The past three years have been nothing less than incredible for biotech stocks.
Since this point in 2012, the iShares NASDAQ Biotechnology Index ETF (IBB) is up more than 150% … and that’s factoring in the 29% pullback IBB suffered between late July and late August this year. That ETF has rallied back 26% from last month’s low.
Not every biotech stock has had a stellar 2015 thus far, however. Case in point? Biogen (BIIB).
BIIB stock is down nearly 5% year-to-date and is currently priced 33% under its March high, mostly after getting thumped in July following dramatically lowered revenue guidance for the full year.
Is it possible, however, that this oversized dip in the value of Biogen has left the BIIB stock price at “value” (read: “bargain”) levels?
From Very Hot to Very Cold
Just as a refresher, BIIB stock has been all over the map this year, though two key catalysts did most of the driving.
The first one was good news regarding its Alzheimer’s drug candidate BIIB037, or aducanumab. On March 20, Biogen officially reported that the therapy did indeed curtail the decline of cognitive functioning while reducing the amount of beta amyloid plaque in the brain. This plaque is believed by many scientists to be a root cause of Alzheimer’s disease.
The lead-up to that announcement was bullish for the stock; the BIIB stock price had risen 27% in 2015 up until that day, and then surged another 10% that day alone.
As is so often the case, however, BIIB stock suffered a case of “buy the rumor, sell the news.” With nothing left in the kettle to excite investors for a while, by the end of April, Biogen had fallen 21% from that peak.
The next major news wouldn’t come until late July — and that news was bad.
On July 24, Biogen’s second-quarter update indicated that sales growth of its flagship multiple sclerosis drug Tecfidera were slowing down more than anticipated. Although Tecfidera revenue still grew 26% year-over-year, compared to the 63% growth it mustered in Q1, shareholders had reason to be concerned.
The slowdown was stark enough to prompt Biogen to cut its full-year growth outlook from a pace of between 14% and 16% to a pace between 6% and 8%.
Oh, and as it turns out, just a few days prior, the company released updated results on the aducanumab trial, suggesting it wasn’t quite as compelling as believed in March.
The killer, however, was the Tecfidera news. BIIB stock fell 22% the day that news was unveiled, and ended up losing another 7% of its value by late August.
All told, BIIB fell 45% from its high to its low this year, and though up a bit in September, shares are still much closer to that low than the high.
So it raises the question … while the news has been undeniably bad, is the worst-case scenario already reflected in the BIIB stock price, and then some? Or, more directly, is BIIB a buy at its current price based on its existing portfolio and pipeline?
In the Biogen Portfolio, Pipeline
As much as Tecfidera sales growth is slowing, sales are still growing, and the drug generated a healthy $883 million worth of revenue last quarter. That translates into annualized revenue of around $3.5 million — though even at its slow-growth pace, that figure is sure to expand.
Meanwhile, although Tecfidera has lost its “rising star” status, investors should bear in mind that Tecfidera only makes up 40% of the company’s sales. Interferon and Tysabri jointly contribute 52.5% of Biogen’s revenue, and those older drugs are apt to drive stable, consistent sales, even if they’re not growing sharply.
As for aducanumab, it’s still a question mark. Although July’s update wasn’t as thrilling as March’s, a closer look at the trial’s results showed a statistically significant benefit by most measures.
Realistically speaking, aducanumab is still a 50/50 proposition, which is more than can be said of a lot of drugs in trials right now … particularly Alzheimer’s drugs, where the need for even modest therapies is still enormous.
Even beyond aducanumab, however, Biogen has a pipeline deeper and wider than most people give it credit for. All told, Biogen has 16 drugs being tested in 18 different trials, five of which are in phase 3 right now.
Perhaps most compelling about the pipeline, however, is that three of those five trials are in areas other than multiple sclerosis and Alzheimer’s, and they stand ready to give Biogen some much-needed diversity. One of the toughest realities to accept regarding the launch of Tecfidera was that it was largely competing with other Biogen drugs.
Although statistics suggest not all five of the drugs currently in phase 3 trials will be approved, an approval of one or two of them would be a game-changer for BIIB stock.
Bottom Line
Calling a spade a spade, Biogen isn’t a risk-free slam dunk. But then again, what stock is?
For a stock trading at a plausible forward-looking price-to-earnings ratio of 18.2 and — even with its reeled-in outlook — remaining on pace to grow revenue by 8% both this year and next year, with earnings projected to rise more than 11% in 2016, one could certainly do worse.
Better still, those may be lowballed outlooks, setting up some beats for the foreseeable future.
In other words, BIIB stock is a compelling buy in the shadow of this year’s oversized beat-down.
Just keep it on a short leash.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
