In biotechnology there is a new class of high-flying, multibillion dollar companies like Biogen Idec Inc (NASDAQ:BIIB), Regeneron Pharmaceuticals (NASDAQ:REGN), and Alexion Pharmaceuticals (NASDAQ:ALXN). With exceptional growth, these companies are still very much valued on future expectations and pipeline hopes. However, while this class remains very much grouped together, one thing makes Biogen Idec a standout.
The single-drug hype
With market capitalizations of $80 billion, $34 billion, and $31 billion, it’s tough to call Biogen Idec, Alexion Pharmaceuticals, and Regeneron Pharmaceuticals biotechnology companies, as such market caps usually deserve big pharma status. Yet the majority of biotechs in this category are single-drug companies with robust pipelines in development.
Specifically, Alexion Pharmaceuticals markets and sells just one drug. Its drug, Soliris, is FDA approved to treat two indications, which are rare blood and genetic diseases. The company is then developing Soliris to treat four other indications, and if successful, Soliris might very well generate peak revenue north of $5 billion annually.
Yet currently, Alexion has 12-month revenue of less than $1.8 billion, which is expected to increase 40 percent and 21.5 percent, respectively, over the next two years. Nonetheless, Alexion is a tax inversion company, recently moving to Ireland, and with very impressive operating margins of 37.5 percent, investors have shown a willingness to pay a hefty premium for this single drug.
Regeneron, on the other hand, markets and sells three drugs: Eylea, Arcalyst, and Zaltrap, with the former being a blockbuster used to treat eye diseases that cause blindness. While the company may appear relatively diversified, especially considering Alexion, it’s important for investors to realize that Eylea and Zaltrap are brand names, but are actually the same drug.
Granted, Regeneron does have a solid pipeline including late-stage candidates for the reduction of bad cholesterol and the treatment of rheumatoid arthritis. Yet as of now, the majority of Regeneron’s $31 billion market capitalization is tied to the $2.3 billion in revenue that it mainly receives from one drug.
The Biogen Idec difference
All things considered, as Biogen Idec shares soar 11 percent higher following an absolutely phenomenal second quarter, the question of whether shares are now getting too expensive is beginning to pop up. However, there is a difference between Biogen Idec and all of the other multibillion dollar biotechs that saturate the market, and that’s real diversification.
Unlike Alexion and Regeneron, Biogen Idec is not a one-drug wonder, but has three blockbuster drugs, and a presence in treating various diseases with a strong focus in multiple sclerosis, or MS. Avonex is used to slow the progression of disability and reduce MS relapses; it saw sales of $773.8 million on growth of 3.9 percent year-over-year in the second quarter.
Tysabri and Tecfidera are both used in treating MS, and are the company’s growth drivers. In the second quarter, Tysabri and Tecfidera grew 37.9 percent and 144.6 percent, respectively, with revenues of $533.4 million and $700.4 million.Other than being the king of treating MS, Biogen Idec receives royalties north of $300 million on Rituxan and Gazyva for leukemia and lymphomas. The company also gained FDA approval for Eloctate in the second quarter, a drug used to treat a bleeding disorder known as hemophilia A.
Therefore, Biogen may be a MS specialist, but along with its pipeline, it’s building a name for itself in the treatment of certain blood cancers and blood disorders. While $80 billion may seem like a steep price to pay for Biogen Idec, the company’s 40 percent revenue growth and operating margin of 35 percent has it trading at just 23 times forward earnings.
In comparison, Biogen is much cheaper than either Alexion or Regeneron at 30 and 26 times forward earnings, respectively, but also has the several blockbuster drugs and overwhelming dominance in treating MS that make it unique. As a result, Biogen Idec is a safer investment opportunity, and by being cheaper on a multiple basis, it might also be the best value opportunity looking ahead.