In the large majority of circumstances, relationships between big bio-pharma companies and small biotechs are pretty asymmetrical. Sure, the big companies need new drugs, but they don't live and die on the success of a single drug (like so many biotechs). And yet, when looking at Stock Advisor recommendation BiogenIdec (NASDAQ:BIIB), I'm very much inclined to think that the Tysabri partnership is almost as important to them as partner Elan (NYSE:ELN).
For now, performance at this well-known company is pretty saggy. Revenue was up all of 4% this last quarter, as sales of drugs like Avonex and Zevalin were weak and the joint venture with Genentech (NYSE:DNA) for Rituxan chipped in 14% growth. In fact, while reported operating income did more than double from last year, most of the benefits came from lower expenses. And quite frankly, I'm not sure that a 15% drop in R&D spending is something to celebrate in a company that needs new drugs to kick up growth.
Biogen should hear from the FDA on Tysabri sometime before the end of June, and the general presumption is that there will be a reapproval, likely subject to more cautionary labeling and patient monitoring. And that would be welcome, since the rest of this company's franchise is looking a little long in the tooth.
Rituxan is still doing alright, but there will be oncoming competition from Bristol-MyersSquibb's (NYSE:BMY) Orencia, and likely Roche's Actemra as well. And don't forget that Genentech has a second-generation CD20 product under development that, if approved, would shrink the profit split that Biogen Idec enjoys.
Admittedly, it's not as though the cupboard is entirely bare. The company has compounds in testing for psoriasis/multiple sclerosis, lymphoma, and Parkinson's, as well as a partnership with PDL BioPharma (NASDAQ:PDLI) on three drugs. Last and least, the company recently announced a deal to acquire ConformaTherapeutics and its tumor-fighting heat shock protein drug candidates. Keep in mind that you won't see any approvals from that deal this decade (if ever), and as promising as heat shock protein technology seems now, lots of drugs look promising in phase 1, only to be forgotten in a few years' time.
In the meantime, I can't work up much more than lukewarm enthusiasm for this stock, especially since a lot of hopes are already pinned to Tysabri. Instead, I'd rather look for biotechs with deeper proprietary pipelines and/or pharmaceutical companies with better intermediate growth prospects.
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PDL Biopharma is a Motley Fool Rule Breakers recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
