Whether Biogen (BIIB) had a good third quarter or not is largely a matter of perspective. Earnings and revenue were fine … even better than expected.
Yet a couple of not-entirely-surprising drug failures has prompted the company to move to a fiscally-defensive posture, tacitly sending a message to BIIB shareholders that the company doesn’t have a particularly compelling pipeline at this time, and it doesn’t even have anything of its own to put into the R&D pipeline.
At first, the market saw the glass as half-full rather than half-empty, judging from the strong advance Biogen stock made following the Biogen earnings report on Wednesday morning. But BIIB fell back by mid-day trading, suggesting that investors began to see the bigger picture after getting overly excited.
Biogen Earnings
Last quarter, Biogen earned an adjusted $4.48 per share on total revenue of $2.78 billion. Both figures topped analyst estimates for a profit of $3.83 per share of Biogen stock and a top line of $2.66 billion. And both topped the year-ago figures of earnings of $3.80 per share of BIIB and sales of $2.65 billion.
More important to most investors, sales of the company’s multiple sclerosis drug Tecfidera grew.
It was a detail the market was sweating after Tecfidera sales unexpectedly slowed in the first half of 2015 after a strong launch in the latter half of 2013.
That slowdown was at least partially spurred by concerns the drug could be the cause of a brain infection called progressive multifocal leukoencephalopathy (or PML), but ordinary competition in the MS space also has to get some of the credit/blame for Tecfidera’s tepidness.
Whatever the reasons, they’re seemingly getting resolved now. Biogen sold $937 million worth of the drug in the third quarter, up 6% globally from Q2’s total, and sequentially up 5% in the United States alone. Analysts and investors weren’t expecting any U.S. growth.
Critics will claim that a price increase of 6% is the only reason Tecfidera sales grew last quarter, and mathematically, those critics would be right. But the market was still willing to pay for the drug despite the higher price and despite plenty of alternatives.
Cost-Cutting
All the same, Biogen has to recognize it can’t rely on price increases indefinitely to spur growth, particularly in the wake of the recent Hillary Clinton tweet that made high drug prices public enemy No. 1 to voters, and therefore to politicians. Biogen will have to ramp up Tecfidera’s sales volume at some point, and/or bring new drugs to the market.
There’s the rub for owners of Biogen stock.
Also on Wednesday morning, the company announced that its Phase 3 trial of Natalizumab as a treatment for secondary progressive multiple sclerosis didn’t meet its target endpoint. In other words, it failed, and there’s no need to bother asking for approval. At the same time, Biogen again confirmed it was canning its Phase 3 trial of Tecfidera as a means to also treat secondary progressive multiple sclerosis.
In response to the ending of those trials and a handful of other initiatives, Biogen will be booting 11% of its total workforce, which is expected to translate into an annual savings of about $250 million. For perspective, the company logged $1.4 billion worth of expenses last quarter alone, en route to net income of $965 million.
Bottom Line for Biogen Stock
The good news is, between better-than-expected Tecfidera sales and cost-cutting, the company can invest more in its Tecfidera sales effort … and soon.
For fiscal 2015, Biogen now expects earnings to roll in between $16.20 and $16.50 per share of Biogen stock, up from the dialed-back forecast the company offered just a quarter ago. Revenue should be up between 8% and 9% this year, versus more muted recent guidance.
The bad news is, there’s not a lot left in the pipeline to spur growth above and beyond whatever Tecfidera can muster, and it’s already clear that Tecfidera sales growth isn’t apt to be red-hot anytime soon. Biogen needs to put the pedal to the metal with whatever it’s got left in its pipeline, or more realistically, it needs to turn up the heat on its acquisition efforts.
Of course, with Biogen stock down 30% since just the middle of the year, most of the downside seems to already be baked into the price of BIIB.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
