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With Or Without Aducanumab, Biogen Is A Research Champion

May 02, 2020 10:37 AM ETBiogen Inc. (BIIB)
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  • Biogen researches and produces treatments for muscular and neurological disorders and may soon release the first commercial treatment for Alzheimer's disease.
  • The company generated gross margins close to 85 percent and increased revenue nearly 50 percent over the last five years while tightly controlling expenses, leading to strong cash flow.
  • Biogen's estimated value and share price have diverged since 2019, signaling a potential buying opportunity.

Biogen, Inc.

Biogen, Inc. (NASDAQ:BIIB) provides pharmaceutical drug therapies for patients primarily with neurological and neurodegenerative diseases. Its treatments for Multiple Sclerosis (MS) generated $8.5 billion in 2019, nearly 60 percent of revenues. In particular, the TECFIDERA medication has made up at least 30 percent of revenue since 2017, including $4.4 billion in 2019. Gross margins have been above 85 percent since 2017.

Anti-CD20 therapeutic programs, mostly related to treating lymphoma, grew revenue 46 percent over the last two years to more than $2.29 billion, making up 16 percent of revenue compared to less than 13 percent in 2017.

Two other revenue streams are experiencing strong top-line growth. Biogen's Spinal Muscular Atrophy (SMA) treatment SPINRAZA has grown revenues nearly 140 percent since 2017 and accounted for more than 14.5 percent of revenue in 2019 compared to 7 percent in 2017. Meanwhile, biosimilars - mainly used to relieve arthritis - grew revenues 94 percent since 2017 to more than 5 percent of revenue in 2019.

Based on comments from management, R&D efforts seem roughly evenly split between increasing the efficacy of existing drugs and earlier-stage tests of potential drug candidates. From 2017 to the end of 2019, total operating expenses grew just 8 percent while gross profit grew 16 percent. These factors have driven Biogen's long-term increase in return on assets.

Source: Risk Research

Patents, New Drugs

The patent of Biogen's drug TECFIDERA was challenged in 2019 by generic drug maker Mylan (MYL). Courts decided in Biogen's favor in early 2020, but an appeal process is ongoing. It seems likely Biogen will retain its original rights to the formula through 2028. More details on the case can be found here.

Biogen is also nearing certification of aducanumab, a drug that could reduce the cognitive and functional decline caused by Alzheimer's disease. Stage 3

This article was written by

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Risk Research provides two research services for private equity firms, institutional investors and family offices. Both are based on a combination of proprietary software and traditional Graham and Dodd analysis. 1. Investigative due diligence into factors that determine risk and reward for corporate acquirers, private equity firms and family offices. (www.riskresearch.info)2. The Dividend Investor Risk Report. Our passive investment portfolio focused on quality dividend payers. We identify companies likely to increase their dividend based on free cash flow trends and dividend history. (www.dividendrisk.com).

Analyst’s 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.

Disclaimer: The purpose of this article is to review the analytical process used in establishing our own portfolio, which is fifty percent invested in Quality Compounders (the most profitable, low-debt US public companies) and fifty percent short Dirty Dogs (companies with declining profitability and increasing debt). We regularly enter and exit positions based on this approach, both long and short. In current uncertain market conditions we have reduced our target time frame. Our average planned holding period is now five months for longs and six months for shorts. This compares to our actual experience of 12.5 months for longs over the last four years and 15.6 months for shorts. Do your own research. Our analysis can help narrow the focus of those efforts but is presented as a component of a highly diversified, long/short portfolio built in stages over time that includes a substantial number of positions not mentioned in this article. It should not be your sole source of information.

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