Despite this stock having been much higher, analysts have an average price target north of $61.00.  Its hard to blame the analysts for not being more bullish since Biogen failed to attract any serious bidder.  Because of that failed bidding process, we’d throw the chart out the window for any long-term patterns and even for longer-term moving averages.  But on a short-term basis it looks like $55.00 held just about the entire time as support and shares are only about 5% under where they were before the company announced it was under strategic review.  If today’s stock price and options were to remain static, we’d say options traders were braced for a move of up to $1.80 to $2.25 in either direction.  We’ll also get to see if Carl Icahn is having any "company acknowledgment or capitulation" in his quest to add three board members.

Since we saw the numbers out of Genentech (NYSE: DNA) for Rituxan, we already have much of the key data for Biogen-Idec revenues.  The rest will boil down to earnings and expense management, along with any new drug data and guidance.

• Genentech earnings won, drug sales didn’t.

Biogen Idec Inc.’s 52-week trading range is $42.86 to $84.75.

Jon C. Ogg
February 4, 2008

If you were a biotech bull in 2003, 2004, and 2005 your favorite large cap biotech stock was probably Genentech (NYSE: DNA).  If you traded Genentech in 2006 and 2007, remaining a bull was one painful lesson.  In fact, shares very briefly hit $100 in December 2005 and they have recently traded as low as $65.60 this month.  Shares are down today by almost 1.5% at $70.45 but so far that $70 handle is holding.

Traditionally Genentech has remained a biotech that beats earnings expectations, although that number was only a "barely beat target" last quarter.  The problem that has persisted isn’t the actual growth as much as it is analysts and investors keying in on specific drug estimates not being a blowout on all of its labels.  Revenues were only $6.6 Billion for all of 2005.  The cancer franchise is massive there, yet there always seems to be a general disappointment in one drug or another  (Avastin, Rituxan, Herceptin, Lucentis, Xolair, Tarceva, Nutropin, Activase, Raptiva). 

What we are looking at now internally is the forward valuations, which we feel are achievable in light of the company having a multi-year plan in place.  With estimates showing Fiscal DEC-2008 at $3.37 EPS on revenues of $13 Billion, we have a forward P/E ratio of just under 21 for 2008, and a price to sales ratio (based on a $74 Billion market cap) of 5.69.  For what we believe is still the key leader in its cancer franchise with what is still believed to be a large drug candidate pipeline, we can easily live with these numbers.

Trying to use the "Value Investing" approach to biotech is not always applicable.  We’d merely point you to the woes at Amgen (NASDAQ:AMGN) and Biogen-Idec (NASDAQ:BIIB).  The forward P/E ratios and the sales multiples won’t matter at all if a blockbuster drug franchise comes under target.  While biotechs have been shielded in the past, it is open season on drugs during an election year whether you are a biotech company or just an old stodgy drug company.

We still believe that investors want to own stocks.  And as the economy slows into a recession we think investors will want to own stocks that may have implied safety nets in them.  Many of the other defensive stocks had been showing bubbly valuations just last week, and that doesn’t appear to be the case here.  Now we just have to see if the focus will turn back to the overall performance of the company as a whole.  If the focus will stay on each and every drug at the company then it’s hard to imagine that there won’t be any areas that traders can say were under their investment models.

Wall Street still has an average price target north of $82 per share over the next year and there is still a high target north of $100 out there.  The chart is still one that is at-risk longer-term, but on a short-term it has recovered.  If the street takes a disappointing reaction again we could see that going back to that $65.00 handle.  If there is some horrible unexpected news then who knows where they will find support as the year lows from December and January are roughly 30-month lows.  If options are any accurate tool today it appears that options traders are only looking at an expected price move of up to $2.50 or so in either direction.

As Genentech is the bogey in biotech now, it can affect the entire sector.  It also has partnerships with Novartis (NVS), Biogen-Idec (BIIB), OSI Pharma (OSIP), and others.  It is also still majority-owned by Roche, so the earnings implications and drug comments from Genentech can be far reaching and not just in the U.S.

Genentech is key to one ETF as it represents some 36% of the Biotech HOLDRs (AMEX:BBH). 

Jon C. Ogg
January 14, 2008

We used to do a breakdown on by-drug sales, but it seems that as the coverage has become more and more focused that there is just about always an equal number of analysts saying how pleased they were in one drug and disappointed with another.  The company breaks out its individual sales in Rituxan, Avastin, Herceptin, Lucentis and more.

Analysts still have a positive bias despite a dead-money stock performance and the average price target remains above $90.00.  If you trust the current options pricing as an indicator, it looks like options prices are not expecting a price change of more than $1.00 to $1.15 in either direction.

As far as the chart is concerned, this one has been dead money for two-years despite its stellar growth.  The good news of late is that the long-term downtrend chart pattern that was in place all year was broken in September.  That isn’t yet indicative of any sharp reversal, but at least it is out of that range that took it to two-year lows this summer.

With a $77.00 price it has roughly an $81 Billion market cap.  Shares have traded in 12-month range of $71.43 to $89.73 and shares briefly flirted with the $100 share price handle in late 2005.  As far as forward 2008 estimates, at $3.50 EPS and $13.5 Billion consensus, Genentech trades with a forward 2008 P/E ratio of 22 and a multiple of 6-times revenues.  Here is a link to the company’s pipeline as well.

In 2006 the company offered an update to a much longer-term plan to 2010:
20 new molecules into clinical development;
15 major new products or indications onto the market;
#1 in US Oncology sales;
average annual compounded annual non-GAAP EPS growth rates of 25%;
cumulative cash flow of $12 Billion.
We noted the huge options open interest in a competitor on Friday;
And by now it is well known that Biogen-Idec is up for sale; this could impact the Genentech-Biogen relationship over Rituxan sales;
Telik is way up after a clinical hold was released.

Jon C. Ogg
October 15, 2007