Washington Editor

Biogen Idec Inc. turned in adjusted earnings per share of 53 cents for the quarter ended Dec. 31, two pennies lower than consensus estimates on revenue that also came in weaker than expected.

Analysts on The Street had guided 55 cents in three-month earnings per share, excluding various one-time business charges. The Cambridge, Mass.-based company's adjusted net income for the quarter totaled $184 million. Its stock (NASDAQ:BIIB) traded down on Thursday, falling $2.49 to close at $48 after rebounding from earlier lows in the session.

The perception that sales are lagging for its flagship product, the multiple sclerosis drug Avonex (interferon beta-1a), played a role in investors' jitters. Prescriptions are tapering downward, explained Piper Jaffray & Co. analyst Caroline Stewart, and revenues would have fallen further without corresponding price increases. At present, she said, the drug costs between $12,000 and $13,000 per year in the U.S.

"I don't think that's indefinitely sustainable," she told BioWorld Today, later adding that "Avonex is weak."

Further overhang on the stock, Stewart said, was the company's disclosure that its arbitration over the partnered cancer drug Rituxan (rituximab) with Genentech Inc. seems "to be nastier" than the analyst community originally perceived.

In their disagreement, Genentech apparently is arguing that Biogen's merger with Idec three years ago constituted a change-of-control event, which would have allowed Genentech to buy out the shared interest in the partnership. Stewart said that even though this argument is likely to be no more than a leveraging tactic, it nonetheless indicates that the companies' relationship has grown more contentious than previously implied.

Based on generally accepted accounting principles, Biogen Idec produced fourth-quarter earnings per share of 32 cents, doubling that figure from the corresponding 2005 period, as well as $109 million in net income and $708 million in revenues. On the same non-adjusted basis, the company produced 63 cents per share for the year ended Dec. 31. Its net income totaled $218 million for the year, up 35 percent over $161 million in the preceding 12-month period. Such growth was driven by increased revenue last year, $2.68 billion, up 11 percent from $2.42 billion in 2005.

Pointing to "nice progress" on core growth and "very strong momentum" on business development, Biogen Idec CEO Jim Mullen told investors during a conference call that "after a couple of choppy years, we feel like we're back on course."

Its revenues primarily were attributable to Rituxan, which generated 14 percent in revenue growth to $811 million from the unconsolidated joint business arrangement through which it's sold, and sales of Avonex, which increased 11 percent to $1.71 billion.

The former produced $2.07 billion in full-year sales, as reported by South San Francisco-based Genentech, Biogen Idec's domestic co-promoter. Relative to their seemingly deteriorating relationship, Biogen Idec stands to lose 5 percent of its current 40 percent collaboration profit for Rituxan upon the introduction of a next-generation version of the drug, which is two to three years from the market but could eat into Biogen Idec's multiple sclerosis franchise.

"My speculation is that's what they're afraid is going to happen," Stewart said, "but that's not anything that they've publicly said."

Avonex's sales consisted of $1.02 billion of U.S. sales and $685 million in international sales. Stewart noted that the figures were essentially flat in Europe, where they had been growing in the low double digits for about two years, and among competitive products, Copaxone (glatiramer acetate, from Teva Pharmaceuticals Inc.) is growing at a faster clip. Its global in-market sales over the last quarter increased 17 percent to $378 million and grew 20 percent worldwide over the full year to $1.41 billion.

Among Biogen Idec's product development highlights during the year, it launched Rituxan's use in rheumatoid arthritis, re-launched Tysabri (natilizumab) for multiple sclerosis in the U.S. and received European approval.

The latter drug's global in-market net sales reached $30 million in the fourth quarter, comprised of $23 million in the U.S. and $7 million in Europe. Based on a collaborative arrangement with Elan Corp. plc, of Dublin, Biogen Idec recognized $18 million of revenue in that period from Tysabri.

With an eye on the future, the partners are bullish about its prospects, with Mullen predicting that it "will eclipse" its competition over time.

But Stewart was skeptical of such lofty projections. She said the drug's early uptake is "pretty much in line" with analyst expectations - nearly 8,000 U.S. patients have enrolled in Tysabri's risk-management program and 5,000 of them are on therapy, and about 1,600 overseas patients have received it. But she questioned Biogen Idec's expectation of $3 billion in eventual peak annual sales. That represents a third-line therapy, and she said most observers believe it will top out at about $1 billion per year.

"In any case," Stewart said, "I think it's too early in the launch to really be able to figure out what the true run-rate for the drug is, at this point."

On an adjusted basis, Biogen Idec's full-year earnings per share totaled $2.25, boosted by net income of $777 million. Such figures exclude purchase accounting and merger-related accounting impacts, stock option expense and the cumulative effect of an accounting change relating to the adoption of the stock option expensing rules, as well as other items

At the end of the year, the company had 345.3 million diluted shares outstanding and $902.7 million in cash, cash equivalents and short-term securities.

Looking ahead, Biogen Idec, of Cambridge, Mass., estimated that it would generate between $1.69 and $1.84 in full-year earnings per share, as well as total revenue growth of a mid-teens percentage over last year. The company expects capital expenditures to range between $250 million and $300 million over the coming year.

Product development highlights going forward could relate to its three compounds in registrational trials: lumiliximab for chronic lymphocytic leukemia, galiximab for lymphoma and BG-12 for relapsing-remitting multiple sclerosis. Also, the FDA is reviewing an application to expand Tysabri's use for patients with moderately to severely active Crohn's disease.

Minneapolis-based Piper Jaffray makes a market in Biogen Idec.