Biogen Idec Inc. beat Wall Street expectations during the second quarter, reporting a 12 percent increase in revenues, driven by sales of Avonex and Rituxan, as well as lower-than-expected costs associated with ongoing safety studies of its withdrawn multiple sclerosis drug, Tysabri.
In accordance with generally accepted accounting principles (GAAP), the company reported a net income of $35 million, or 10 cents per share, for the quarter ending June 30. On an adjusted non-GAAP basis, which does not include merger-related charges or costs of $78 million related to the sale of its Oceanside, Calif.-based manufacturing facility, the company's net income amounted to $149 million, or 43 cents per share, topping the concensus estimate of 36 cents.
The Cambridge, Mass.-based company attributed the higher earnings in part to its "operational discipline and effective cost management," which included divesting the Oceanside facility that originally had been designed to supply Tysabri. But that management philosophy alone might not be enough to alleviate investors concerns about the future marketability of the multiple sclerosis product.
Analyst Geoffrey Porges, of Bernstein & Co. in New York, said one reason Biogen Idec surpassed estimates for the quarter is that the company initially had projected higher expenses. In its forecast for the second quarter, the company anticipated costs associated with Tysabri to be between $30 million and $35 million; instead, the actual figure totaled about $20 million.
"I think that's part of the reason the stock hasn't reacted as well as it might to such a clear earnings statement," he told BioWorld Today.
Shares of Biogen Idec (NASDAQ:BIIB) rose 66 cents Wednesday to close at $39.48.
"You don't get a lot of credit for saying you're going to spend $100, and then only spending $65 and delivering the rest to your EPS line," Porges said, though he acknowledged that several other expense items were lighter for the quarter, suggesting that "the company has become more financially conservative."
Revenues for the quarter totaled $605.6 million, up 12 percent from the $538.8 million reported for the second quarter of 2004. Sales of the multiple sclerosis drug Avonex (Interferon beta-1a) rose 10 percent to $382 million, while Rituxan (rituximab), a drug to treat non-Hodgkin's lymphoma and chronic lymphocytic leukemia, netted Biogen Idec revenues of $185 million, an increase of 22 percent. Rituxan, partnered with South San Francisco-based Genentech Inc. in the U.S., recorded total U.S. sales of $450 million.
Research and development costs for the quarter, which included ongoing studies of Rituxan in other indications, as well as studies involving Tysabri, totaled nearly $180 million, an increase from the $170 million spent the year before. As of June 30, the company had cash, cash equivalents and marketable securities of $927.5 million.
Following the voluntary removal of Tysabri (natalizumab) by Biogen Idec and partner, Dublin, Ireland-based Elan Corp. plc in February, the companies took "appropriate actions to [conduct] safety evaluations, and have reduced costs to remain focused on the rest of our operations," said Jim Mullen, Biogen Idec's CEO, during a conference call. He added that the sale of the Oceanside facility, purchased by Genentech for $408 million last month, would save an estimated burn of $80 million to $100 million per year that could go toward other areas of the company's development pipeline. (See BioWorld Today, June 20, 2005.)
In the meantime, Biogen Idec is awaiting data from the ongoing Tysabri safety study, which is expected to finish before fall. That evaluation is meant to determine a possible connection between Tysabri and at least three reported cases of progressive multifocal leukoencephalopathy. A fourth potential case was reported early last month.
"Biogen Idec and Elan are committed to an extensive and thorough safety exam," said Burt Adelman, vice president of development at Biogen Idec. "The review is still under way, so it's too early to comment on the findings."
The evaluation is designed to determine the risk of Tysabri with regards to PML and figuring out which patients might be at risk for developing the potentially fatal disease.
Declining to comment on what sort of impact the Tysabri safety data would have on the company, Biogen Idec did not provide updates to its 2005 guidance, which are still forecast at between $1.60 and the $1.70 per share for the year.
Porges said Bernstein & Co. expects about 10 percent growth in a company the size of Biogen Idec. With that in mind, Porges raised his estimates for the company from $1.47 EPS to $1.65 EPS for 2005, and increased its projected 2006 EPS from $2.06 to $2.19.
But, with the uncertainty around Tysabri, he said, "we don't have a lot of confidence about [the estimates] right now."
"Part of it is the transparency issue," Porges said. "I don't think the company is disclosing what's going on with the safety analysis, and I think investors are frustrated with that."
He added that Biogen Idec might have been able to cut costs during the past quarter, but "is the kind of expense rate it achieved that quarter sustainable?"
The company has a number of ongoing research and development programs, including recently completed late-stage trials of Rituxan that demonstrated positive results in rheumatoid arthritis patients who have failed prior disease-modifying anti-rheumatic treatment or who have inadequately responded to anti-TNF therapies.
A Phase III study of its oral fumarate B-12 recently completed, having met its primary endpoint in the treatment of psoriasis. The company has filed for marketing authorization in Germany, and intends to complete additional Phase III studies in the U.S. and rest of Europe. BG-12 also is being studied in multiple sclerosis.
Biogen Idec completed a Phase II study of its anti-CD80 monoclonal antibody in non-Hodgkin's lymphoma and is reviewing the data in preparation of a Phase III trial. The company completed Phase I with its anti-CD23 product to treat chronic lymphocytic lymphoma and recently began human studies with its anti-lymphotoxin beta receptor in solid tumors.