A chronic autoimmune disease, multiple sclerosis (MS) is estimated to impact 2.5 million people worldwide, with 1 million diagnosed globally and 400,000 diagnosed in the United States. The MS market has grown into a lucrative niche for drugmakers, as sustained pricing power for the handful of approved treatments has brought the global market to $11 billion in 2010. We expect mid-single-digit growth during the next several years, taking the market to almost $16 billion in 2019. After years of limited therapeutic options for MS patients, we are beginning to see the arrival of new medicines that are proving more effective and convenient than established treatment options. We see several novel drugs--either newly launched or in the late-stage pipeline--that have billion-dollar-plus annual sales potential.

All three of the firms we're profiling have oral MS drugs on the market or in late-stage development, and we believe this will be a key category of new therapies for MS patients during the next several years. We think Teva (TEVA) and Novartis (NVS) are trading at significant discounts to their fair value estimates, while we see Biogen Idec (BIIB) as fairly valued at today's prices.