Biogen: Beyond The Doom And Gloom

Summary

• Biogen stock is near a multi-year low.
• The pipeline of potential new drugs is deep.
• When new drug revenue might surpass old drug declines is difficult to foresee.

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Biogen (NASDAQ:BIIB), once best known as a maker of drugs to treat MS (multiple sclerosis), is now best known for the Aduhelm debacle, in which an FDA approved drug to treat Alzheimer’s Disease has been derailed by critics of the clinical study data. Even before that, revenue started to decline as older MS drugs started to see competition, including from generics. This article will examine Biogen’s potential for future revenues based on its pipeline and compare that to the current stock price to determine whether Biogen stock is worth accumulating.

Data by YCharts

The stock price is currently low by historical standards. It is near the 52-week low of $200.36, and far from the 52-week high of $468.55. Five years ago, it was near $300, and it does not pay a dividend. That makes it one of the worst performing stocks during that period in my own portfolio. Biogen looks better, though hardly brilliant, if we look back ten years to when it was near $100 per share.

Bear Thesis Summary

The bear thesis has been highly covered this last year, at Seeking Alpha and elsewhere, so I will just repeat it briefly here. Biogen has not been very successful for several years at bringing new drugs to market. At the same time its older drugs are losing patent protection, and with that market share. A lot of hope was put into the commercialization of Aduhelm for Alzheimer’s, but sales have been a near-total bust and look bleak going forward. Therefore, since Aduhelm was no good, the same is to be assumed of the rest of Biogen’s neurology pipeline. Even if some drugs are successful, they will at best replace some of the revenue that will continue to be lost to generic competition.

Q4 2021 Results

Biogen released Q4 2021 results and held its analyst conference on February 3, 2022. Revenue for the quarter fell 4% y/y to $2.73 billion. Net income rose 3% to $368 million. GAAP EPS rose 8% to $2.50 and non-GAAP EPS rose to $3.39, up from a loss in 2020. While these numbers are not what we like to see from a growth company that pays no dividend, they are not sky-is-falling numbers. Biogen ended 2021 with cash and equivalents of $4.7 billion, but it had $7.3 billion in debt.

Two drugs led the fall in revenue. Tecfidera for MS fell 20% y/y to $487 million due to new generic competition. Avonex (including Plegridy) for MS fell 18% to $378 million. Avonex market share has been falling due to competition in the MS market, but it will also lose patent protection in 2026.

Some newer drugs are already ramping up revenue, helping to replace what is being lost by older drugs. Notably Vumerity revenue was up 220% y/y to $125 million. Royalties for Ocrevus were up 39% to $281 million. Biogen also has its own biosimilar (generic) programs, with the approved drugs Benepali, Imraldi, and Flixabi ramping their combined revenue 12% y/y.

Points of Light in the Pipeline

Biogen has an extensive pipeline of potential therapies currently in clinical trials (for a full list, see Biogen Pipeline). All are for neurological or related diseases. Here I will focus on just three: zuranolone, SB15, and BIIB078.

Zuranolone has completed Phase 3 trials for major depressive disorder (depression). Biogen and partner Sage Therapeutics (SAGE) announced plans to submit an NDA to the FDA for zuranolone for the treatment of major depressive disorder in 2022. An additional filing for postpartum depression is anticipated in 2023. The latest positive data came in February from the Phase 3 Coral study. In October 2021 Sage and Biogen had announced updated data from the LANDSCAPE and NEST clinical studies. Zuranolone for major depressive disorder reported positive Phase 3 data in Q4 2021 from the open-label Shoreline study. Because it is such a common disease zuranolone could become a very large revenue producer if approved by the FDA and if well accepted by insurers, doctors, and patients. One of its key attractions is speed of action, which is faster than therapies currently on the market.

SB15 is a biosimilar for Eylea, which is used to treat macular degeneration in the eye. Regeneron (REGN) reported Eylea sales of $2.48 billion in Q4 2021. I heard Regeneron executives at their Q4 2021 analyst conference argue that doctor confidence in Eylea’s safety and effectiveness is so high that it amounts to a barrier to the use of competitors like Lucentis and presumably to any biosimilars that get approved by the FDA. I suspect there will be entities that want to cut costs if a biosimilar becomes available, so this could eventually become a significant money maker for Biogen. Keep in mind that because biosimilars are both difficult to get approved and difficult to manufacture, they are not usually subject to the cutthroat pricing we see in the generic drug industry. SB15 is currently in the Phase 3 trial stage.

BIIB078 is an antisense RNA therapy licensed from Ionis (IONS) for potential treatment of ALS (Amyotrophic Lateral Sclerosis). ALS is a disease with multiple causes. Biogen recently reported data from Tofersen for a type of ALS, which failed to reach the primary endpoint. Tofersen targets the SOD-1 mutated protein, which accounts for only 2% of ALS cases. BIIB078 targets a more common mutation that causes ALS: the C90rF72 gene which causes 34% of inherited and 12% of all ALS cases. BIIB078 is in a Phase 1 trial. Biogen is also developing two other ALS potential therapies, with other mechanisms or genetic targets. BIIB100 is an XPO1 inhibitor. BIIB105 is an ATXN2 ASO. Both are in Phase 1 trials. While ALS is a rare disease, if one or more of these therapies works, with orphan drug pricing, revenues might become significant.

2022 Financial Guidance

Biogen plans to sell its stake in Samsung Biologics for up to $2.3 billion, with the close expected mid-2022. Biogen will continue to record some revenue and costs under the agreement. It expects full 2022 revenue of $9.7 to $10.0 billion. It also expects lower margins due to generic competition. The budget for non-GAAP R&D expense is $2.2 to $2.3 billion. SGA expense is expected between $2.5 to $2.6 billion. Biogen will continue share repurchases with its cash flow, rather than instituting a dividend. To me, share repurchases when a stock is undervalued is a good use of cash.

Revenue Trajectory

Biogen has yet reached the very bottom of its revenue trajectory. It is guiding to about $10 billion in 2022, and 2021 full-year revenue was $11 billion. Until either there is an inflection point, or investors foresee an inflection point, I expect the company stock to maintain a low price-to-earnings ratio. If Aduhelm had received the blessing of Medicaid, Medicare and other payers we would already be past the inflection point. It now looks likely that it will take the ramping of a number of drugs with smaller end markets, rather than one big new heavy hitter, to reach the inflection point. The exception might be zuranolone. There is no certainty: the inflection point could be as early as 2023, or it could be well into the middle years of the decade.

Conclusion: Bull Thesis

I hesitate to use the word bull to describe how I currently feel about Biogen. I hope zuranolone will be as good of a therapy for depression as it sounds like in Sage presentations, but will it be good enough to get the commercial acceptance needed to, by itself, create an upward revenue inflection for Biogen? I do not know. I would like to see the FDA’s take on the data. I would like to see the uptake in the commercial launch. I already own Biogen stock, which I first bought in 2008 and which today makes up about 3% of my stock portfolio. I like to accumulate good companies when their stock prices are low, and with the biotech indexes down dramatically of late, there are lots of good pharmaceutical buys out there to choose from. Of the companies mentioned above I might also accumulate Ionis in the coming year, and Sage.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BIIB, IONS either through stock ownership, options, or other derivatives. 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.