Biogen: Promising Pipeline, Needs Catalysts as Profitability Weakens

Biogen, Inc. (BIIB) is a biopharmaceutical company that discovers, develops, and delivers therapies to treat neurological and neurodegenerative diseases.

It offers TECFIDERA, AVONEX, PLEGRIDY, TYSABRI, VUMERITY, and FAMPYRA for the treatment of multiple sclerosis; SPINRAZA for the treatment of spinal muscular atrophy; and FUMADERM for the treatment of severe plaque psoriasis. Biogen was founded in 1978 and is headquartered in Cambridge, Massachusetts.

I am neutral on BIIB stock now as the company has a diversified portfolio of projects related to immunology, ophthalmology, major depressive disorder, and Alzheimer’s disease, but there is weakness in profitability. The stock has underperformed the overall market in the past 12 months, and its upcoming earnings can be a catalyst to reverse this poor stock price performance.

Biogen Business News

Biogen has a focus on neuroscience and has stated that it wants to have a dialogue with the Centers for Medicare & Medicaid Services (CMS), which said it would cover Aduhelm and similar treatments for patients enrolled in approved clinical trials.

The biotechnology company stated, “It is imperative to change this draft decision to be aligned with reimbursement for other therapies for progressive diseases, where patients have immediate and equal access to medicines approved by the FDA.

“The FDA’s accelerated approval was supported by clinical data showing that ADUHELM impacted the underlying pathology of Alzheimer’s disease. This includes a robust reduction in pathological hallmarks of Alzheimer’s disease, specifically for both amyloid plaques and neurofibrillary tangles in the brain.”

On January 1, Biogen cut the price of ADUHELM by about 50%, mentioning, “For a patient of average weight (74 kg), the yearly cost at the maintenance dose (10 mg/kg) will be $28,200.”

Biogen Pipeline Portfolio

There are nine projects currently in Phase 3 clinical trials. These include BIIB067 for the treatment of SOD-1-Amyotrophic lateral sclerosis (ALS), Lecanemab for Alzheimer’s disease, SB15 for various ophthalmologic conditions, Dapirolizumab pegol for systemic lupus erythematosus, and BIIB125 for major depressive disorder. If these projects are approved, they can add significant revenue and enhance profitability.

Q3 2021 Financial Results: Mixed, Confirming Slowdown in Profitability

In Q3 2021, BIIB stock earnings continued the weak profitability that started in Q3 2020. EPS GAAP actual of $2.22 was a miss by $1.30, but revenue of $2.78 billion was a beat by $114.38 million.

Compared to Q3 2020, Biogen reported lower total revenue, lower income from operations, and lower net income. Net income attributable to Biogen, taking into account non-controlling interests, was $329.2 million compared to $701.5 million in the same period a year ago.

Fundamentals – Risks

Biogen has a profitability trend that shows a loss of momentum. The operating margin has been in a five-year decline, with margins going from 49.9% in 2016 to 23% in the last 12 months. On the other hand, gross margin shows remarkable stability of over 80% in the past five consecutive years from 2016 until now.

On a TTM basis, the net income margin of 13.9% is at five-year lows. The same note applies to ROE and for return on invested capital. The debt/equity ratio of 0.63 per latest quarter does not pose a problem as the free cash flow trend is strong in general, although it has a lot of volatility.

Efficiency ratios such as inventory turnover and fixed assets turnover also show weakness, and the five-year average growth for revenue of 4.55% is moderate.

Valuation

BIIB stock is attractive based on its P/E ratio of 21.9x compared to the U.S. biotech industry average of ~24x but seems expensive based on its PEG ratio of 2.3x.

Other interesting facts about valuation are that the price/book ratio of 3.28 is close to a two-year low of 3.15, and the price/sales ratio of 3.17 is close to a one-year low of 3.05.

Wall Street’s Take

Turning to Wall Street, Biogen has a Moderate Buy consensus based on 14 Buys and 13 Hold ratings assigned in the past three months. The average Biogen price target of $283.30 represents 26.4% upside potential.

Conclusion

Biogen has a promising pipeline portfolio with many products at Stage 3 clinical trials, which could soon boost revenue and profitability. For now, the biotech company shows both profitability and operational weakness, but its stock is to be closely monitored for important announcements in 2022.

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