<THE RULE BREAKER PORTFOLIO>
Is Biogen a Rule Breaker?
Plus, jester cap auctioned for $460
by Paul Larson (TMFParlay)
CHICAGO, IL (March 26, 1999) -- Today was a weak day for the Rule Breaker portfolio, as it dropped 0.42% versus moderate declines of 0.56% and 0.64% for the S&P 500 and the Nasdaq, respectively. Only @Home (Nasdaq: ATHM) managed to find itself higher today, which is why the Rule Breaker portfolio inched out the market in daily performance. For those who care, the weekly performance numbers look like this:
Rule Breaker: +3.42%
S&P 500: -1.27%
As I was chomping on my lunch and wondering what to write about in this space today, I came across a post from a Fool named Brant going by the screen-name "tecmo" on the Rule Breaker message board. Brant asked that we focus more on analyzing companies and potential Rule Breakers in our nightly columns. That instantly sealed my decision concerning what to cover.
A few weeks ago I was researching for one of the features I regularly write, the Daily Double, when I came across a company that I couldn't help but notice looked like it fit all the criteria for being a Rule Breaker. The company is none other than Biogen (Nasdaq: BGEN), and you can click here to read the original piece that got my neurons firing.
I should preface the following by saying that I have not spoken to David about this company, and I have no clue how interested or disinterested he is in actually adding Biogen to the Rule Breaker Portfolio. I wouldn't be surprised to see it considered down the road since it appears to fit the criteria so well, but I am anything but expecting an imminent buy report. Regardless, it's not what David, Jeff, or any Fool thinks about the company that matters; it's what you think.
Without any further delay, let's see where Biogen fits with the Rule Breaking criteria:
The top dog and first-mover in an important, emerging industry...
Biotech. Enough said. For those who click into this column on a regular basis, it should be readily apparent that biotechnology is one of our favorite important and emerging industries. It's one of the reasons the portfolio holds Amgen (Nasdaq: AMGN), and why it's a safe bet more biotechs will find their way into the Rule Breaker portfolio down the road.
Nevertheless, in these attractive industries it is important to distinguish between the top bananas and the also-rans. Biogen is the oldest independent biotechnology company in existence since it was founded back in 1978, making it the first mover. It's rather safe to say that Amgen is the top dog in biotechnology, but the Rule Breaker already holds Amgen. It can certainly be argued that there is more than enough room in biotechnology for more than one top dog. Does Biogen have any other attributes that make it a worth considering? Read on....
Sustainable advantage gained through business momentum, patents, visionary leadership, and/or inept competition...
Another one of the reasons biotech is an attractive place to find Rule Breakers is because products in the industry are inherently protected by patents. A recent FDA decision also reinforced Biogen's monopoly status in the U.S. by essentially banning Rebif, a would-be competing drug for Biogen's AVONEX.
Looking at the sales and profit trends of the company, it is plainly obvious that Biogen has some significant financial momentum. Revenues have doubled over the past two years, and profits per share have more than tripled. The most recent quarter showed sales and profit comparisons up nearly 30% versus the same period in the prior year.
Excellent past share appreciation measured by a relative strength of 90 or higher...
The company was just featured in the Daily Double, which should give some clue as to the past performance. Before closing on a weak note, the company also made a new all-time high just today that is nearly triple the annual low. As of yesterday, the company had a relative strength reading of 94, putting it among the highest performing large-cap stocks of 1999.
Good management and smart backing...
The management has a limited track record in selling its own drugs, but the decision to move from just being a research outfit to being a fully integrated firm appears brilliant. Biogen also won one of the country's highest scientific honors, the 1998 National Medal of Technology award. I think it's safe to say the management has made some smart moves in the past, and the company's scientists have proven their expertise. There's little reason to doubt Biogen's success will continue. Unlike the wise constantly say in their boilerplate caveats about investing, we Fools think past achievement is an excellent indicator of future performance.
The greater the consumer brand, the better...
Raise your hand if you have heard of AVONEX. If your fingers are still firmly attached to your mouse, you are not alone. Most specialty drugs never make it to becoming household names, yet that does not mean they aren't wildly successful. Go ask a doctor or someone with multiple sclerosis if they have heard of AVONEX and I think the response will be much greater. You can be guaranteed that within the MS patient community, nearly all informed patients have heard about AVONEX and its benefits. Brand is important with all products, but efficacy is most important with drugs.
If you're wondering which criteria we're most likely to let slide for a company that appears interesting, ask yourself the following question. How many of Amgen's products are consumer brands?
A significant constituent of the financial media is recently on record for calling it overvalued...
Trading at roughly 65x trailing profits, I'm sure someone out there is calling it overvalued, but I wouldn't really know since I stopped listening to the wise a long time ago. Morgan Stanley recently downgraded the stock, if that counts for anything.
So what do YOU think? Does Biogen look like a Rule Breaker? Or is looking further into the company barking up the wrong tree? Know of any other companies you think look like Rule Breakers? Your input is always read and appreciated in the Rule Breaker message board.
One final note. Congratulations are in order for the high bidder of the Jester Cap worn by our chief techie, Dwight Gibbs, at the 1999 Webby Awards as we won the award for the Best Financial Site. The item was auctioned off for an impressive $460, with the proceeds going to one of our favorite charities, Share Our Strength. Congrats, Allen!
Have a wonderful weekend, Fools!
Day Month Year History Annualized R-BREAKER -0.42% 24.51% 41.42% 1319.47% 77.18% S&P: -0.56% 3.59% 4.68% 193.40% 26.12% NASDAQ: -0.64% 5.73% 10.33% 235.92% 29.86% Rec'd # Security In At Now Change 8/5/94 2200 AmOnline 0.91 126.00 13763.67% 9/9/97 1320 Amazon.com 6.58 139.06 2013.66% 5/17/95 1960 Iomega Cor 1.28 4.81 275.86% 12/4/98 450 @Home Corp 56.08 150.88 169.03% 12/16/98 580 Amgen 42.88 74.63 74.05% 2/26/99 300 eBay 100.53 154.50 53.69% 4/30/97 -1170*Trump* 8.47 4.00 52.77% 2/23/99 180 Chevron 79.17 86.81 9.65% 2/23/99 290 Goodyear T 48.72 49.81 2.25% 7/2/98 470 Starbucks 27.95 28.38 1.50% 2/23/99 300 Caterpilla 46.96 46.81 -0.32% 2/20/98 260 DuPont 58.84 55.50 -5.68% 1/8/98 425 3Dfx 25.67 11.50 -55.20% Rec'd # Security In At Value Change 8/5/94 2200 AmOnline 1999.47 277200.00 $275200.53 9/9/97 1320 Amazon.com 8684.60 183562.50 $174877.90 12/4/98 450 @Home Corp 25236.13 67893.75 $42657.62 12/16/98 580 Amgen 24867.50 43282.50 $18415.00 2/26/99 300 eBay 30158.00 46350.00 $16192.00 5/17/95 1960 Iomega Cor 2509.60 9432.50 $6922.90 4/30/97 -1170*Trump* -9908.50 -4680.00 $5228.50 2/23/99 180 Chevron 14250.50 15626.25 $1375.75 2/23/99 290 Goodyear T 14127.38 14445.63 $318.25 7/2/98 470 Starbucks 13138.63 13336.25 $197.63 2/23/99 300 Caterpilla 14089.25 14043.75 -$45.50 2/20/98 260 DuPont 15299.43 14430.00 -$869.43 1/8/98 425 3Dfx 10908.63 4887.50 -$6021.13 CASH $9924.87 TOTAL $709735.50Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.
</THE RULE BREAKER PORTFOLIO>
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