Let's spell Biogen Buy-o-Gen. Indeed, BIIB seems increasingly appealing at current price.
The biotech focuses on discovering, developing, and delivering therapies to people living with serious neurological, rare and autoimmune diseases. The Company markets various products for multiple sclerosis (MS), SPINRAZA for the treatment of spinal muscular atrophy (SMA), and a number of biosimilars. BIIB has a range of other products and drug candidates in various stages of development.
Financial Performance Remains Strong
First, some financial metrics are in order. Let's get grounded. Sentiment is volatile, numbers-based performance is not...
Source: 2018 Annual Report, BIIB
- The biotech's financials remain sound. In 2018, total top line grew about 10%. GAAP and non-GAAP diluted earnings per share jumped 80% and 20%, respectively.
- Biogen Q1 2019 revenues increased 11% to $3.5 billion, versus the first quarter of 2018 (above the FactSet consensus of $3.396 billion). GAAP diluted EPS increased 29%; Non-GAAP diluted EPS increased 15%. Profit for the latest quarter rose to $1.409 billion, or $7.15 per share, compared with $1.173 billion, or $5.54 per share, in the year-earlier period. Adjusted earnings per share matched the FactSet consensus.
Please, see statistics below for most following detail. BIIB's gross margin is more than 82% of other companies in the pharmaceuticals industry, which means it has more cash to spend on business operations as compared to its peers. As indicated by a high operating margin of 42.40%, BIIB controls its costs and expenses better than 97% of its peers.
The Return on Equity of 33.64% shows that the biotech is able to reinvest its earnings more efficiently than 97% of its competitors in the Pharmaceuticals industry. Typically, companies that have higher returns on equity are more attractive to investors. The return on assets of 18.14% is also rather high.
BIIB's debt to equity ratio of .43x indicates that it has been as aggressive with using debt to finance growth as compared to its peers in the Pharmaceuticals industry. At worst, the balance sheet is reasonably levered.
- The Price/Earnings Ratio of 9.91 (trailing, again see valuation section below) is lower than 66% of other companies in the Pharmaceuticals industry. In other words, investors are willing to pay less for its level of earnings relative to future growth. Another way of putting it: shares appear rather inexpensive.
- A short interest as a percentage of float of 2.02% seems to confirm that that few traders or speculators are willing to bet against the firm's odds of a recovery, or at least on further collapse of the shares, at this juncture.
Therefore, BIIB has appealing fundamentals and financials. The recent collapse of shares (which we're about to broach upon) may present a solid entry point if we can demonstrate that the stock is not a value trap. We intend to do better, i.e., demonstrate that BIIB constitutes, not only mere value, but also growth recapture status potential. A thorough analysis of BIIB's product portfolio and pipeline will follow in order to back our point.
The Shares Recently Collapsed - Buy Opportunity or Value Trap?
BIIB plunged 28% on 3/21/19 after the drugmaker said it would discontinue its Phase 3 trials of aducanumab, an investigational drug designed to slow cognitive decline in patients with early Alzheimer's disease (AD). In fact, this qualified as the stock's biggest one-day percentage drop since August of 2008. Biogen and partner Eisai Co. Ltd said the decision was based on the results of an interim analysis conducted by an independent monitoring committee. Management at Biogen concluded the trials were unlikely to slow cognitive and functional impairment in patients on aducanumab compared with those on a placebo.
Interestingly, Director Alexander Denner had bought more than $20 million worth of BIIB at an average price of just under $330 a share at the end of January/beginning of February 2019, that is, just before the collapse. Food for thought. Had you trusted Mr. Denner's judgement and mimic a key insider's buy pattern, you'd be sitting on a rather significant loss, as well. This, of course, constitutes no forward statement or critique of Mr. Denner's savvy. Biotech is a rough business; kudos to entrepreneurs in the field! And BIIB may very well turn around in the weeks, months, or years ahead; actually, some value investors may indeed find the stock attractive at this stage. Anyhow, transactions initiated by hedge fund managers and insiders may provide unique insight into specific market opportunities. But they are not bulletproof. Remember to tread carefully.
Now what? If the firm's fundamentals and financials remain on solid ground, surely the challenge may reside in the product portfolio and pipeline. Is the AD setback symptomatic of a deeper portfolio/pipeline malaise? Let's have a thorough look.
The Product Portfolio Holds More Promise Than Generally Perceived
Source: 2018 Annual Report, BIIB
Multiple Sclerosis (MS) - Global Leadership But Slowing Growth
The firm has asserted, and is committed to maintaining, market leadership in its core franchise of MS. It treats a third of MS patients worldwide.
TECFIDERA has a 5-year track record since its approval by the FDA and is the most prescribed oral MS therapy globally. It's a key part of BIIB's MS franchise, and by far the firm's largest revenue generator. Unfortunately, it seems to be reaching maturity. Year-over-year sales have been mostly stagnant, up 1.5% only in 2018. Tecfidera brought in $999 million in the first quarter of 2019, up from $987 million a year ago. Although revenue from TECFIDERA grew (but hardly), sales actually missed Wall Street's estimates, and investors have been worried about what the future holds for the blockbuster drug. TYSABRI is the market leading high efficacy therapy for MS globally. Sales have been declining by a little over 5% from 2018 to 19. BIIB also has the market leading interferon portfolio for MS globally with AVONEX and PLEGRIDY, but there again sales have been challenged, declining by a little more than 10%. The pattern is clear and indeed explains why a number of shareholders, SA contributors, and analysts have expressed reservations about the share; they seem to have a point.
Further, the MS therapeutics market is seeing an upsurge of available treatment options and several promising late-stage pipeline products offering diverse mechanisms of action. The launch of 12 new therapies between 2016 and 2026 will impact the MS space, providing more options for patients, but also stimulating competition. The MS pipeline features nearly 300 drugs across all stages of development (although 65% of these drugs are in preclinical stage of development). For example, TECFIDERA is up against a substantial patent threat from Mylan NV (http://www.marketwatch.com/story/biogen-stock-declines-as-patent-office-says-mylan-patent-win-likely-2019-02-06)(MYL) Alright, both points - BIIB's MS pipeline reaching maturity and emerging competitive threats - are duly noted and well taken.
There is a strong multi-prone argument to be made in favor of BIIB's MS franchise, though. First, the MS market is expected to grow in sales from $19,063M in 2016 to $25,566M in 2026 with a compound annual growth rate (OTCPK:CAGR) of 3%. While BIIB shareholders had rather see a CAGR of 10% or 20%, a slow, steady growth environment may still allow multiple candidates with a broad range of mechanisms of action to capitalize on the trend. Anti-CD20 antibodies, second generation S1P receptor modulators, and a tyrosine kinase inhibitor, constitute some of the contenders. The MS market's constrained but steady expansion may help BIIB stabilize or even slightly grow sales volumes, or at least (more likely) minimize revenue deterioration. BIIB's incumbency status is a key factor - leadership will perpetuate until some major competitive alternative materializes (given the above, an occurrence that cannot be discounted but has yet to fully take shape).
Further, and this is rather good news, BIIB keeps digging and continues to build momentum by adding depth to its core MS franchise. In December Alkermes submitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for diroximel fumarate (BIIB098), a potential treatment for relapsing forms of MS (RMS). If approved, under a license and collaboration agreement in place, BIIB will be responsible for marketing. Approval is expected in the fourth quarter of 2019. This may help revitalize the franchise. To what extent has yet to be fully determined, of course. But this is a nice add-on. More generally, BIIB strives to expand and advance its various franchises; it recently added six new clinical programs and completed enrollment of late-stage studies, including the AFFINITY study for MS.
Finally, legal settlements of BIIB's litigation with Mylan (MYL) over intellectual property for TECFIDERA, a patent dispute that has weighed on Biogen's stock, also have the potential to catalyze shares. Remember Qualcomm vs Apple? Well, expect no ramifications of such magnitude, of course, but a nice surprise can't hurt. Expect no final resolution before 2020, though.
As a result, while MS sales are being challenged on multiple fronts, BIIB enjoys a first-mover advantage in a still-growing (albeit admittedly slowly) market and is already striving to preempt competitive threats. A strong argument can be made that MS sales will remain strong (even if they decline by some measure) over the next few years. In my view, they are as unlikely to gap down severely as they are to gap up in the short or medium term. MS is thus likely to remain a core franchise for some time to come, and BIIB may be able to perpetuate some of the strong financial performance we've seen in the recent past. This is a first important parameter to factor in. Of course, shareholders (including the CEO himself, since he's just bought some shares, more on this below) will want to see much more than status quo or defensive stands. Let's go there...
Spinal Muscular Atrophy (SMA) - Threatened Growth Engine
SPINRAZA is the first approved treatment for SMA, a rare neurological disease and most common genetic cause of death in infants, affecting 400 to 500 children born in the U.S. each year. SPINRAZA won the prestigious International Prix Galien for Best Biotechnology Product. The efficacy and safety profile of SPINRAZA is clear. The new interim results from the NURTURE clinical study (October) have demonstrated remarkable efficacy data in pre-symptomatic infants (up to six weeks of age at time of first dose, genetically diagnosed with SMA, not experiencing any symptoms by the time of first dose). The data showed that pre-symptomatic treatment resulted in many infants achieving milestones consistent with normal development - 100% alive, none requiring tracheostomy or permanent ventilation, 88% able to walk either with assistance or independently. Financials are one thing; the health and human factors another... The impacts admirable, and the boost in SPINRAZA sales no less impressive.
The strong recent performance of the drug is helping BIIB build a second disease franchise. This is another critical development. Some had feared that BIIB was overly dependent on one franchise - MS. It now seems clear that these fears are no longer warranted. SPINRAZA sales in 2018 nearly doubled to reach $1.7 billion. They brought in $518 million in the first quarter of 2019, up from $364 million in the year-earlier quarter. This means that the drug may very well accrue more than $2 billion in revenue in fiscal 19. Both U.S. and international sales drove growth. In a short two years, BIIB's first product based on the anti-sense oligonucleotide (ASO) platform has become the standard of care in SMA. By the end of 2018, the drug had been approved in over 40 countries and received formal reimbursement in 30 - benefiting more than 6,600 patients as of year-end. In 2018 the drug was the fourth largest seller for BIIB, nearly neck-to-neck with TYSABRI and not too far from Interferon contributors. Potentially, especially in view of the rather spectacular growth rate, there is a case to be made that SPINRAZA could become BIIB's second-largest selling drug, and SMA a true portfolio diversifier - not only a counterpart to maturity-reaching MS drugs, but an asset with the potential to help BIIB regain growth stock status, as long as other positive developments kick in (and not too many negative ones do) at the same time. How over the next quarters SPINRAZA evolves the top line will thus be critical. At any rate, SPINRAZA's recent growth trajectory is a promising development, and strong sales may even help BIIB outperform short-term.
Of course, there are competitive threats in SMA too. The FDA has just approved a new therapy that will compete with SPINRAZA. When it was approved in 2016, SPINRAZA had no competition - and a price tag of $750,000 for the first year and $375,000 each year after that for the rest of the patient's lifetime. The competing therapy, Zolgensma, a gene therapy developed by Novartis AG (NOVN.EB) subsidiary AveXis, requires just one dose, an admittedly simpler protocole, and is expected to carry a price tag of $2.125 million. The gene therapy introduces new DNA into the body to correct a faulty gene; victims of the most severe version of the ensuing disease (around 300 in the U.S.) often die before age 2. Further, Spinraza faces impending competition from risdiplam, an investigational spinal muscular atrophy drug being developed by Roche Holding Ltd. (ROG.EB) and PTC Therapeutics Inc. (PTCT). CEO Michel Vounatsos did not seem overly worried on the company's latest earnings call. Here was his take on the new competitive landscape: "While we welcome new options for patients, we continue to believe that Spinraza will remain the standard of care in SMA for years to come. Overall, we expect Spinraza to continue to grow. The Biogen team is standing up proud, while taking the current situation very seriously." Despite Zolgensma's high price tag, management at Novartis' AveXis unit estimates that the drug will cost half the price of Spinraza, over a 10-year period. That's a meaningful statement, and key competitive threat, no doubt.
Of course, there is a case to be made that Spinraza's first-mover advantage will serve BIIB well (as was argued above for the MS franchise), and sales will show stickiness for some time. The number of patients treated in the pivotal clinical trial of Zolgensma, just 12 originally at recommended dose, makes it unlikely that doctors will embrace the alternative massively from the get go; Spinraza's much more extensive track record thus makes it a solid incumbent. Zolgensma will also primarily target infants for starters, where Spinraza targets specific forms of SMA and tends to pursue growth potential with adults, as well. In addition, care providers, insurers, regulators, and patients would be hardly pressed to consider the price tag of $2.125 million, which makes Zolgensma the most expensive drug yet, as a low-cost alternative. Granted, Novartis will offer insurers the option to pay for the treatment in five equal annual installments - with pledges to issue partial refunds if the treatments doesn't work. Fine, nonetheless.
Meanwhile, BIIB is underpinning its SMA articulate with strong pipeline activity - and signaling. In June 2018 BIIB invested $1 billion to enter into a 10-year exclusive agreement with collaboration partner Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), giving BIIB access to their innovative antisense platform across a broad range of neurological diseases to develop novel antisense oligonucleotide (ASO) candidates. This promising platform has the potential to selectively target the genetic and pathological origin of disease. BIIB made progress in neuromuscular disorders by acquiring BIIB110, a muscle enhancement program for investigation in Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig's disease) and SMA, and advancing programs based on the said ASO platform. BIIB initiated a Phase 1 study of BIIB078, an ASO drug candidate targeting the most commonly inherited cause of ALS. ALS is caused by the death of neurons controlling voluntary muscles; patients experience stiff muscles, twitching and gradual weakness. But the condition is rare, affecting an estimated 16,000 Americans, according to the ALS Association. By some estimates, sales for these two drugs may top out at $500 million annually in the U.S. In the fourth quarter of 2018 BIIB and Ionis announced results from a positive interim analysis of the ongoing Phase 1 study of BIIB067 (tofersen) in ALS with superoxide dismutase1 (SOD1) mutations, a genetic form of ALS representing approximately 2% of all ALS patients. This interim analysis demonstrated both proof-of-biology and proof-of-concept with a concordance across multiple clinical and biomarker endpoints. Based on these results, the partners started their Phase 3 VALOR study, a continuation of the Phase 1/2 study. The positive interim results from the BIIB067 program may have positive implications for additional ASOs in the pipeline. BIIB078 leverages a similar RNA degradation mechanism. Furthermore, the BIIB080 program is an ASO targeting tau that is currently being evaluated in a Phase 1 study in patients with mild AD. In sum, BIIB management considers SPINZARA as an anchor product around which the firm can organize a whole neuromuscular disease franchise.
At minimum, we've ascertained that the firm has become a coherent, robust dual revenue generation engine - with a strong, maturing or decelerating, but likely not collapsing MS franchise and a fast-growing SMA counterweight about to get hit by meaningful competitive threats. The possible-to-likely resulting perpetuation of strong financials now confers BIIB at least some defensive standing/status (value-type, probably no trap), but the stock still fails to dissipate all fears and assume pure-play growth status in my view, at least based on the above alone. As it turns out, though, the firm has a third revenue generator - biosimilars (BioS) - which must be analyzed dynamically. Let's proceed then.
Biosimilars - A Solid Growth Engine
Biosimilars (BioS) are biologic medicines similar to currently available biologic treatments, but they offer cost savings over originators while promoting sustainable access to therapies. BIIB's 2018 revenues also grew as a result of the continued expansion of its biosimilar business. Several key points qualify here. First, the products revenue diagram above is a bit misleading. The 'Other' section (which does include BoiS) shows a near stagnation, as revenue only increased 5% to $662 million or 6% of total sales year over year. But the Annual Report and table of financial results below do indicate that BioS sales actually increased 44% to reach $545 million over the prior year. More than 100,000 patients are currently on Biogen biosimilars... BioS thus seem to constitute a fast-growing business. This growth was primarily driven by the success of BENEPALI, as well as the continued growth of FLIXABI, and the October launch of IMRALDI in several European markets. For 2018 and 2017 'Other' also includes product revenues from FAMPYRA, a treatment indicated to improve walking in adult patients with MS licensed from Acorda Therapeutics (ACOR) (to commercialize in all markets outside the U.S.), FUMADERM, and ZINBRYTA (being withdrawn). For 2017 Other also includes product revenues from ALPROLIX and ELOCTATE through January 31, 2017. No product revenues for ALPROLIX and ELOCTATE were recognized subsequent to February 1, 2017, the effective date of the spin-off of the firm's hemophilia business. This is important, because what it means is that BioS revenue is gathering major momentum. If we apply a growth rate of say 30% to 50% (or simply repeat the 44% rate) to BioS 2018 revenue of $545 million, now we've got another (close to) $1 billion yearly contributor to revenue potentially by fiscal 2019 or certainly 2020.
Source: Biogen Investors Relations
This is critical indeed, and on two grounds. First, BioS present lots of potential worldwide. With some of the world’s best-known biologics continuing to face patent expiration in the coming years, the biosimilars market is set for continued growth. McKinsey & Company estimate sales will potentially triple in size to $15 billion by 2020, or closely thereafter. To quote their analysis, "the European market is expected to continue to mature and the US offers opportunities, despite many practical challenges. On both sides of the Atlantic, however, downward price pressure suggests competition will be intense." Second, BIIB's building of a robust BioS franchise can only presumably help BIIB's messaging around cost-cutting rationales and price mindfulness, at a time when there is a flareup of rhetorics re: healthcare costs spiraling out of control, and a lot of constituencies including the White House target health care costs.
At any rate, what we can infer from this is that BIIB seems to have created for itself a three-way revenue generation engine - MS, SMA, and BioS - the former with value attributes (as MS sales will likely degrade a bit over time but show some stickiness, as we asserted above), the second with value to possibly diminishing growth attributes (likewise, the impact is just more recent), and the third with growth attributes. Of course, all this has yet to be confirmed. After all, we could see a collapse of MS sales, or a gap down in SMA revenue due to Novartis and other competitors' market penetration, or BioS disappoint. But, given the simple, rather cautious or conservative, dynamic analysis made above, it's negative, not positive, developments that seem a bit of a longer shot. BIIB's MS and SMA franchises could resist well and even grow a bit in more competitive but slowly growing markets, and the BioS franchise could show significant upside. After all, BIIB seems quite dedicated to the sector. In 2018, through BioS player Samsung Bioepis Co., Ltd. (Samsung Bioepis), BIIB's joint venture with Samsung BioLogics Co. Ltd. (Samsung BioLogics), the firm launched its third biosimilar, the aforementioned IMRALDI, and BIIB now offers three major anti-TNF biosimilars in Europe. Additionally, in November 2018, BIIB increased its ownership in Samsung Bioepis to approximately 49.9%. The launch of SPINRAZA and the growth of its biosimilar business have also led to meaningful revenue growth outside of the U.S. and the expansion of BIIB's global footprint. At the end of 2018 ex-U.S. product revenues were 37% of product revenues, up from 32% of product revenues in 2017. This is another welcome development, and balancing act.
We have so far shown that a biotech with strong financials and a solid business and cash generation profile is well on its way to graduate from a one- to a three-way revenue generation engine - with a leading MS world franchise (at least for now), a clearly at-risk but still fast-growing SMA articulate with incumbency status, and fast-growing BioS portfolio possibly contributing close to $1 billion of revenue in (shall I write, as early as) 2019 or more likely 2020. Again, only assume the same year-over-year growth rates of the respective franchises, factor in real (understand scary) competitive threats (in particular, as relate to SMA and MS), and you're essentially there. I can see the seeds of growth here, not just value. Value trap? I get the argument. Totally, it's a fair concern that some of my fellow shareholders and SA contributors have. But I don't think so. In hindsight, not even close. BIIB's involvement in biosimilars is another critical factor - and may serve as one more stepping stone toward building a whole new growth engine in and of itself. Indeed more is in the offing. Let's proceed to...
Other Key Pipeline Developments
With three major franchises or revenue generation engines, the biotech may very well regain growth status. Further, management seems to have a solid pipeline strategy (with five late-stage assets) on top, which may have significant top-line ramifications, and solidify our case for growth resurgence potential, in the foreseeable future. In 2018 BIIB funded research and development expenditures of $2.6 billion. The firm spent a total of approximately $1.8 billion to expand its pipeline as it signed six business development deals and increased its ownership in Samsung Bioepis.
Source: 2018 Annual Report, BIIB
Movement Disorders (mDi)
BIIB's expansion into mDi holds promise. The firm initiated a Phase 2 SPARK study of BIIB054 in Parkinson’s disease and completed enrollment of a Phase 2 PASSPORT study of BIIB092 (gosuranemab) in progressive supra nuclear palsy (PSP), a disease leading to loss of balance, slowing of movement, and dementia. BIIB's most advanced asset for PSP, BIIB092 is a mono-clonal antibody targeting tau, which is believed to be the underlying cause of the disease. Phase 1 data demonstrated a greater than 90% reduction in CSF tau. If BIIB092 demonstrates clinical efficacy in PSP, it would represent a milestone for BIIB's efforts to treat movement disorders and tauopathies. The mDi pipeline is best construed as mid-stage, but mission-critical.
Source: 2018 Annual Report, BIIB
Stroke (acute neurology)
BIIB recently has started enrolling patients in global phase 3 study of BIIB 093 (IV Glibenclamide) for large hemispheric infarction (LHI). LHI is a severe type of ischemic stroke with high mortality (40 percent to 80 percent) and no currently available therapy. The CHARM study is to evaluate IV glibenclamide for the prevention and treatment of severe cerebral edema in LHI. The study initiation advances BIIB’s position in the emerging growth area of acute neurology.
Source: 2018 Annual Report, BIIB
CHARM aims to enroll 680 patients with LHI in approximately 20 countries. It will evaluate the efficacy and safety of IV glibenclamide treatment within 10 hours following stroke onset. Each year ≈1.7 million ischemic strokes occur in the U.S., Europe and Japan, and around 15 percent are classified as LHI. In preclinical studies, IV glibenclamide has been shown to inhibit specific channels that mediate stroke-related brain swelling. Phase 2 proof-of-concept evaluations have demonstrated the potential of IV glibenclamide to reduce brain swelling associated with disability and mortality. IV glibenclamide was granted Orphan Drug Designation by the FDA for the treatment of severe cerebral edema in patients with acute ischemic stroke. The FDA has also granted the CHARM Special Protocol Assessment and IV glibenclamide Fast Track Designation. BIIB seeks to deploy breakthrough approaches for investigational drugs in acute neurological conditions with limited or no treatments. BIIB093 has the potential to become the first major innovation in stroke in over 20 years. Advancement of this high-quality asset to Phase 3 thus represents a significant milestone, not only in the firm's stroke clinical program, but also in the constitution of multiple late-stage assets with an aim to transcend the current tri-polar franchise setup, reconfigure the business, and catalyze growth.
Ophthalmology Franchise - Nightstar Therapeutics
In March 2019 BIIB entered into an agreement to acquire Nightstar Therapeutics plc (NITE), a clinical-stage gene therapy company focused on developing and commercializing a pipeline of novel and potentially curative, one-time retinal gene therapies for patients suffering from rare inherited retinal diseases that would otherwise progress to blindness. NITE has no revenue, but it does have a promising phase 3 asset. The deal provides an opening into both gene therapy and ophthalmology. Choroideremia (CHM) is a rare, degenerative, X-linked genetic retinal disorder primarily affecting males. There are currently no approved or effective treatments for CHM, representing a significant unmet medical need. CHM is an inherited disease caused by mutations in the CHM gene on the X chromosome that interferes with the production of a protein that plays a role in intracellular protein trafficking and the elimination of waste products from retinal cells. NITE has an ongoing Phase 3 registrational clinical trial, known as the STAR trial, of a lead retinal gene therapy product candidate, making it the most clinically advanced candidate for this disease worldwide. Positive results from a Phase 1/2 trial were published in Nature Medicine in 2018 and other venues. NITE expects the one-year follow-up results of the STAR trial to be available in 2020. Market potential may be north of $1 billion. The candidate has been granted orphan drug designation for the treatment of CHM from both the FDA and the European Medicines Agency (EMA). NITE is also developing NSR-RPGR for the treatment of X-linked retinitis pigmentosa (XLRP), an inherited X-linked recessive retinal disease characterized by mutations in the RPGR gene, leading to a lack of protein transport and a loss of photoreceptors, the specialized cells in the eye that convert light into visual signals. NSR-RPGR is currently being evaluated in a dose-ranging Phase 1/2 clinical trial for the treatment of XLRP. NITE has received orphan drug designation for NSR-RPGR for the treatment of XLRP from the EMA. NITE also has product candidates in preclinical development for a number of inherited retinal diseases for which there are no approved treatments such as Stargardt disease and Best vitelliform macular dystrophy, or Best disease. The closing of NITE's acquisition remains subject to customary closing conditions, including the approval by NITE stockholders and the issuance of an order by the U.K. Court.
Therefore, on top of and beyond the three revenue generation engines and business diversifiers (MS, SMA-neuromuscular, and BioS) mentioned above, we have now established that the firm is in the process of developing a three-focal pipeline best construed as mid- to late-stage, including for pathologies that have no current alternative treatment (read both, terrific human relief impact and no tangible short-term competition). While impact on the top line is likely to be limited in the short-term (assuming approval of any), any win might indeed help the firm develop a true new product line or franchise around a high-margin anchor product. Finally, the company has a number of phase 2 assets in a unit it describes as therapeutic adjacencies (Systemic Lupus Erythematosus, Idiopatic Pulmonary Fibrosis).
Given the above, full growth status recapture within just a couple of years becomes a real possibility.
Now on where it hurts... AD
As indicated above and well-publicized by now, BIIB plunged 28% on 3/21/19 after the drugmaker said it would discontinue its Phase 3 trials of aducanumab, an investigational drug designed to slow cognitive decline in patients with early Alzheimer's disease. BIIB's AD gamble has been described by some analysts as ill-advised. It's an unfair shot, and shows some fundamental misunderstanding of the biotech trial and error predicament. You must try and only know of failure a posteriori. To quote Thomas Edison, "I have not failed. I've just found 10,000 ways that won't work." Until you finally get to proceed to the right idea... Aducanumab joins a long list of other Alzheimer's drug failures. There have been no new approved treatments in more than 15 years. As a result, the great need for Alzheimer's therapies remains unfulfilled. 5.8 million Americans live with the disease. BIIB management remains committed to research in AD and to supporting the millions of patients affected by this devastating disease. The firm continues to advance its tau-related programs and plans to refocus on early research to understand the biology and genetic origins of disease for its remaining AD portfolio.
Alright, where does it leave us? First, the message seems clear. BIIB is back to early research. But then the annual report still lists Elenbecestat (E2609) (partnerships program with Eisai) as a phase 3 asset and one of 23 company-wide clinical programs active, although it fails short of qualifying as one of the 15 amidst those 23 BIIB added or advanced, since the beginning of 2017 through April 22, 2019. We have no choice but to discount the trial to zero outcome probability status. Any surprise there would of course have 'inflammatory' effects. Some investors are skeptical of drugs like elenbecestat and BAN2401 that are designed to reduce the amount of amyloid in the brain, the same principle upon which the company's failed aducanumab was based. But Wall Street may be a bit too hasty in ditching amyloid-based Alzheimer's drugs. Many think it's time to explore other treatment options, and management at BIIB confirmed the company was pushing forward with three tau-targeting Alzheimer's programs: BIIB092, BIIB076 and BIIB080, thru its collaboration with IONS. But then, what if elenbecestat, still prominently listed as a phase 3 asset above, indeed surprises all? Even better, what if management decided to can aducanumab because they intuit elenbecestat somehow holds more promise? Isn't it a bit surprising that The Alzheimer's Clinical Trials Consortium (ACTC) and partner Eisai recently (in May 2019) announced that elenbecestat and the investigational anti-amyloid beta protofibril antibody BAN2401, which are currently being evaluated as treatments for early AD, have been selected by the ACTC as treatments to be evaluated in upcoming clinical studies targeting primary and secondary prevention of AD? At worst, even failure may teach biotechs quite a bit, starting where not to focus (see Edison's comment above), but could there be more to the story here? Quite importantly, drug research can be synergistic. BIIB may be able to leverage the interconnectivity in neuroscience. Success in MS gives researchers insight into many other disease areas, such as demyelination and rehabilitation, nerve fiber health and neuro-protection, with potential applications in AD, Parkinson’s disease, ALS, stroke and pain. Even aducanumab's failure may have learning implications. Any success recorded while subsequently targeting tau, key proteins in the central nervous system, may hold promise for treating not just AD but other tauopathies such as PSP, which affects tens of thousands of people globally. At worst, early losses in AD can thus prove cross-fertilizers - and have major ramifications in multiple therapeutic areas.
All BIIB shareholders - and of course AD patients and their loved ones - would have preferred an aducanumab win, but it's a multi-year-long battle. Critically, management acknowledges as much. Even if BIIB's AD pipeline and opportunities are discounted to zero (which they of course should not), BIIB has solid fundamentals, three major franchises, five late-stage assets, thereby demonstrating clear potential for growth resumption status overall and some major surprises in various parts of its pipeline including why not AD, along the way. Further, management indicated that the company would "continue to mitigate mono-disease risk" (read, overly dependence on, say, a lopsided or predominantly AD-focused pipeline) by looking for opportunities to acquire later-stage assets (external, more on this below).
Pain Management - A Welcome New Thrust
No, we're not done yet! BIIB is investigating a number of assets in pain management including:
BIIB074 (vixotrigine) – Trigeminal Neuralgia 4 - phase 2
BIIB074 (vixotrigine) – Small Fiber Neuropathy - phase 2
BIIB095 (Nav. 1.7) – Neuropathic Pain - phase 1
Like BioS, pain holds huge promise -- The global market for pain management will grow from nearly $36.1 billion in 2017 to $52.0 billion by 2022, with a compound annual growth rate (OTCPK:CAGR) of 7.6% for the period of 2017-2022. The global market for non-opioid pain treatment totaled $9.9 billion in 2017 and is estimated to reach $22.6 billion by 2022, growing at a compound annual growth rate (OTCPK:CAGR) of 18.0% for the period of 2017-2022. Non-Opioid pain management thus is where a lot of the potential may reside, and that's where BIIB is headed.
I see this other early- to mid-stage franchise as a critical potential growth driver and game changer two to five years down the road - or earlier, shall an acquisition materialize in this area (more on this below).
BIIB also expanded its pipeline with the addition of BIIB104 (AMPA) for cognitive impairment associated with schizophrenia (OTC:CIAS) [and its option for TMS-007 for acute ischemic stroke].
In sum, the biotech's pipeline and prospects appear to remain solid. The biotech has four drugs in phase 3 trials (if you include NITE), one filed and as many as another 14 in phase 2 and 6 in phase 1. This pipeline is high-quality, diversified across pathologies, from its traditional franchise in MS to biosimilars, stroke, Alzheimer's (now weakened, but not out), Parkinson's, Lupus, epilepsy, dementia, ophthalmology, neuromuscular disorders, acute neurology, neurocognitive disorders, pain, and more niche plays. A recap follows:
Biogen (BIIB)'s Pipeline - Phase 3
Biogen (BIIB)'s Pipeline - Filed
Biogen (BIIB)'s Pipeline - Phase 2
Biogen (BIIB)'s Pipeline - Phase 1
Source: BIIB's Website
Of course, you never know how far down a stock will go before initiating a turnaround... Now that the AD setback and the bulk of competitive threats to both the MS and SMA franchises are priced in the stock, what else can hit? Some unanticipated revenue/earnings shortcomings or more failed trials are always contingencies, of course. A market downtrend and more volatile stock market in general could also inflict pain. Further, the White House and other political constituencies that have been struggling to control health spending have recently targeted these costs. Gene therapies may help cure diseases whose diagnoses used to be death sentences, but their prices raise concerns about whether governments and health insurers, and society at large, can afford them at all. Recent anxiety over the health-care policy environment (http://www.marketwatch.com/story/health-care-drama-has-now-spread-to-biopharma-stocks-2019-04-18) may put undue pressure on the healthcare sector in general, and BIIB in particular.
Share Repurchase: Keep the Money!
With three revenue generation engines and five late-stage pipeline assets backed by strong financials, the firm likely is in better shape than most seem to recognize. Pushes to create close to ten major franchises (well beyond MS and SMA) and the potential for surprises in many areas (including, why not, AD) are in my view critical steps in the right directions and may impact sooner than later. However, the sheer scope of such ventures and launch or consolidation of new product lines will likely require extensive resources, financial and otherwise. The required R&D allocations and/or, if applicable, acquisition costs of new biotech or pipeline assets, to the extent that they offer the prospect of a high return on investment, will thus necessitate a solid treasure chest. Therefore, it is probably best for BIIB to keep all cash at hand and resources available. I, like some of my fellow shareholders and SA contributors, surely salute the fact that BIIB committed to the repurchase of up to $5 billion of common stock days after the recent plunge of the shares, as announced in March 2019 (http://www.marketwatch.com/story/biogen-sets-new-5-billion-stock-repurchase-program-in-aftermath-of-stock-plunge-2019-03-25). This is especially welcome and actually shows market savvy, if you believe the stock is cheap. And it may indeed come as a bit of a relief to know that BIIB stands by its stock at such a critical time, read, after the recent plunge. In my view, however, such buyback is laudable if, and only if, it is contained and remains a token endeavor best construed as renewed commitment to BIIB's shareholder base. All growth shareholders, not to mention patients desperate for some relief from such a terrible disease with no current breakthrough treatments as AD, will likely prefer management to commit the bulk of cash available to high-growth ventures and pipeline-building efforts enabling worth compounding. $5 billion is not exactly pocket change. Again, the move is commendable, but any more would just signal to the firm's stockholder base and the market in general, that BIIB sees no high returns for those additional dollars in current or prospective ventures. If my analysis is correct, I doubt BIIB leadership will want to go much further down that path.
Buying Biotechs - An Opportunity to Add Tremendous Value
We've discussed at length BIIB's product portfolio and pipeline-building efforts - internal or in partnership with key players like IONS. As indicated above, they may eventually imbue BIIB with an ability to, not just reclaim tangible value or defensive mode, but also recapture growth investment status. BIIB has enormous resources and research capabilities, and any large-scale miss (AD) should be seen as one amongst many trials and errors, a key setback amidst various pipeline advancement schedules, and an opportunity to cross-fertilize. This said, the firm's rather healthy balance sheet and cash flow afford its management the exploration of another key option. A smart acquisition could help BIIB build or accelerate the development of one or several of the aforementioned drug franchises, further solidify and diversify its pipeline and, in some cases, expand sales and be accretive to earnings, thereby replenishing growth prospects. It may also help catalyze BIIB share price, signaling the market's perception that the deal is very synergistic and seals growth investment status recapture. The fact that the market is not exactly cheap (after a ten-year bull), and some (but not all) biotechs are outright expensive may explain why BIIB management, which has indicated it is open to acquiring other biotechs to complement its pipeline, is in no rush exactly to buy at any price and has yet to venture beyond NITE. Who wants to squander money? This said, if the price is right... Smartly done, an acquisition could indeed add tremendously value and, unlike too many deals, even end up boosting BIIB shares.
The balance sheet remains sound. BIIB had around $6.5 billion in cash, equivalents, short-term investments and other current assets excluding inventory, $3.15 billion in current liabilities and $5.9 billion in long-term debt at the end of 2018. Plus, as indicated above, it still should generate healthy annual free cash flow over the next few years - in the order of $5 billion or more. (It had operating cash flow of $6.2 billion in 2018, in the vicinity of $1.5 billion in the first quarter of 2019.) If Biogen is willing to lever up, it could afford an acquisition or acquisitions approaching or exceeding $10 to $20 billion in total. Last year, management had stated that it would have $42 billion in purchasing power through 2023, taking into account cash, cash flows and borrowing capacity. This war chest may explain why the firm can entertain both a stock buyback and the acquisition of some external biotech assets in the first place.
I'll thus finish this article with an exploration (far from exhaustive) of potential acquisition candidates. Key parameters include number of approved products, sales and earnings to match, quality of pipeline (developmental phase, diversity of asset base), complementarity (aka synergy) with BIIB's own product/pipeline mix and franchise-building endeavors (as laid out above), and price/value for any dollar spent. Also, keep in mind that gene therapy platforms and their owners (as opposed to chemistry-based or pharma-driven outfits) have recently been popular buyout targets, and BIIB may be more inclined to the former than the later (see discussion below). Vertex Pharmaceuticals (VRTX)'s purchase of gene-editing startup Exonics Therapeutics for $1 billion in cash and milestones is but one of the latest cases in point. Their products are changing treatment paradigms, sit at the heart of healthcare innovation, can command large price tags (both an asset and, increasingly these days, a liability), and attract an ever-expanding share of regulators' attention. Market volatility may facilitate rather than complicate (a matter of perspective) acquirers' tasks ahead.
IONIS Pharmaceuticals Inc. (IONS)
IONS and Biogen are already close. The smaller firm developed Spinraza, and the two companies signed an expanded research partnership last year under which Biogen acquired an 8.3 percent stake in the company. Acquiring IONS outright would allow Biogen to consolidate ownership of Spinraza and other partnered programs and take control of a solid drug-discovery platform. The biotech has other marketed drugs and a large pipeline. IONS has two approved products, Tegsedi in neurological, a medicine that treats the polyneuropathy caused by hereditary transthyretin-mediated amyloidosis for adults, and Waylivra, which has received conditional marketing authorisation from the European Commission as an adjunct to diet in adult patients with genetically confirmed familial chylomicronemia syndrome and at high risk for pancreatitis. All of IONS' phase 3 assets are partnered with BIIB, except the same Waylivra for severe and rare diseases (Familial Partial Lipodystrophy) with Akcea, and IONIS-HTTRx, an antisense drug designed to reduce the production of the huntingtin (HTT) protein, which is the genetic cause of Huntington’s disease. The rest of (mid- to early-stage) IONS assets reside in Cardiometabolic & Renal, Cancer, and a few other areas that may not be the most synergistic with BIIB's franchise development objectives. BIIB has done a pretty good job of partnering where it made the most sense for the firm to do so.
IONS is seeing solid sales and earnings growth. It is profitable with a trailing P/E of around 25, with shares trading 20% below their 52-week high - not cheap but not exactly bubble territory either. The fact that Biogen is a large shareholder could help swallow the pill (if I may) and market capitalization of $9 million. IONS has high institutional support (95% of float). FMR owns nearly 15%, BlackRock, Vanguard, and another three funds more than 5% of shares. In sum, buying IONS may help BIIB capture ownership of solid platform and partnered assets and be accretive to sales and earnings, but some will argue that it fails to diversify and deepen the company's pipeline, and consolidate franchises, as much as other alternatives may, a bit of a turnoff. Further, IONS has quite a few legacy partnerships with other drugmakers and in some cases key BIIB competitors - including Roche, Novartis, Bayer, AstraZeneca, Akcea Therapeutics (Ionis' spinoff), and others - no deal breaker, but a bit of a multi-layered conundrum.
ACADIA Pharmaceuticals Inc. (ACAD)
ACAD is a biopharmaceutical company focused on the development and commercialization of medicines for central nervous system (CNS) disorders. NUPLAZID (pimavanserin) is the first and only medication approved by the FDA for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis (PDP). ACAD is currently conducting a Phase 3, randomized, double-blind, placebo-controlled study, evaluating the efficacy and safety of pimavanserin for the treatment of hallucinations and delusions associated with dementia-related psychosis (DrP). The objective of the study is to evaluate the ability of pimavanserin to prevent relapse of psychotic symptoms in a broad population of patients with the most common subtypes of dementia. The FDA has granted Breakthrough Therapy Designation to pimavanserin for DrP. Around 8 million people in the U.S. are living with dementia; approximately half are diagnosed with the disease. Studies suggest that about 30 percent of patients with dementia have psychosis (hallucinations, delusions, etc.). There is currently no FDA-approved therapy for DrP, which encompasses psychosis in Alzheimer’s disease, dementia with Lewy bodies, Parkinson’s disease dementia, Vascular dementia, and Frontotemporal dementia. Severe consequences include costly repeated hospital admissions and increased risk of morbidity and mortality. Pimavanserin is also advancing to Phase 3 for major depressive disorder (MDD) and for schizophrenia patients with an inadequate response to current antipsychotic therapy (amongst other initiatives). As a result, ACAD's portfolio/pipeline in some fashion seems right up BIIB's alley, and could represent a terrific addition to BIIB's.
ACAD's market cap is $3.5 billion, just a little over a third of IONS', i.e., quite reasonable. The firm was not profitable in its latest fiscal year. Sales have been growing fast, but so have losses. Shares are trading at about half the all-time high they reached in 2015. What BIIB'd be buying here is a probably riskier but unique set of products and pipeline assets (essentially revolving around one star, at least for now, with hopefully a large broadset of indications). Baker Brothers Advisors, LLC, a leading biotech hedge fund, owns 27% of float (27%!), FMR 15%. BIIB may never buy, but some big boys seem to like what they see. BlackRock, Vanguard, and T. Rowe Associates own more than 5% each.
SAREPTA Therapeutics Inc. (SRPT)
Sarepta is a leader in precision genetic medicine, having built an impressive and competitive position in Duchenne muscular dystrophy (DMD) and more recently in gene therapies for 6 Limb-girdle muscular dystrophy diseases, Charcot-Marie-Tooth, MPS IIIA, Pompe and other CNS-related disorders, totaling over 20 therapies in various stages of development (about half in clinical including 2 in phase 3, the balance in pre-clinical). The firm’s programs and research focus span several therapeutic modalities, including RNA, gene therapy and gene editing. Unlike the chemistry-based or pharma approach of many outfits or buy options out there (including ACAD to an extent), SRPT is a terrific play on various gene therapies and technologies, BIIB's sweet spot.
SRPT has a marketed drug for a rare muscle-wasting condition. EXONDYS 51 is indicated for the treatment of DMD in patients who have a confirmed mutation of the DMD gene that is amenable to exon 51 skipping. The fatal genetic neuromuscular disorder affects an estimated one in approximately every 3,500 - 5,000 males born worldwide. This indication is approved under accelerated approval based on an increase in dystrophin in skeletal muscle observed in target patients. SPRT seems like a great fit for BIIB, which has turned Spinraza into a blockbuster in SMA. It would add a key edge in an important drug category that could help support sales and earnings growth and, not only preempt, but also rebut looming competitive threats by Novartis and others, not to mention SRPT itself.
A recent capital raise has sent mixed signals. Why seek funding ahead of a buyout? The milestone may serve as a negotiating tactic and consolidate SRPT's bargaining chips; after all, a stronger financial hand can only help in the negotiating process... SRPT has a market cap of $8.6 billion, similar to IONS', more than twice that of ACAD. SRPT is not profitable, but is growing sales fast - although the near-term sales boost provided would admittedly be limited relative to SRPT's price tag and BIIB's size. The stock has recently been consolidating after increasing 50-fold in just about 7 years; but it's only worth 2.5 times its post-IPO price back in 1997. Shares quote around 30% below their 52-week high. Institutions own 97%+ of the float -- FMR close to 15%, BlackRock, Vanguard, more than 5% each.
Neurocrine Biosciences, Inc. (NBIX)
NBIX is a neuroscience-focused, biopharmaceutical company targeting life-changing treatments for people with serious and under-addressed neurological, endocrine and psychiatric disorders. The company’s diverse portfolio includes FDA-approved treatments for tardive dyskinesia (movement disorder, in collaboration with Mitsubishi Tanabe Pharma) and endometriosis (women's health, in collaboration with AbbVie) and clinical development programs in multiple therapeutic areas including Parkinson’s disease (Phase 3 asset), uterine fibroids (also phase 3), and congenital adrenal hyperplasia (phase 2). It also has some early-stage assets in movement disorders, neurology and psychiatry. NBIX specializes in targeting and interrupting disease-causing mechanisms involving the interconnected pathways of the nervous and endocrine systems. Clearly, some of NBIX's product/pipeline endeavors could realign and integrate well with BIIB's own franchise-building axes.
NBIX has a $7.6 billion market cap, close to those of SRPT or IONS. Sales are on a high-growth trajectory and the firm is flirting with profitability. Another case of high institutional support with FMR holding more than 10% of the float. Janus Henderson Group, Vanguard and BlackRock also own more than 5%. Shares have had a huge run in the recent 10-year bull, multiplying by a factor of (around) 40, but sit close to 40% below their 52-week high; they are worth 7.5 times their post-IPO mid-1996 price.
Biohaven Pharmaceutical Holding Company (BHVN)
BHVN is engaged in the identification and development of clinical-stage compounds targeting orphan neurologic indications and other neurological pathways. The Company has a number of phase 3 assets for the acute treatment of migraine (completed) and the treatment of various neurological indications including obsessive-compulsive disorder (OCD), spinocerebellar ataxia (SCA) and Alzheimer's disease; amyotrophic lateral sclerosis (ALS), and neurological and psychiatric illnesses such as Rett syndrome, neuropathic pain and treatment-resistant depression. Quite synergistic with BIIB's franchise articulates (not unlike most of the candidates above). No approved product yet, but Rigepant (migraine) should reach commercial mode soon. What BHVN brings to the table is a quality platform and diversified late-stage asset base targeting neurological diseases and progressing multiple compounds in clinical trials across three platforms: calcitonin gene-related peptide receptor antagonism, glutamate modulation, and myeloperoxidase inhibition. Key challenge: no sales yet, no earnings, high-risk. Market cap is $2.5 billion. Shares have been on a tear (near-quadrupling in a year) since BHVN went public in early May 2017 and trade at their all-time high; they are far from cheap...
Biosimilars Outfit: Coherus BioSciences, Inc. (CHRS)
Just one of many possible options in biosimilars, a franchise whose criticality (pinpointed above) should not (but tends) to be discounted. Given BIIB's thrust in the field - including its recently increased ownership in BioS player Samsung Biopics - and predilection for gene therapy approaches, the acquisition of smaller, incremental yet transformational, assets/firms may make more sense than any large, disruptive, pure-play big BioS merger. For example, some risk-prone CEO may consider Mylan N.V. (MYL) as an interesting target. The stock is spiraling down and valuations are low. The firm is still profitable, exhibits rather stable and durable cash flow, and enjoys a solid product mix (including BioS, generics, and brands), with over $1 billion in new product launches scheduled in 2019. However, the $9.5 billion market cap company's core generics business continues to deteriorate and the EpiPen may end up facing severe headwinds from generic competition. An interesting indeed, but challenging value proposition for a biotech like BIIB, at least in my view.
Developing biosimilars requires significant up-front analytical work. The initial characterization of the reference product is a complex process involving diverse analytical methods and competencies, including the ability to identify its critical quality attributes. The more robust the candidate's clinical biologics platform and abilities to demonstrate analytical biosimilarity, the more attractive the prospect. The vetting of underlying platforms, labs, and state-of-the-art technologies deployed, is thus critical. CHRS is engaged in the business of developing and commercializing such BioS products. UDENYCA, a biosimilar to Neulasta (pegfilgrastim), has been approved by the FDA and European Commission as a leukocyte growth factor indicated to decrease the incidence of infection, as manifested by febrile neutropenia, in patients with non-myeloid malignancies receiving myelosuppressive anti-cancer drugs. It has an additional two phase 3 developments in immunology (Anti-TNF) biosimilar candidates etanercept (Enbrel) and adalimumab (Humira). Phase 3 clinical studies in psoriasis have been completed for adalimumab; focus is now on securing a competitive launch in the US market. It has a couple of other assets in earlier stage including an ophthalmology biosimilar candidate, and a multiple sclerosis small molecule therapeutic candidate.
CHRS has a market cap of $1.3 billion, much smaller than most of the firms mentioned above and closer to NITE's acquisition price (total capitalization slightly under $1 billion). As such, CHRS would constitute less of a stretch to acquire and be easier to integrate. CHRS is not profitable. Unfortunately, the firm has yet to kick sales into high gear. It enjoys surprisingly strong institutional support, with Wellington Management Company owning more than 10% of the float; Temasek Holdings, JP Morgan Chase, FMR, and BlackRock, all own more than 5%. Shares quote near their post-IPO November 2014 price, but they are worth half the all-time high they reached mid-2015.
Pain Management Plays: GW Pharmaceuticals (GWPH) and others
As indicated above, another franchise area with significant market potential that BIIB management seems to be targeting is pain management. There are a number of options available here too. GW Pharmaceuticals (GWPH), Collegium Pharmaceutical, Inc. (COLL), Cara Therapeutics, Inc. (CARA) and Pacira BioSciences, Inc., (PCRX) constitute just four of many possible targets in pain management. Market caps run the gamut here.
GWPH has been on a tear since going public, multiplying by a factor of close to 20 in just about 6 years. Named as one of TIME's top 50 Most Genius Companies, the firm is a biopharmaceutical firm focused on developing and commercializing therapeutics from its cannabinoid product platform in a range of disease areas. As such, it'd be a bit of a stretch for BIIB (cannabinoid versus gene therapies...), but being a visionary may require some outside-the-box thinking, which, in turn, is reinvigorating... It might also be a game-changer for BIIB; some will argue it's exactly what the big biotech needs... Think Disney buying Pixar or Marvel... Not the same, I know, but there was a time when superheroes were not exactly DIS's sweet spot! Anyhow, you get the gist. In June 2018, Epidiolex—a liquid formulation of pure plant-derived cannabidiol (CBD), one of the active chemicals in marijuana—became the first FDA-approved medication derived from marijuana. Taken like cough syrup, the liquid drug has been shown to reduce the frequency of seizures in people with two rare, severe forms of epilepsy that develop during childhood: Dravet Syndrome and Lennox-Gastaut Syndrome. The Company also offers Sativex (nabiximols), which is indicated for the treatment of spasticity due to multiple sclerosis (MS) (approval has been obtained in over 25 countries outside the United States). Next, the company is exploring how effective CBD and other cannabinoids can be for areas of medicine beyond epilepsy and MS, including psychiatric disorders, autism and, here we go, pain management.
Functionally, i.e., from a pipeline complementarity standpoint, GWPH constitutes a very synergistic option for BIIB. The shares (pricey by many standards, some would even argue bubbly) track near their all-time high and seem to never want to retreat... The firm has a market cap of $5.4 billion, just a bit over ACAD's and below those of IONS, SRPT, or NBIX. The firm also enjoys strong institutional sponsorship - with Capital Research Global Investors owning well over 10% of shares. GWPH was not profitable in its latest fiscal year. What BIIB would be buying here is a totally outside-the-box proprietary growth engine with an admittedly unique treatment paradigm - and it'd be demonstrating a willingness to pursue a game changer, which, well, might very well help BIIB achieve the status itself, while again solidifying and diversifying its product portfolio/pipeline, at a rather steep but maybe ultimately warranted price (no real stretch for its financials including balance sheet).
PCRX targets non-opioid pain management. It has two commercial products. EXPAREL is a local analgesic administered at the time of surgery to control pain and reduce or eliminate the use of opioids for acute postsurgical pain. The local anesthetic is encapsulated in DepoFoam, an extended release drug delivery technology for use in hospitals and ambulatory surgery centers, and is indicated for single-dose infiltration into the surgical site to produce postsurgical analgesia. The iovera system is a handheld cryoanalgesia device used to deliver precise, controlled doses of cold temperature only to pinpointed nerves, interrupting the nerve’s ability to transmit a pain signal. PCRX has another three clinical trials in progress. Shares are worth a third of the all-time high they reached at the beginning of 2015. Market cap is a reasonable $1.8 billion. PCRX is profitable. PCRX's trailing P/E ratio of 235 is greater than 94% of other companies in the Pharmaceuticals industry. But sales are growing fast and the firm is only starting to flirt with profitability (which renders trailing P/E analysis somewhat impractical).
CARA is a clinical-stage biopharmaceutical company. The Company has no commercial product - thus constitutes a higher-risk proposition - but two ongoing phase 3 and one completed phase 2 assets. It is focused on developing and commercializing chemical entities designed to alleviate acute and chronic pain, uremic pruritus, neuropathic and inflammatory pain, by focusing on kappa opioid receptors. CARA's market cap is in the vicinity of $800 million. The profile is similar to NITE (late-stage, no revenue, similar price tag), only confined to pain management - with one difference: NITE's drug candidates enjoy a clear first-mover advantage in their respective categories and thus limited potential competition; CARA's setting is likely more competitive.
COLL is engaged in developing and commercializing abuse-deterrent products that incorporate its DETERx platform technology for the treatment of chronic pain and other diseases. DETERx provides extended-release drug delivery, while safeguarding against common methods of abuse, tampering, and accidental misuse. COLL's commercial products include Xtampza ER and Onsolis. Xtampza ER is an opioid agonist indicated for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. Onsolis is a Transmucosal Immediate-Release Fentanyl film indicated for the management of breakthrough pain in cancer patients, 18 years of age and older, who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain. With a $375 million market cap, COLL is an even smaller play than NITE or some of the other small biotechs/biosimilar plays mentioned above. Therefore, it constitutes the type of outfits easiest to snatch up. It fails to move the needle in a way a $10 billion to $20 billion acquisition would, of course, but does add long-term momentum to BIIB's pain management franchise building efforts. Further, sales have been growing fast and the firm flirts with profitability. COLL may thus become accretive to earnings in a rather short while. It's an opioid-based play; as such, it is far off from BIIB's gene therapy sweet spot and typical platforms and treatment paradigms. (As indicated above, this does not have to be a negative depending on objectives...) Janus Henderson Group PLC owns more than 10% of shares and another four fund companies including BlackRock own more than 5% each.
Want another interesting candidate for pain management? Check out Arna Pharmaceuticals (ARNA)? A promising play with solid institutional support... Again, the list goes on and on.
More Acquisition Options - From Large...
There is a seemingly infinite number of options out there, both small- or micro-caps and larger, say, $10 billion to $30 billion plays. Additional candidates may include Biomarin Pharmaceutical (BMRN) (seven approved products, most in the area of rare diseases, a larger market cap of around $15 billion, but maybe not the most synergistic with BIIB's franchise building goals, sales growing fast, still not quite profitable but getting closer), Amarin (AMRN) (lipid science, cardiovascular, stroke, $6 billion market cap, growing sales but still not profitable). Another investor favorite is Alnylam (ALNY), a terrific play on ribonucleic acid (RNA) interference (RNAI) therapeutics. ALNY is leading the translation of RNA interference (RNAI) into a new class of innovative medicines targeting rare genetic, cardio-metabolic, hepatic infectious, and central nervous system/ocular diseases. ONPATTRO (patisiran) is the first-ever RNAi therapeutic approved by the FDA for the treatment of the polyneuropathy of hereditary transthyretin-mediated (hATTR) amyloidosis in adults (and by the EMA for the same with stage 1 or stage 2 polyneuropathy). ALNY's pipeline of investigational RNAi medicines, including five product candidates in Phase 3 studies, focuses on three Strategic Therapeutic Areas: Genetic Medicines, with multiple product candidates for the treatment of rare diseases; Cardio-Metabolic Diseases, with product candidates directed toward genetically validated, liver-expressed disease targets for unmet needs in cardiovascular and metabolic diseases; and Hepatic Infectious Diseases. Market cap: $7.5 billion. Shares trade at more than 10 times their post-IPO 2004 price but about half the all-time-high they reached toward the end of 2017. FMR owns close to 15% of shares, Wellington Management 14%, Vanguard 8%, etc. How about Sage Therapeutics (SAGE), whose portfolio includes the first treatment approved by the FDA for postpartum depression as well as compounds being developed as potential treatments for major depressive disorder, insomnia, bipolar disorder and essential tremor. Approvals for more indications and larger substrates of patient populations could transform SAGE into a multi-billion dollar top-liner and catalyze shares of the acquirer. But more trial data will have to confirm a broad-set of product footprint. Another case of high-risk, high-reward configuration. Market cap is $8.9 billion. Shares aren't cheap and trade near their all-time high, about six times their mid-2014 post-IPO price. Any opportunity, if FDA-validated, could be substantial and truly make a difference for BIIB.
Acquisitions of AD assets may also provide significant help. How about a micro-cap for a change? How come investor Ron Perelman is buying shares of vTv Therapeutics Inc. (VTVT), a clinical-stage biopharmaceutical company who has commenced patient enrollment in a Phase III clinical trial of its leading drug candidate for the treatment of AD, an orally administered, small molecule antagonist targeting the receptor for advanced glycation endproducts. It also has over four additional programs in various stages of clinical development for the prevention of muscle weakness, the treatment of inflammatory disorders, and type II diabetes. Unsurprisingly, VTVT has little institutional (large fund) support... Probably too small or too early, we'd like to believe, but what if VTVT surprises all and scores? A similar take for Anavex Life Sciences Corp. (AVXL), a biopharmaceutical company dedicated to the development of differentiated therapeutics for the treatment of neurodegenerative and neurodevelopmental diseases including Alzheimer’s disease, Parkinson’s disease, other central nervous systems diseases, pain and various types of cancer. Anavex’s lead drug candidate, recently completed a successful Phase 2a clinical trial for AD. How about Zogenix, Inc. (ZGNX), which develops and commercializes CNS therapies for epilepsy, seizure, Dravet syndrome, bipolar disorder, etc. Options abound.
While Biogen (BIIB) is a potential buyer, it's also a possible buyout target. With the stock now down 40% from highs reached last summer and an underwhelming market cap of $44 billion, the biotech may constitute a valid takeover candidate at current price, as Celgene was before Bristol-Myers Squibb Co. (BMY) announced it would acquire the biotech in a... $74 billion buyout. As demonstrated above, BIIB shares are depressed and current valuation seems attractive. Not unlike the likes of Gilead (GILD) or Alexion (ALXN), mind you. BMY was planning to sell around $20 billion of bonds recently, seizing on a low-interest rate environment to help fund its blockbuster acquisition of Celgene Corp. There are a number of big pharma players from Merck (MRK), Johnson & Johnson (JNJ), and Pfizer (PFE) to Novartis (NVS), Sanofi (SNY), and Roche (OTCQX:RHHBY) (to name a few) who could of course choose to go down that route. Of course, some shareholders may prefer to see BIIB continue to compound its biotech knowhow and science at a fast clip rather than being acquired in what essentially may be a short-term boost with loss of compounding effects (depending on the deal's configuration).
Large insider purchases occurred from April 30 to May 2, 2019. Two insiders, the CEO and a director, both highly qualified, bought. Obviously, they consider BIIB as increasingly appealing at current price. It's also not the first time that they're buying shares, as they have been accumulating stock for a couple of years. See below for detail.
CEO Michel Vounatsos
Michel Vounatsos bought $1 million worth of stock at an average of $231.48 a share on May 2. Mr. Vounatsos joined Biogen in 2016 as Executive Vice President, Chief Commercial Officer after a 20 year career at Merck. While at Merck, he held leadership positions in Europe, China, and the U.S., driving significant growth across multiple geographies. Most recently, he served as President, Primary Care Business Line and Merck Customer Centricity leading Merck’s global primary care business unit, a role which encompassed Merck’s cardiology-metabolic, general medicine, women’s health and biosimilars groups.
Director Alexander Denner (Sarissa Capital Management LP.)
Alexander Denner continues to be a buyer, as well, accumulating another $27 million worth of stock at an average price of around $230 per share from April 30 to May 2. Mr. Denner joined the Board in 2009. He serves as Chair of the Corporate Governance Committee and is a member of the Finance Committee. He is a founding partner and Chief Investment Officer of Sarissa Capital Management LP. Sarissa Capital focuses on improving the strategies of companies to better provide shareholder value. From 2006 to 2011, Dr. Denner served as a Senior Managing Director at Icahn Capital (not a bad reference). Prior to that, he served as a portfolio manager at Viking Global Investors and Morgan Stanley Investment Management. He is also a director of The Medicines Company. You would think Dr. Denner knows a good deal when he sees one...
Source: Insider Monitor
Source: Insider Monitor
Some top fund companies including BlackRock and Vanguard also own BIIB and appear to be believers. They too may think Biogen (BIIB) is increasingly appealing at current price.
Source: Yahoo Finance
In conclusion, despite recent setbacks, a combination of solid financials and fundamentals, three major revenue-generating therapeutics franchises, five late-stage assets, a high-quality, diversified pipeline, and solid long-term strategy, appear to bode well for the shares. A healthy balance sheet, limited share buyback program, insider and institutional support, and propensity to engage in mergers and acquisitions, may signal significantly better prospects ahead for BIIB.
Two quick notes:
This one-pager (...) is only provided as a starting point. Due diligence and further research are required before investing.
Please, again and again remember that the more 'dramatic' the turnaround, the more inclined you may be to rely upon this one simple rule: You never know how low a stock will go before it shoots back up!
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.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.