When shares of Biogen Inc. (NASDAQ:BIIB) broke out on July 5 following positive trial results for its Alzheimer’s drug study, the company needed a strong quarterly report to prevent a post-earnings sell-off. When the company reported second-quarter numbers on July 24, it did not disappoint. It looks as though the worst is over for BIIB stock.
Biogen earned $5.90 a share as revenue jumped 9.1% year-over-year to $3.36 billion. Both numbers beat the consensus estimates by $0.59 and $110 million, respectively. Biogen’s multiple sclerosis drugs brought in $2.3 billion, helped by royalty revenue for OCREVUS ($113 million). SPINRAZA, which demonstrated strong global sales, added $423 million to revenue.
BIIB absorbed various one-time costs that weighed on GAAP earnings. It paid out a total of $589 million in association with a new collaboration agreement with Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), an option payment to partner Neurimmune and the acquisition of BIIB104 from Pfizer Inc. (NYSE:PFE).
CEO Michel Vounatsos said that the company continues to build its growth momentum through its specialization in neuromuscular diseases, Alzheimer’s disease and acute neurology. Specifically, SPINRAZA patient treatments increased by 20% from last year.
Investors may expect that growth momentum either holding or accelerating. Biogen is securing reimbursement for the product across multiple geographies.
Progress in Alzheimer’s Disease Treatment
Earlier in July, Biogen announced positive data for its drug treating Alzheimer’s disease. The 18-month Phase-2 study met its primary endpoints that evaluated the efficacy in patients. Amyloid levels in the brain fell and the progression of the disease slowed. However, Biogen is still years away from bringing a drug to market. But these positive results bring hope to Alzheimer’s sufferers as there are currently no drugs that slow or stop the progression of the disease.
Biogen’s drug is currently in the lead when it comes to addressing this market. 5.7 million people live with Alzheimer’s in the U.S. alone, and that number is expected to balloon to 14 million as the population ages.
2018 Guidance
Biogen provided these key data points:
- Revenue is expected to be approximately $13.0 billion to $13.2 billion, an increase from the prior guidance of $12.7 billion to $13.0 billion.
- GAAP R&D expense is expected to be approximately 19% to 20% of total revenue, compared to the prior guidance range of 16% to 17%.
The higher expenses should not concern investors at this time because the company still expects EPS will fall within previous guidance. It expects GAAP EPS in the range of $21.80 to $22.40.
Partnerships and Deals
Biogen inked a collaboration deal with Ionis in June. In return for a $375 million upfront payment and a purchase of 11.5 million shares, or $625 million, the two companies will develop antisense drug candidates. These drugs will target a broad range of neurological diseases.
In June, Biogen bought more of its joint venture partner, Samsung Bioepis for $700 million. This raises its ownership from 5.4% to around 49.9%. The pair also announced in that same month positive results for Benepali, a drug that treats patients with moderate to severe rheumatoid arthritis.
Valuation
Even after BIIB surged to around $380 a share, BIIB stock still trades at a moderate price-multiple of 18 times earnings. Its forward P/E is on the low side of 13.5 times. The historical growth rate of 25% and growth in the next year in the double-digits will interest value investors. With few investors short-selling BIIB stock (the short float is 2%), markets are generally optimistic about Biogen’s prospects.
The Bottom Line on BIIB Stock
Biogen stock already rallied 20% in the last month and almost 40% in the last quarter.
Ideally, the value investor will wait for a pull-back in BIIB price. But with all the good news out and more to follow, the stock may not fall. At least for a while. Those already holding BIIB stock ought to continue keeping it as a core investment.
Disclosure: The author does not own shares in any of the companies mentioned in this article.
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