Biogen Inc. (BIIB) is a biotechnology company that is primarily active in neurological diseases such as multiple sclerosis. The company got a lot of attention due to its Alzheimer’s disease drug Aduhelm in the recent past, but commercial success in this space seems far from certain. Since there are many unknowns in Biogen’s future, I am neutral on the stock today.
Biogen’s Core Business
Biogen’s established operations, with annual sales of around $11.1 billion in the trailing 12 months, primarily consist of neurological disease treatments. The company’s leading drugs include Tecfidera, which is used as a drug for multiple sclerosis. Tecfidera generates annual sales of around $2 billion. Interferon-based products, such as Avonex and Plegridy, round out the treatment options for MS.
Biogen’s Spinraza, with annual sales in the $1.5 billion to $2 billion range, is a spinal muscular atrophy treatment that was approved a couple of years ago and has a relatively long product life ahead.
This doesn’t hold true for all of Biogen’s drugs, as some of its products are about to lose patent protection or have already lost it. This does, for example, hold true for Tecfidera, which has lost its patent protection in the U.S.
This is why sales for the drug have declined during the first three quarters of 2021 and are expected to decline in the coming years as well. The somewhat complex nature of the drug allows Biogen to generate solid revenues despite no patent protection, as it is not easy to reproduce the drug. Still, its best days have passed, and profit contribution from Tecfidera will likely decline in the coming years.
Biogen’s Risky Alzheimer’s Play
Biogen’s Aduhelm (aducanumab) was approved in 2021, following years of uncertainties about the drug’s approval. Biogen had originally seen its shares rally to more than $400 last June on the back of the FDA approving this new drug.
However, since then, despite first sales occurring, Biogen’s share price has declined to just $230. Aduhelm is approved, but commercial success is far from certain. There is a great unmet demand for Alzheimer’s treatments, as Aduhelm is the first new Alzheimer’s drug approved since 2003.
Nonetheless, despite the drug’s approval, experts are unsure whether it really is a powerful treatment. So far, Aduhelm has proven in clinical trials that it can reduce plaque buildup in patients’ brains. Still, there remain uncertainties around the drug’s success in improving quality of life and longevity.
Medicare administrators have thus proposed that access to the drug should be limited, as treatments do not necessarily make sense for all patient groups. Biogen has reacted to this criticism by lowering the price for Aduhelm, but it is still uncertain whether this will improve the drug’s commercial outlook.
Investors will likely have to live with substantial uncertainties around the drug’s future path and eventual profit contribution, as even experts are uncertain about Aduhelm’s peak sales potential and long-term outlook.
Wall Street’s Take
Turning to Wall Street, Biogen has a Moderate Buy consensus rating, based on the 14 Buys and 13 Holds assigned in the last three months. At $283.3, the average Biogen price target implies 23% upside potential.
Better to Stay on the Sidelines for Now
Based on current forecasts for 2022’s earnings per share, Biogen is trading at 12.5x net profit. That isn’t an especially high valuation in absolute terms, but it is also not overly cheap. In fact, there are many biotech companies that trade at lower valuations today.
When we consider that Biogen’s core business is having patent expiration issues, that the future success of Aduhelm is uncertain, and that there are no dividend payments, Biogen does not look especially attractive at current prices.
If Aduhelm turns out to help patients meaningfully, its commercial outlook will improve, and Biogen could experience substantial upside in the coming quarters and years. On the other hand, if Aduhelm doesn’t become a success, Biogen’s stock would likely not be a good investment.
Biogen would be a low-to-no-growth biotech player trading at a 12.5x net profit multiple. This doesn’t make for a great investment, which is why I believe that waiting for either a lower entry point or for more clarity on Aduhelm’s future could make sense.
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