Biogen (NASDAQ:BIIB) stock has moved significantly since its Alzheimer’s drug, Aduhelm, was approved by the U.S. Food and Drug Administration (FDA). The rally on June 7 sent the stock soaring to an intraday high of $468.55, almost 60% up from its $295.35 open. BIIB stock closed that day at $395.85, halving its huge gains.
What does the future hold for BIIB stock after this rally, especially when it’s up over 30% in 2021? The company’s new drug is not without controversy, but Biogen’s financials may put a positive spin on the story for investors.
The News That Brought a Rally in BIIB Stock
The FDA used its its Accelerated Approval Program to give the green light to Aduhelm, Biogen’s experimental Alzheimer’s drug. This is very big news, and is a net positive for Biogen stock.
The new drug can already help many Americans with the disease, but demand may rise in the coming years. Unfortunately, cases of Alzheimer’s disease are expected to increase, and the treatment market is not faring well. One report shows that, “the global Alzheimer’s disease treatment market is expected to decline from $3.46 billion in 2019 to $3.42 billion in 2020 at a compound annual growth rate (CAGR) of -1.26%.”
The pandemic caused the decline, as restrictions like remote work, social distancing and business closures impeded operations. “The entire supply chain has been disrupted, impacting the market negatively. The market is then expected to recover and reach $4.96 billion in 2023 at a CAGR of 13.21%,” the report stated.
In their report detailing Aduhelm’s approval, the FDA emphasized the urgency of the drug. They estimate that over 6 million people in the U.S. are currently living with Alzheimer’s disease, and they expect the number to grow. The disease is the sixth-leading cause of death in the United States.
Sorting Through the Backlash Against Aduhelm
The FDA has acknowledged that Aduhelm has attracted some negative press. However, we should recognize that regulatory decisions are not always easy to make.
Some may argue that the agency should wait for more information and approve the drug at another time. But the FDA stated, “as an agency, we will also continue to work to foster drug development for this catastrophic disease.” It seems the benefits of Aduhelm should outweigh its potential drawbacks.
Additionally, the overall consistency and evidence presented in Aduhelm’s application met Accelerated Approval standards, despite concerns voiced by the Advisory Committee.
If Biogen can win a significant market share now with Aduhelm, the stock can continue to move higher and even sustain its new price.
BIIB Stock: More Incentives for Investors
In March, I highlighted Biogen stock as one that could bounce further in 2021. I liked the trend of its EPS growth, its attractive trailing P/E ratio of 10.8 and its free cash flow growth. Last but not least, I liked that the company’s management repurchased common and preferred stock consistently over the past five years.
At the time, BIIB stock closed at $262.61. With a price of $335 today, the stock has gained 27% since then. Any correction in the price now should not be a surprise, as profit-taking is inevitable after a surge.
But according to my financial analysis, BIIB stock can move higher. The stock seems relatively undervalued compared to averages in the healthcare sector and the biotechnology and drugs industry.
For example, the first-quarter trailing-12-month Price to Earnings ratio of Biogen is 17.66, while the industry’s and sector’s ratios are 81.16 and 39.96 respectively. Biogen also has stronger profitability ratios for gross margin, operating margin and net margin than its industry and sector.
BIIB Stock Has Potential Beyond Aduhelm
Regardless of the controversy surrounding Aduhelm, Biogen stock is a strong performer. Consistent profitability ratios make it stand out in the field of biotech stocks. The market is taking notice, too — Zacks upped BIIB stock’s expected three-to-five year EPS growth from 10.51% to 12.70%.
I am optimistic about BIIB stock. The approval of Aduhelm has made waves in the stock’s price, but I believe demand for the drug will outweigh the effects of its controversy. A huge fundamental catalyst, consistent high profitability and an attractive valuation makes this biotech stock worth considering for your portfolio.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.