Over the last five years, the shares of Biogen Inc (NASDAQ:BIIB) have traded at an average price-to-earnings ratio of almost 28. Today, BIIB stock’s multiple is 11 (on a forward basis) — less than half the previous average. That must sound pretty good to value investors who like to buy stocks on sale. But is Biogen stock actually a good value?
BIIB stock’s run over the last five years has definitely been impressive.
According to a recent company presentation, sales are up 21% annually and earnings (GAAP earnings-per-share) have jumped 35% each year over that period. It’s no surprise Biogen stock has done well too; it has more than doubled to a recent $275 per share.
Yet BIIB stock traded as high as $334 within the last year. As you might expect, expected growth has slowed considerably. For the year, analysts project flat sales this year (2017) of about $11.3 billion, and modest 7% growth for 2018. Earnings are expected to hover between $21 and $22 per share over the next couple of years.
BIIB Stock: Operations
Biogen’s bread and butter is its portfolio of drugs to help treat multiple sclerosis, a disease that affects the central nervous system and has no current cure. It has at least five treatments for MS that collectively treat 38% of all patients throughout the globe. This market has experienced average annual growth of 12% over the last five years, but growth has slowed further recently.
Management currently considers this area a turnaround story as it tries to increase market share globally. The competition is also getting tougher — large pharma rivals such as Novartis AG (ADR) (NYSE:NVS) and Sanofi SA (ADR) (NYSE:SNY) offer competing MS drugs.
Near-term, BIIB would like see further approval for Spinraza, for the treatment of spinal muscular dystrophy. It was recently approved and launched in the United States. Analysts estimate peak sales of as much as $3 billion annually, which would be a big boost and help offset some sales concentration in the MS portfolio.
Biogen is also looking to become a “more efficient and well-functioning organization,” which suggests that growth is slowing and forcing the company to look at cost-cutting and help prop up profit growth. This echoes a similar move by biotech pioneer Amgen, Inc. (NASDAQ:AMGN), which cut 15% of its workforce and its research and development expenses back in 2014 when its growth suddenly slowed.
The biggest potential excitement is completing Phase 3 trials for Aducanumab, a potential game change in the treatment for Alzheimer’s, which also currently has no cure. The stakes and uncertainty are high, but with any success of this or related drugs being developed, sales could reach as high as $15 billion annually.
The company is also in the process of spinning off a company called Bioverativ Inc (NASDAQ:BIVV) that will house the hemophilia, or the reduction of the ability to blood to clot. Quarterly sales are currently averaging north of $200 million in these businesses. There is great potential — the company estimates the total market size of around $10 billion.
Recent Results for BIIB
Last week, Biogen reported fourth-quarter results. Total annual sales grew a healthy 6% to $11.4 billion. Were it not for the strong and rising dollar, sales would have grown 9%. Tecfidera is the biggest selling drug for the company and 35% of total sales. It also reported a 9% sales boost.
The two hemophilia drugs that will go with Bioverativ grew 42% and 61%, respectively, to suggest the spin off could perform quite well. Net income grew a modest 4% to $3.7 billion, or $16.93 per diluted share.
The Bottom Line on Biogen Stock
Biogen isn’t currently growing rapidly, but sales and profit growth should stay comfortably in respectable territory. It’s reasonable to estimate high single digit growth in both the top and bottom line over at least the next few years.
The company’s pipeline is what excites investors the most. Any positive results in the Alzheimer’s pipeline would likely send BIIB stock up significantly. But in reality, the risk of disappointment is much higher.
On balance, Biogen stock looks like a good bet at current levels. The earnings multiple is well below the market average of about 17.5, and there is little risk that sales fall because of a down economy or global recession.
As of this writing, Ryan Fuhrmann was long shares of Biogen, but did not hold a position in any of the other aforementioned securities.
