Overreaction In Biogen Provides Long-Term Investors An Alpha Opportunity

| About: Biogen Inc. (BIIB)

Summary

Recently, Biogen's stock price has been hammered by bad Alzhiemer's clinical trial data and a cut to Tecfidera's growth estimates.

This massive drop in stock price has been an overreaction, and does not reflect the true value of Biogen.

My fair value estimate has decreased to $380 a share from $413.

What happened

BIIB Chart

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Recently, Biogen's (NASDAQ:BIIB) stock has been hammered down to approximately $310 a share. The Aducanumab data was not as impressive for the 6mg/kg dose as investors or the medical community wanted. This data, unfortunately, was released right before a poor earnings announcement with cutting to Tecfidera's growth forecast in half. This also caused the company to decrease its 2015 revenue growth guidance from 14-16% to 6-8%.

Major Overreaction Causing Undervaluation

I had written previously about how investors should be skeptical of the upcoming data and the probability of success for Aducanumab in Phase III clinical trials. Also, in the article, I wrote about how the upcoming spending spree negatively affects shareholder value. This caused a decrease in the fair value estimate from $453 to $413.

Now, with the Tecfidera's growth forecast cut in half, investors appear to be running for the hills, when they should, in fact, be buying.

Previously, the 5-year growth estimate for Tecfidera was 18%, whereas it has now been halved to 9%, dropping the total 5-year growth rate to 9.44% from 12% previously.

The above table shows the new fair value estimate at $380 a share. With the stock price dropping within a 10% range of significant undervaluation at approximately $290, investors should be looking to accumulate shares instead of selling.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BIIB over the next 72 hours.

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.

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