Biogen Inc. (NASDAQ: BIIB) fell alongside the broad market selloff in October, but Biogen stock rallied rebounded when it reported third-quarter results. With BIIB stock price still in value territory at 15 times earnings and 11 times forward earnings, investors should take a closer look at the latest results.
Biogen stock earned $7.40 a share non-GAAP and $7.15 GAAP. Revenue rose 11.7% to $3.44 billion. Besides compelling valuations, the company looks interesting again on a fundamental level.
Spinraza, which treats patients suffering from spinal muscular atrophy, benefited from strong revenue in the U.S. market and even better growth outside of the U.S. Patient prescriptions grew 20% sequentially, adding to the $468 million in revenue. Biogen now has 6,000 patients on Spinraza. Outside of the U.S., reimbursements lifted revenue in Europe, Asia-Pacific, and Latin America. Regulatory approvals in more locations will give revenue growth an uplift in future quarters.
High efficacy and new indications, as shown through its NURTURE study of 25 subjects pre-symptomatic infants with genetically diagnosed SMA, will improve the potential Spinraza’s addressable market.
Biogen’s Pipeline Is Flowing Nicely
Stable revenue suggests Biogen is succeeding in building resilience into its MS core business. Drugs TECFIDERA, AVONEX, and TYSABRI are all stable revenue generators in the U.S. This quarter, Biogen also initiated a new study in ALS and completed enrolment of studies in MS and PSP.
Biogen also has the lead in Alzheimer’s research. The company will presents safety and efficacy analysis of aducanumab from its Phase 1b PRIME study at the Clinical Trials of Alzheimer’s Disease (“CTAD”). Soon, Biogen will also report on the progress of programs targeting Tau, through BIIB076 and BIIB092, plus BIIB080. BIIB076 Phase 1 data will be available in early 2020.
Biogen completed enrolment for the AFFINITY Phase 2b study seven months ahead of schedule. As such, it will have data in mid-2020. It is currently enrolling patients in a study that compares tolerability against TECFIDERA. Data for this will be ready in mid-2019.
Shareholder Value Improves
Biogen demonstrated strong cash flow growth of $1.7 billion in Q3. It bought back 10.5 million shares of Biogen stock and completed five business development deals. The BIIB board authorized another $3.5 billion worth of share buybacks, which should set a floor on the share price should market selling resume. If markets head south, BIIB stock will look more attractive to value investors. Pfizer Inc. (NYSE: PFE), for example, trades at a 20 times P/E compared to Biogen’s 15 times P/E.
Comparable Investments to Biogen Stock
Investors considering Biogen often look at Celgene Corporation (NASDAQ: CELG), Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN), and Allergan plc (NYSE: AGN).
These three stocks all have a market cap that is within the same ballpark as that of Biogen. Valuations are comparable, too, at a P/E level. Biogen’s revenue growth, though, lags that of Celgene and Regeneron but is ahead of Allergan. Still, revenue rates could improve quickly as new drugs come to market.
Investors who ultimately choose Biogen over the other biotech stocks believe that the market for MS and neurosciences will grow.
Fair Value for BIIB Stock
Biogen stock is probably trading at around 30% below its fair value if five and 10-year forecasts of at least 3.5% – 4.5% growth in the years ahead is a reasonable forecast. BIIB stock does not pay a dividend, so the company is choosing to buy back shares and spend in R&D to create long-term value.
While it would help Biogen stock perform better if the stock market did not sell-off, investors cannot predict how markets will move next. But shareholders may predict Biogen will find success in the MS and neurosciences market.
Disclosure: The author does not own shares in the companies mentioned.
