What You Should Listen for When Biogen Idec Inc. Reports Earnings

Biogen Idec (NASDAQ: BIIB  ) will report earnings on Wednesday, January 29. The company's shares are up over 100% over the last twelve months, largely on the success of a new multiple sclerosis therapy that quickly elbowed past competition from both Sanofi (NYSE: SNY  ) and Novartis  (NYSE: NVS  ) . Highly effective new hemophilia therapies likely to be launched ahead of Novo Nordisk's (NYSE: NVO  ) also have investors excited.

Before getting caught up in posted figures versus expectations, it's always a good idea to make your own assessment of a company's long-term prospects. Let's take a closer look at a few key factors that we can listen for during the call. This way we can cut through the noise and measure the company's chances of continued success.

Insider selling
Before getting into critical factors that will affect Biogen's future profitability, we should address an issue that could cloud your judgement. You may have noticed news of insider selling at Biogen. This is true, but I don't think it's cause for alarm. As of January 23, 2014, five different directors, but not officers, have sold a combined 29,770 shares. The transactions represent just about 0.013% of total shares outstanding.

While it is certainly worth paying attention to insider transactions, viewed in context, I don't see any smoking gun here. At a recent price north of $310, the company's shares are trading at over 40 times trailing-twelve-month earnings. Generally in situations like these, without a real surprise to the upside, price gains made in anticipation of an earnings report are quickly wiped out. Given the odds, you can't blame insiders for taking some of their profits off the table beforehand.

Tecfidera launch
Insider transactions aside, we should take a good look at what to expect regarding Biogen's main sources of revenue. First up is the wildly successful oral multiple sclerosis therapy Tecfidera. Introduced in the beginning of April 2013, after six months it had already beat out Sanofi's Aubagio, and Novartis's Gilenya in terms of market share. According to Biogen Idec CEO, George Scangos, there are about 8,000-9,000 prescribing physicians for MS in the US. Six months after its launch, Tecfidera had been prescribed by over 5,000.

That's some amazing penetration, but eventually it needs to level off. With a price to earnings multiple of over 40 times trailing earnings any sign of Tecfidera slowing down in the US is likely to be magnified in the company's share price. If there are signs of a slowdown, listen closely to see if it is due to saturation or a lack of repeat prescriptions.

Avonex damage
This injectible MS treatment is still the company's largest source of revenue. When Biogen reported last, sales of oral Tecfidera hadn't eaten deeply into the injectible Avonex market. For Q3 2013, US sales of the drug dropped by just 1.1%. It's important to remember, that was just half a year into the launch. With another quarter past, there's a good chance that signs of increasing cannibalization will appear.

Hemophilia hold ups
Although Biogen derives the bulk of its revenue from MS therapies, the company is poised to break into the hemophilia space. This market is roughly estimated at $7 billion annually. The company has two therapies currently under review at the FDA: Eloctate for hemophilia A, and Alprolix for hemophilia B.

While the condition is treatable, there is a significant lack of extended duration therapies. Hemophilia patients often require frequent intravenous infusions to treat the disease. Both of Biogen's therapies under review have been shown to effectively reduce the number of infusions required. In an increasingly austere reimbursement environment, this is just the sort of cost cutting therapy that has a solid chance of gaining traction, if it wins approval.

If Eloctate is approved, it won't be the only new hemophilia A treatment on the market for long. Last October, the FDA approved Novoeight from Novo Nordisk for treatment of hemophilia A patients. Biogen's therapy couldn't beat Novo's in the race to approval, but Eloctate might hit the US market first. Novo is awaiting the expiration of existing patents, before launching Novoeight shortly after April 2015.

Biologics license applications for Biogen's hemophilia therapies should have resulted in decisions already, but there have been delays with the review process. Last October, the FDA raised concerns over the validation of steps in Eloctate's manufacturing process, which could hold up the approval process. In December of last year, the regulator imposed a similar delay for Alprolix.

Of course, manufacturing process issues could delay approvals well beyond the extension period. When Biogen last reported earnings, management did not provide a time frame for Eloctate due to active discussions with the agency. More recently, during the 2014 J.P. Morgan Healthcare Conference, Scangos said he was expecting an Eloctate decision about halfway through the year, and Alprolix in the second quarter. It was just a brief statement without much background, but I'll be listening closely for more details about the delays during the upcoming earnings call.

Bring on the call
Now that you have a few key items to listen for, you should be prepared to quickly assess Biogen's growth potential, without getting overwhelmed by the noise. Given the company's high valuation, price movement after the call is almost certain. If you've been holding onto this rocket, some confidence in your own judgement could be keep you from making a decision you'll regret.

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