Cramer: Already High, This Stock Trades Higher

All week on Mad Money Jim Cramer has been reminiscing about the glory days of big pharma; aka the 1990s when top drug companies traded as growth stocks, at 30 or even 40 times earnings.

Although the big pharma sector is largely defensive today, the Mad Money host is convinced that another sector may be filling that gap - biotech.

These are the companies that are aggressively developing major new drugs and beefing up the pipeline, Cramer said. As a result he thinks some companies may have substantial upside and trade at sharply higher multiples.

One of those stocks is Biogen.

"Don't be scared away by Biogen's seemingly high share price," Cramer said. "Even at its 52-week high, the stock is far from expensive."

Cramer has crunched the numbers and found that Biogen sells for 19 times next years earnings with an 18.3% long-term growth rate. He says that's about the same valuation as Bristol-Myers.

Yet Bristol Myers doesn't have nearly the same growth potential.

And at current levels Biogen is cheaper than Eli Lilly which sells for 20 times next year's earnings. "And Lilly's earnings are shrinking," Cramer said.

By and large Cramer is convinced Biogen has a lot more upside and deserves to trade at a much higher multiple. Here's why:

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Biogen is a leading maker of the most effective treatments for multiple sclerosis, a disease which afflicts some 350 thousand people in the United States and perhaps two million worldwide.

"Because multiple sclerosis is a chronic condition that comes and goes, the goal of every MS treatment is simply to prevent relapses, basically to keep the disease at bay," Cramer explained. "Therefore, there's a population of people who need to take these drugs for life. The total MS market should be worth nearly $18 billion by 2016."

Among Biogen's treatments is a drug called Avonex, said Cramer.

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"It's a mature drug. Nonetheless, it still generated $2.9 billion in sales last year," he explained. "Biogen also makes Tysabri, viewed as having more side effects but also seen as a more effective treatment for MS. And just this week, Biogen received approval for a brand new MS drug called Tecfidera.

But Biogen is about much more than MS treatments. Cramer is also impressed with drugs Biogen has developed to treat other health issues.

"Biogen gets a piece of Rituxan," Cramer explained, "That's Roche's drug for non-hodgkins lymphoma and rheumatoid arthritis. Their cut is equal to about 20% of the drug's sales, and that came to more than a billion dollars last year."

Also the company is working on a hemophilia franchise that could ultimately be worth $3 billion in sales by the second half of the decade.

On top of that Cramer said they have promising new drugs still in earlier stages of development.

"Biogen has an antibody based therapy for MS that's in phase 2 development and they're partnered with ISIS on a spinal muscular atrophy drug that generated positive data just last week, but it's still only in phase one trials."

All told, Cramer likes what he sees.

"Given the strength of the company's MS franchise and their pipeline, I think there's still plenty of upside here. Of course, I hate to chase and the stock is at its 52-week high now, so I say you wait for a pullback and then do some buying—that is, if we get one."

Call Cramer: 1-800-743-CNBC

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