Biogen Has Surprised Again

| About: Biogen Inc. (BIIB)

Summary

Biogen delivered strong fourth quarter 2015 financial results, which beat EPS and revenues expectations by a big margin.

According to the company's guidance, 2016 revenues are expected to grow only 4.1% from 2015 revenues of $10.76 billion.

In my opinion, this guidance looks very conservative, considering the 4% price increase in multiple sclerosis drugs, I believe that Biogen will achieve the same revenues growth as in 2015.

The average target price of the top analysts is at $397.33, up 45.4% from the January 27 closing price, which appears reasonable, in my opinion.

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Yesterday, on January 27, Biogen Inc. (NASDAQ:BIIB) reported full year and fourth quarter 2015 financial results, which beat EPS expectations by a big margin of $0.43 (10.6%). The company posted revenue of $2.84 billion in the period, surpassing the consensus estimate of $2.7 billion. In the same quarter a year ago, its revenue totaled $2.64 billion. Biogen has shown earnings per share surprise in eight of its last ten quarters, as shown in the table below.

Data: Yahoo Finance

Sales of its top drug Tecfidera, a multiple sclerosis treatment, topped analysts' estimates and helped the company beat fourth-quarter projections. Sales of Tecfidera rose 5.9% from the previous quarter to the most ever; Tecfidera sales accounted for 35% of total Biogen's revenues in the fourth quarter. Tecfidera revenues were $993 million compared to $916 million in the same quarter last year. These results consisted of $785 million in U.S. sales and $208 million in sales outside the U.S. compared to $743 million and $173 million, respectively, in the fourth quarter of 2014.

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Source: Q4 2015 Biogen Earnings Presentation

In the report, Chief Executive Officer George A. Scangos, said:

We saw solid performance in our industry leading multiple sclerosis portfolio and strong adoption of our hemophilia therapies. We continue to make investments in important and promising programs that we believe have the potential to help people suffering from devastating diseases, and we are also excited about the potential to launch three new products this year: BENEPALI®, ZINBRYTATM, and an infliximab biosimilar.

Biogen also announced its full year 2016 financial guidance. This guidance consists of the following components:

  • Revenue is expected to be approximately $11.1 to $11.3 billion.
  • R&D expense is expected to be approximately 19% to 20% of total revenue.
  • The Company plans to continue to invest in a number of R&D programs across its emerging mid- and late-stage pipeline, including aducanumab for Alzheimer's disease, nusinersen for spinal muscular atrophy, raxatrigine for trigeminal neuralgia and amiselimod for inflammatory bowel disease.
  • SG&A expense is expected to be approximately 17% to 18% of total revenue.
  • The Company anticipates an approximately 200 basis point improvement over 2015 driven by the headcount reduction announced in October 2015 as well as a reduction in fees and services expenses.
  • Non-GAAP diluted EPS is expected to be between $18.30 and $18.60.
  • GAAP diluted EPS is expected to be between $16.85 and $17.15.

According to the company's guidance, 2016 revenues are expected to grow only 4.1% from 2015 revenues of $10.76 billion. In my opinion, this guidance looks very conservative. In 2015 revenues rose 10.9% year-over-year and considering the 4% price increase on Tecfidera, Avonex, and Plegridy and a 5% price hike on Tysabri in late 2015, I believe that Biogen will achieve the same revenues growth as in 2015. Also, it is worth noting that the company has recorded substantial growth in the last few years. The company's annual average sales growth over the last five years was high at 17.3%, and the average EPS growth was very high at 29.9%.

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Source: Q4 2015 Biogen Earnings Presentation

I see continued strong growth prospects for the company. Biogen has a robust and broad pipeline with six phase 3 programs and four filed new drugs. What's more, the company is waiting for opportunities to acquire other companies and drugs. Biogen has about $6.2 billion in cash, cash equivalents and marketable securities, which enables the company to make new acquisitions. In fact, CEO George Scangos said in the conference call that if the market deteriorates further, there will be interesting opportunities for the company to make acquisitions.

Referring to the company's pipeline, Dr. Scangos explained:

The year ahead will be very exciting for our pipeline, as we look to advance several potential breakthrough programs. We are executing two Phase 3 clinical trials for aducanumab in Alzheimer's disease, and are awaiting new data from two other Alzheimer's candidates. We are encouraged by open label Phase 2 data for nusinersen for spinal muscular atrophy, the leading genetic cause of infant mortality, and are advancing two Phase 3 studies in infants and children with our collaboration partner Ionis. We expect to see Phase 2 data for anti-LINGO in multiple sclerosis in the middle of the year, allowing us to better understand its potential to reverse or repair damage caused by the disease. We are also focused on expanding our leadership in neurology by continuing to attract top talent and using new technology, novel science and a better understanding of disease biology to pursue early stage programs in areas such as Parkinson's disease and ALS.

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Source: Q4 2015 Biogen Earnings Presentation

Valuation

Since the beginning of 2015, BIIB's stock is down 19.5% while the S&P 500 Index has decreased 8.5%, and the NASDAQ Composite Index has lost 5.7%. However, since the beginning of 2012, BIIB has gained an impressive 148.3%. In this period, the S&P 500 Index has increased 49.7%, and the Nasdaq Composite Index has risen 71.5%. Nevertheless, considering its good valuation and high growth prospects the shares still have much room to grow. According to TipRanks, the average target price of the top analysts is at $397.33, up 45.4% from the January 27 closing price, which appears reasonable, in my opinion.

BIIB Daily Chart

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BIIB Weekly Chart

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Charts: TradeStation Group, Inc.

Biogen's valuation is very good. The current ratio is very high at 3.50, and the forward P/E is low at 14.80. The PEG ratio is low at 1.23, the price-to-free-cash-flow ratio is at 20.01, and the Enterprise Value/EBITDA ratio is at 11.22.

In 2015, Biogen purchased approximately 16.8 million shares of its common stock, completing its previously authorized $5.0 billion share repurchase program.

Summary

Biogen delivered strong fourth quarter 2015 financial results, which beat EPS expectations by a big margin of $0.43 (10.6%). The company posted revenue of $2.84 billion in the period, surpassing the consensus estimate of $2.7 billion. Biogen has shown earnings per share surprise in eight of its last ten quarters. According to the company's guidance, 2016 revenues are expected to grow only 4.1% from 2015 revenues of $10.76 billion. In my opinion, this guidance looks very conservative. In 2015 revenues rose 10.9% year-over-year and considering the 4% price increase in multiple sclerosis drugs, I believe that Biogen will achieve the same revenues growth as in 2015. I see continued strong growth prospects for the company. Biogen has a robust and broad pipeline with six phase 3 programs and four filed new drugs. What's more, the company is waiting for opportunities to acquire other companies and drugs. Biogen's valuation is very good, the current ratio is very high at 3.50, the forward P/E is low at 14.80, and the PEG ratio is low at 1.23. The average target price of the top analysts is at $397.33, up 45.4% from the January 27 closing price, which appears reasonable, in my opinion.

Disclosure: I am/we are long BIIB.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.