Every week, 200 people in the U.S. are diagnosed with multiple sclerosis (MS). The central nervous system (CNS) disease causes poor balance, dizziness, difficulty in walking, numbness and tremors. Because MS is difficult to diagnose, statistics are hard to find, but it is estimated between 2 million and 2.5 million people suffer from it worldwide.
Biotech company Biogen Idec (BIIB) is one of the leading developers of pharmaceutical treatments for MS, with an extensive range of successful MS therapies. Its current best-seller is an injection-based treatment called Avonex. In the most recently reported third quarter, sales of Avonex topped $285 million.
The company is also developing a longer-lasting injection-based treatment called Plegridy, which is expected to receive FDA approval in May 2014.
Additionally, in March 2013, Biogen received approval to sell its MS pill, Tecfidera. In the third quarter, Tecfidera sales were $286.4 million, well above analysts' estimates of $217.2 million. By 2016, analysts project Tecfidera revenue will reach $3.5 billion annually.
Also driving future growth is a pipeline of drugs used to treat autoimmune disorders, like arthritis, lymphoma and hemophilia. The company currently has two hemophilia drugs expected to receive FDA approval in mid-2014.
With new drugs about to make an impact on the company's revenues and bottom line, shareholders appear optimistic about the stock's growth potential.
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Rising off their February 2012 $114.53 low, shares formed a major uptrend, surging 165% to date.
After reaching the high $150s in 2012, shares retreated to a low of $139.72 in early 2013, touching the major uptrend line. Upon successfully testing this trendline, BIIB climbed sharply, forming an accelerated uptrend line as it steadily moved higher to a May peak of $242.64.
Between May and November, the stock oscillated between resistance around $248 and support marked by the rising accelerated uptrend line. In mid-November, the stock rocketed nearly $40 higher in one trading week. The following week, BIIB hit an all-time high of $298.82, just under $300 round-number resistance.
Retreating from this peak, BIIB fell to the $270 range and hovered around this support level for the remainder of 2013. In early 2014, the stock penetrated $298 resistance, bullishly breaking out of a small rectangle formation. The rectangle was marked by support around $270 and resistance just under $300. The $300 resistance level should now act as support.
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According to the measuring principle for a rectangle, calculated by adding the height of the pattern to the breakout level, the stock could potentially reach a new all-time high of $327.37 ($298.82-$270.27 = $28.55; $28.55+$298.82 = $327.37). At current levels, this target presents traders with modest 8% potential returns.
However, with no resistance in sight, shares are likely to move higher. The next logical obstacle is round number resistance at $350. Analysts following the company project BIIB could go as high as $375 in the next 12 months.
The upbeat technical picture is supported by a solid fundamental outlook.
For the fourth quarter and full 2013 year, scheduled to be reported Jan. 29, analysts project double-digit revenue growth. Fourth-quarter revenue is expected to surge 36% year over year to $1.9 billion, and full-year revenue is estimated to increase 25% to $6.9 billion.
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The earnings outlook is similarly strong. Analysts anticipate fourth-quarter earnings will increase 62% to $2.27 per share compared to the year-earlier quarter. For the full 2013 year, analysts anticipate a 36% increase to $8.89 per share.
Risks to consider: BIIB had a stellar year, rising over 90% in 2013. The stock is currently trading about 4% below its all-time high, just above $315, and there is no resistance in sight. However, share growth could slow if the company's promising drug pipeline doesn't pan out. Biotech companies can be volatile. To minimize potential trading capital drawdowns, I recommended setting a tight stop-loss.
Recommended Trade Setup:
-- Buy BIIB at the market price
-- Set stop-loss at $289.85
-- Set initial price target at $349.85, just below $350 round number resistance, for a potential 15% gain by late 2014