Biogen Idec Inc. (BIIB), Sanofi SA (ADR) (SNY): A Must Have Pharma Stock

Sanofi SA (ADR) (NYSE:SNY)’s Aubagio was approved by the FDA in September 2012, after a long period of drought for the company lasting 20 years during when it did not develop any important drug. The drug was launched in October 2012 and accounted for sales of €7 million ($9.1 million) in the fourth quarter of 2012. Sales in Q1 2013 jumped to €20 million ($26 million). Last week, the FDA accepted application for Lemtrada, Sanofi SA (ADR) (NYSE:SNY)’s other MS drug, which came to its portfolio via acquisition of Genzyme, a Massachusetts based American biotech company.

Is Biogen a buy?

The question is not whether it is a buy or not because strong companies should always be a part of one’s portfolio. With an operating margin of 35% and $426.75 in net income on quarterly revenue of $1.42 billion, Biogen is indeed a strong company with ten approved drugs, FDA application filed for one hemophilia B candidate, five in Phase III trials and eight in Phase II/I.

The question is whether it is a buy at this price. At a P/E of 35.71, it may appear as overvalued to some. Novartis AG (ADR) (NYSE:NVS) trades at a P/E of 18.41 and Sanofi SA (ADR) (NYSE:SNY) at 21.87. However, these belong to the “elite” Big Pharma club and a strong comparison is not possible.

Nearer home, among mid-size biopharmaceutical companies, Celgene Corporation (NASDAQ:CELG) trades at 36.46 P/E and Gilead Sciences, Inc. (NASDAQ:GILD) at 35.03.Moreover, Biodec trades at price-to-book value of 7.15 against 9.07 of Celgene Corporation (NASDAQ:CELG) and 7.95 of Gilead Sciences, Inc. (NASDAQ:GILD).

However, despite the favorable comparison with peers, I would still like to be cautious and buy Biogen only on dips. The current dip should be used to buy. I expect more short term dips in the future – there will be news from the European front and the stock is likely to react negatively in the short term. That should be the right time to accumulate more.

Varun Chandan Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Varun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article A Must Have Pharma Stock originally appeared on Fool.com is written by Varun Chandan.

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