For the past several months, it seems like traders have focused all of their attention on companies looking for a vaccine for the novel coronavirus. One biotechnology investment that’s not strictly a “coronavirus play,” however, is Biogen (NASDAQ:BIIB) stock.
There is a coronavirus connection, but it’s not a direct one. Preclinical biotech firm Vir (NASDAQ:VIR) is collaborating with Chinese company WuXi Biologic in the search for Covid-19 treatment candidates. And Vir is run by George Scangos, who happens to be the former CEO of Biogen.
Biogen’s primary focus lately, however, is aducanumab. That’s the company’s drug candidate to treat Alzheimer’s disease. The stakes are high and unfortunately, there has been a recent setback.
That being said, Biogen stock could still be a worthy investment as the company’s in a strong financial position and potentially temporary setbacks shouldn’t necessarily discourage Biogen stockholders.
Strong Fiscal Performance
Even before we examine the aducanumab situation, it’s important to take stock of the company’s financial health. And judging by the recent fiscal data, Biogen is in excellent shape.
The first quarter of 2020 provided insight into Biogen’s strong financial position. For one thing, quarterly revenues totaled $3.534 billion. That’s a 1% improvement compared to last year’s first quarter. But even better is Biogen’s quarterly product-segment revenues, which showed an 8% year-over-year increase to $2.905 billion.
Perhaps the most encouraging statistic, however, relates to Biogen’s non-GAAP diluted earnings per share. That figure came out to $9.14 million, representing an absolutely outstanding year-over-year improvement.
The company also generated around $1.5 billion in cash flow from operations during 2020’s first quarter. So there’s really no question that Biogen remains fiscally robust.
This is significant for shareholders because they need to know that a financially strong company is better equipped to withstand temporary setbacks.
Bad News Strikes, and Analysts Pile On
There’s a lot at stake in the battle against Alzheimer’s disease. It’s a highly unfortunate condition that affects 5.8 million Americans and an estimated 25 people worldwide.
Even beyond the public-health considerations, there’s a great deal of capital at stake. By 2024’s end, the global Alzheimer’s drug market will produce a projected $5.7 billion in revenues.
So, it shouldn’t be too surprising that Biogen stock traders have been carefully monitoring the progress of aducanumab. And during the first-quarter conference call, Biogen CEO and Director Michel Vounatsos seemed supremely confident in a relatively fast-tracked regulatory timeline for aducanumab:
“First, we have made good progress towards the regulatory filing in the U.S. for aducanumab. We have continued to have constructive engagement with the U.S. FDA …. [W]e are preparing for a pre-BLA meeting currently scheduled for this summer. Following that meeting, we expect to complete the filing in Q3.”
Still, this evidently wasn’t fast or confident enough for some analysts. They had originally expected a quicker timeline, and they were unforgiving in their revised assessments of Biogen stock.
For example, Citi Research analyst Mohit Bansal downgraded his rating on the stock from “Neutral” to “Sell.” Meanwhile, Raymond James analyst Steven Seedhouse lowered his rating on Biogen stock from “Market Perform” to “Underperform.”
Seedhouse was especially harsh in his assessment, writing, “We can’t go lower than 0% probability for aducanumab.” But that’s typical of some analysts, whose outlook on a stock can turn abruptly when disappointing news is released.
A delay in the development of a potentially lifesaving drug doesn’t necessarily mean that its chances of success are “0%.” When analysts pile on a company after a setback, this creates another setback. But it’s also a potential opportunity because overreactions can lead to oversold conditions for stocks.
The Takeaway on Biogen Stock
All companies face setbacks, and they all must face analyst disfavor sometimes. Biogen stock took a hit because investors and analysts didn’t like the delay in the company’s Alzheimer’s-treatment-development timetable.
But the reaction may have been overstated and the Biogen share-price reduction could be a gift for investors. The company remains in an excellent financial position and Biogen’s path to an Alzheimer’s treatment, while delayed, isn’t necessarily closed off.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
