A Look At Biogen's 2016 Catalysts

| About: Biogen Inc. (BIIB)

Summary

Any positive results from its Alzheimer’s therapy would cause the stock to soar.

Full 2016 guidance at the January 21 results conference would influence analyst assessments.

Tecfidera and Plegridy revenue are keys to 2016 growth, so watch how they do in Q4.

Biogen (NASDAQ:BIIB) is a biotechnology company best known for its therapies for MS (multiple sclerosis) and hemophilia. In Q3 2015 it had revenue of $2.78 billion, up 11% y/y. GAAP net income was $966 million, up 13% y/y. Although it has been one of most successful biotechnology companies over the past decade, in 2015 its stock price was down almost 10%, ending at $306.35.

I believe Biogen will continue to ramp up revenue and profits in 2016. There are several events that could occur during the year that could drive the price considerably higher, possibly even beyond it 2015 high of $480.18 per share. The decline in stock price in 2015 compressed the P/E ratio, so P/E expansion could also help the stock in 2016.

Q4 2015 revenue

Tecfideral trademark

Biogen will release Q4 2015 results on January 21. Likely the single most important number to look for is Tecfidera revenue. Here are Biogen's Q3 2015 results by therapy:

Therapy
Revenue in Millions

Q3 2015

Q2 2015

Q3 2014

y/y %

Tecfidera

$937.4

$883.3

$787.1

19%

Avonex

685.1

615.2

741.8

-8%

Tysabri

479.7

463.1

501.2

-4%

Rituxan

337.2

337.5

290.7

16%

Alprolix

65.7

54.4

25.3

160%

Plegridy

99.7

74.5

3.4

29x

Eloctate

90.6

74.3

21.6

319%

Fampyra

21.0

21.1

20.4

3%

Fumaderm

12.5

12.7

16.5

-24%

Longer term investors will recall when Tysabri was supposed to be the growth leader. Then it seemed dead due to PML fatalities (and you could buy BIIB real cheap, which is when I first invested). Then it came back when Tysabri sales restarted along with a PML detection program. Eventually Tysabri sales levelled off without ever surpassing Avonex sales. Tecfidera has some advantages, but any drug that suppresses the immune system enough to help with MS is likely to result in a PML incident from time to time. After such incidents sales typically drop off for a while.

Tecfidera's main advantage is that it pill, not an injection like most MS therapies. Hopefully revenue will be closing in on $1 billion in Q4 and have PML incidents will remain minimal [see FDA warns about PML with Tecfidera].

The other key drug to watch is Plegridy, a newer MS therapy that has been seeing a good ramp. Eloctate and Alprolix, for Hemophilia A and B respectively, also are still relatively new and ramping sales.

2016 Guidance

Whatever the specific Q4 results, there will be a lot of focus on 2016 guidance. Often companies like Biogen give guidance that is "less than analyst expectations." That is because missing guidance, or having to revise it downward, is an even greater harm. No one knows, really, exactly what sales will be in the future. For CEOs (usually) it is better to give slightly conservative guidance and then beat it, or upgrade it, later in the year.

I am expecting only moderate growth in 2016, up 8% to 10% over whatever 2015 revenue and earnings end up at. There is a lot of competition in the MS market, so even with a drug like Tecfidera there is limited room for growth. The only likely drug approval for 2016 is Zinbryta, which was jointly developed with AbbVie. Since it is another MS drug, it will add something, but not likely be a big growth driver. Growth will come mainly from continuing the process of getting approvals and reimbursement approvals for existing therapies in nations outside the U.S.

There might also be a biosimilar launch or two in Europe in 2016, but even though one is a substitute for Enbrel, it would not likely mean a big surge in revenue.

The Main Catalyst: Alzheimer's data

Biogen released Phase 1 data for aducanumab in March 20, 2015. On that day BIIB hit its 52-week high of $480.18 per share. Clearly, since then the excitement has died off. At the time I wrote that Phase 3 trials are where Alzheimer's therapies go to die, and historically that is true.

But now the possibility of an approvable therapy for early-state Alzheimer's seems to be completely written out of Biogen's stock price. So it pays to peek at the bright side. First, aducanumab is being used for "prodromal or mild" Alzheimer's. It does not have to reverse advanced disease; it just has to stop it or noticeably slow it down. Second, past studies have not always been able to distinguish Alzheimer's from other senile dementias. By using an improved screening test for amyloid plaque, Biogen may be getting a more treatable set of patients. The presence of plaque is the de facto indicator of Alzheimers.

The first patients in the Phase 3 studies were enrolled in September 2015. The Phase 1 study ran for 54 weeks, but also had a 26 week data point. Neither Phase 3 study has had an announcement of completion of enrollment. Nevertheless, even with a plan to enroll 2,700 patients between the two studies some preliminary data could be available before the end of 2016. Certainly in 2017 there should be a major data release.

Even though the market seems to have discounted the possibility of an approval, negative data would probably send Biogen stock down. That almost always happens, but the downside is fairly minimal given Biogen's record of earnings.

The upside? That is why Biogen hit $480 per share in May. Alzheimer's affects about 469,000 new people each year in the U.S [source: Alzheimer's Association]. If aducanumab works, likely each patient would stay on it at least until disease progression. Multiple that by your guess of how much Biogen could charge per patient per year. I doubt it would be as low as $10,000, and the high end would be determined by what the Medicare market would bear.

At $10,000 per patient and 300,000 patients per year, the revenue from aducanumab would be $3 billion per year. A price of $40,000 to $100,000 is more likely. But we are a long way from approval, and there may be competition from newer drugs later.

Summary

I remain positive on Biogen, whatever the outcome of the Alzheimer's Phase 3 trial.

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.

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