Ahead of the Biogen Inc (NASDAQ:BIIB) earnings report, BIIB stock touched a yearly low. This is a far cry from the $370 peak shares reached at the end of January 2018. Unless the market forgets about the bad news on its MS drug that followed its strong fourth quarter results, this quarter’s results may not move the stock much.
In the fourth quarter report issued on Jan. 25, Biogen reported revenue growing 15% year-over-year to $3.3 billion. Operating income rose 65.4% to $1.5 billion, but the company lost $297.4 million, or $1.40 a share. Biogen guided revenue in 2018 of around $13 billion, GAAP EPS of $22.20-$23.20 and non-GAAP EPS between $24.40-$25.20.
The Bad News
Unfortunately, on Feb. 7, Biogen revealed its MS (multiple sclerosis) drug TYSABRI (natalizumab), which treats patients with acute ischemic stroke, did not beat the placebo. The company will reveal the details at a scientific conference in the future.
On Mar. 2, both Biogen and AbbVie Inc (NYSE:ABBV) withdrew its Zinbryta drug, which treats MS. Fortunately for Celgene Corporation (NASDAQ:CELG), the drug does not amount to much sales. For Biogen, it was another bad-news event.
The Good News With First Quarter Results
Biogen reported revenue growing 11.4%, to $3.131 billion in the first quarter. Anti-CD20 revenue grew a solid 30% ($443.2 million), compared to the 6% growth in product sales ($2.52 billion). TECFIDERA accounted for most of the revenue, at $987 million, but rose only 3% YOY.
Sales of Biogen’s other products fell from last year. This includes Interferon, AVONEX and TYSABRI. Though they accounted for a small percentage of total revenue, sales of biosimilars rose a solid 93%, to $128 million.
Business Development Highlights
Biogen signed a 10-year exclusive collaboration with Ionis Pharmaceuticals Inc (NASDAQ:IONS) in which it will pay $375 million upfront, plus buy $500 million of Ionis’ equity at a 25% premium.
Development milestones will cost up to $270 million and are dependent on royalties on net sales and on the indication. While Biogen is responsible for the development and commercialization activities, it will have the option to license therapies.
Biogen’s acquisition of BIIB104 from Pfizer Inc. (NYSE:PFE), which targets the MPA receptor potentiator for cognitive impairment associated with schizophrenia (CIAS), will cost $75 million upfront. It will pay $515 million in development and commercialization milestone payments.
MS is still a core priority for the company as U.S. demand for its drug is driving inventory lower. For its drugs treating spinal muscular atrophy, Biogen is accelerating sales through reimbursements. This will likely hurt profit margins but will pay off in the long run as it establishes its market share.
Meanwhile, reinvesting the excess cash flow to increase shareholder value is another priority. Though the 900,000-share buyback, or $250 million, is modest, BIIB may need to increase the buyback pace as its shares reach new yearly lows.
Biogen added five clinical programs in the last quarter in the areas of ophthalmology, Alzheimer’s disease and dementia, pain, and neuropsychiatry. Positive results from any of these programs this year should not move the needle on the share price, but positive data for MS and neuroimmunology might. Those two areas are Biogen’s core competency.
Valuation for BIIB Stock
The fair value on BIIB stock varies wildly, depending on the model used and the outlook on revenue and profits ahead. If investors assumed EBIT margins in the 40-60% range, Biogen is trading at fair value and has little upside.
But if this biotech produces tremendous cash flow growth over the next few years from successfully launched, new products, then the 10Y DCF EBITDA Exit model (on finbox.io) suggests that investors will get rewarded for holding the stock. The company must grow revenue in the range of 2-6% in the next 10 years, a goal that is achievable.
Disclosure: Author does not own shares in any of the companies mentioned.