If a biotech's drugs have to compete in a crowded market or against stronger rivals, neither a solid scientific team nor quality R&D amounts to much. That appears to be the case for MedImmune
Revenues grew by 15% to $177 million in anticipation of the fourth quarter, from which MedImmune derives most of its revenues. Sales of its blockbuster drug, Synagis, were 11% higher at $112 million, and sales of its inhaled influenza vaccine FluMist increased 52% to $16 million. MedImmune reiterated its guidance for 2006 revenues to be 4% higher than 2005, at $1.3 billion. But the company also posted a loss of $52 million for the quarter.
The biggest revenue-growth driver for MedImmune in the near future is going to be Merck's
For the current quarter, however, FluMist sales have depressed gross margins by 100 basis points to 67% for the quarter. Compared with other biopharmaceutical companies, which regularly achieve 80%-plus margins on their products, MedImmune takes in relatively low margins because of the presence of competing products on the market.
MedImmune is notable for having a venture capital division, which has invested several hundred million dollars in smaller biotechs. Normally, I like this sort of entrepreneurial stripe, but with a company of MedImmune's size, the activity here seems more like grasping for ways to compensate for a lack of sales growth in its marketed drugs. For the same reasons that MedImmune has this venture capital division, the company made an investment this quarter of up to $500 million with small Infinity Pharmaceuticals
So what you're getting with MedImmune is a company with a solid real estate in patents covering several future blockbuster drugs, yet it derives only low-single-digit royalties from this part of its business. The rest of MedImmune's pipeline is in a fairly early stage, except for its next-generation Synagis and FluMist products. Its sales of marketed drugs are growing at a slow rate and are relatively low-margin products. Some patient folks may be willing to wait on MedImmune to turn things around and justify its high valuation, but most other investors should be able to find better value elsewhere in the biotech industry.
Merck is a former Motley Fool Income Investor pick.