Biogen Idec's (NASDAQ:BIIB) stock has returned about 17% this year. That's good enough to outpace the S&P 500 index's 8.9% return, but not quite as good as the Nasdaq Biotechnology index's 19% return.
Since Biogen is one of biotechnology's biggest companies, with a market cap of more than $75 billion and a drug product line up that brings in billions of dollars in sales every year, let's take a closer look at what's behind Biogen's stock price performance this year.
Dominating an indication
Some of this decade's best biotechnology companies have succeeded by dominating the treatment of one specific indication. For example, Gilead has become the leading drugmaker of HIV therapies and Celgene has built a robust franchise in blood cancer treatment.
At Biogen, the company's specialty has been multiple sclerosis.
Biogen's prominence in MS stems from Avonex, which won approval for use in helping reduce MS relapses in 1996 and has grown into a multibillion blockbuster with sales of $3 billion last year.
Biogen added Tysabri to its MS lineup in 2004 and Biogen acquired the rights to Tysabri that it didn't already own from Elan last year. Despite a rocky road early on because of an investigation into cases of a rare form of brain disease known as PML, Tysabri has become another big seller, generating sales of $1.5 billion last year.
And now with the launch of Tecfidera, Biogen has a third billion dollar plus blockbuster MS therapy on its hands.
Tecfidera's launch couldn't have come at a better time. Avonex market share has been under assault by new oral MS drugs from Novartis and Sanofi that had launched in 2010 and 2012, respectively.
In trials, Novartis' Gilenya outperformed Avonex in a head-to-head study that showed Gilenya reduces annual MS relapses by 52% versus Biogen's top seller. That led to Gilenya recording sales of nearly $2 billion last year.
Sanofi's Aubagio came to market later, but sales are still cutting into Biogen's market share. Last year, Sanofi reported Aubagio sales of $214 million and in the first half of this year, sales total $225 million, putting the drug on pace to generate a half billion in sales in 2014.
The launch of Tecfidera, however, is blunting Gilenya and Aubagio's threat. After launching last spring, it only took a few months before Tecfidera displaced Gilenya to become the most widely prescribed oral MS drug in the United States. As a result, despite only being on the market since March, Tecfidera sales totaled $876 million in 2013.
That revenue strength has carried over into 2014 with Biogen reporting sales of Tecfidera reached $700 million in the second quarter, giving it an annualized run rate that suggests it could soon displace Avonex as the company's best seller once it's rolled out in more countries abroad.
Tecfidera won EU approval in February and Biogen is knee-deep in negotiating pricing with EU member countries. If those negotiations go well, then Tecfidera's sales should continue to climb. In the second quarter, international sales were just $115 million and to put Tecfidera's potential in markets abroad in perspective, Avonex international sales were $276 million last quarter.
In addition to stabilizing Biogen's existing market share, Tecfidera's launch is also timely because it comes as Teva Pharmaceuticals' Copaxone, the world's best selling MS drug with $4 billion in annual revenue, loses patent protection and faces the looming threat of generic competition. The launch of a longer lasting Copaxone is insulating some of Teva's market share, but other share could become up-for-grabs over the next year as more patients migrate from the original formulation to other treatments.
Fool-worthy final thoughts
Tecfidera is the biggest driver of Biogen's success this year, but it's not the only positive story investors should be cheering. The company won approval for its hemophilia B drug Alprolix in March and its hemophilia A drug, Eloctate, in June.
Those approvals open the door for Biogen to diversify into another multi-billion dollar market. Spending on hemophilia treatment is expected to grow from $8.5 billion in 2011 to $11.4 billion in 2016 and since Biogen's drugs have a longer half-life than previous generation therapies patients will need to take fewer injections every week. That advantage may mean that Biogen has added another market moving drug to its portfolio.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned.The Motley Fool recommends shares of Teva Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.