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Biogen stock loses ground
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October 8, 1999: 12:30 p.m. ET
Stock falls 7% after analyst downgrade on valuation concerns
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NEW YORK (CNNfn) - Biogen Inc.'s high-flying stock retreated about 7 percent at midday Friday after a better-than-expected profit report failed to impress investors who are concerned the biotech firm's stock is overvalued.
The Cambridge, Mass.-based drug maker posted a 65 percent increase in third-quarter earnings Thursday, but some Wall Street analysts cautioned that the company's stock price is too high. Salomon Smith Barney on Friday cut its rating on Biogen stock to "outperform," down from a "buy," citing valuation concerns and the fallout over a patent lawsuit.
The stock slid 6-3/8 to 81-11/16 in midday trading.
Biogen's profit rose to $62 million, or 39 cents a diluted share in the third quarter, up from $37.6 million, or 24 cents a share, in the year-earlier quarter -- and slightly ahead of the 38-cent per share estimate of analysts polled by earnings tracker First Call Corp. Revenue rose 43 percent to $208.4 million, powered by sales of the successful new multiple sclerosis drug, Avonex.
In a research note, Solomon Smith Barney said the stock is trading at a premium after doubling over the past six months. The brokerage has a $90 price target on the stock. Shares have climbed from 29-3/4 a year ago.
Other analysts said that while the stock is expensive, the company is showing impressive revenue growth that likely will continue.
"I think the growth in sales and profitability at Biogen is really still at a very steep ascent," said Franklin Berger, of J.P. Morgan Securities. He said Avonex is highly effective and serves a rapidly expanding market for multiple sclerosis, and that the company is expanding its pipeline with a new treatment for psoriasis and a drug that could be used both in kidney transplants and to treat lupus.
Drug industry analyst Herman Saftlas of S&P Equity Group also said the company's fundamentals are strong.
"It's a little rich," he said of the stock price. "But on the other hand (Biogen) has earnings growth, is continuing to grow earnings, and the new product picture looks good too."
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Biogen
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