: EPS estimates could be too low; Tysabri estimates conservative; Avonex sales flat; pipeline represents upside potential; and bold move for accretion, if Biogen bought back its 50 percent of Tysabri from Elan Corp. plc (ELN), said Michael Yee, an analyst at RBC Capital.
Yee believes 2011-2012 EPS could be higher than consensus of $5.70 and $6.03, respectively, and more likely to be in the $6.00 to $6.50 range (i.e. 5 percent to 8 percent EPS upside estimates), due to slightly better revenues, more cost-reduction leverage, and share buybacks.
Yee said every 1 percent reduction in sales, general and administration/research and development adds $0.10 to $0.15 to earnings per share.
Yee expects multiple sclerosis drug Tysabri to meet or beat consensus of flat year-over-year growth through price increases alone (volume can still grow). Consensus Tysabri estimates for outer years could prove low, as JCV status can induce Tysabri use in front-line (potentially 5 times bigger market opportunity based on estimated 100,000 JCV negative in the US).
Yee said Tysabri has 10 percent share currently, thus just 2 percent to 3 percent market share gain could increase revenues by 20 percent to 30 percent, or $250 million to $500 million, in 2011 - 2012.
Biogen has not yet launched in China, Japan or Russia and is in the midst of the launch phase in India, Brazil and Argentina, with Southeast Asia, the Middle East and other Latin American markets to follow in 2011. While these markets are small individually, the totality could offset or at least slow erosion in other European Union territories in 2011-2012.
We believe consensus view of flat sales growth is reasonable as market share loss to Gilenya seems to come from Rebif/Betaseron, and less from Avonex. Modest price increases (somewhat expected) can help future growth, said Yee.
Yee said low expectations for programs across the board, BG-12 and daclizumab for MS, Dexpramipexole for ALS and Factor VIII and IX for hemophilia, could present opportunity for upside currently not reflected in estimates.
Assuming Biogen paid up to $4 billion (while Elan sells back Bapineuzumab to Johnson & Johnson (JNJ)/Pfizer Inc. (PFE), and sells EDT), Yee's analysis suggest accretion of $0.50.
We think it makes sense for Biogen, particularly if management believes in the long term JCV value proposition, Street’s under-appreciation of Tysabri and obvious financial accretion that returns more value to shareholders. This also supports our net positive view on Elan, which is more levered to Tysabri, said Yee.
Biogen Idec stock is currently up 1.06 percent and trading at $67.47 on the NASDAQ stock market at 10:17 am EST.