Biogen Inc. (BIIB, Financial) is an American biopharmaceutical company specializing in the development and commercialization of biosimilars and medicines aimed at treating patients with multiple sclerosis, Alzheimer's disease, postpartum depression and spinal muscular atrophy.
In recent quarters, the company's share price has continued to be in a downward trend, reflecting doubts from financial market participants regarding the effectiveness of its business strategies promoted by management in recent years, the failed launch of two drugs approved by regulatory authorities for the treatment of Alzheimer's disease as well as failures in pharmaceutical research and development.
On Feb. 13, Biogen released financial results for the three months ended Dec. 31, 2023, which were mixed.
On the one hand, its operating profit margin increased quarter-over-quarter due to increased sales of Tysabri (natalizumab) and Skyclarys (omaveloxolone), as well as optimization of R&D and administrative expenses. On the other hand, Biogen's revenue continues to fall from year to year due to the launch of an increasing number of generic versions of Tecfidera, which is one of the company's key blockbusters, while Vumerity's sales, which were supposed to minimize this damage, remain flat due to tightening competition in the global multiple sclerosis therapeutics market.
Source: Author's elaboration, based on quarterly securities reports.
Nevertheless, despite the expected continuation of Biogen's revenue decline, it has lower multiples relative to its key competitors in the pharmaceutical industry, such as Novartis (NVS, Financial), AstraZeneca (AZN, Financial) and Eli Lilly (LLY, Financial).
Source: Author's elaboration, based on GuruFocus data.
As such, we initiate our coverage of Biogen with a market perform rating for the next 12 months.
Biogen's financial position and prospects
Biogen's revenue for the fourth quarter of 2023 was about $2.39 billion, not only missing our expectations by about $130 million but, more importantly, declining 6.20% year over year.
On the other hand, the forward non-GAAP price-sales ratio is 3.15, which is 15.10% lower than the sector average and 13% lower than the average over the past five years, indicating that Mr. Market is somewhat pessimistic about the commercial prospects of its Food and Drug Adminisration=approved drugs, as well as product candidates that are being developed to treat various CNS diseases.
One of the key factors that has led to Biogen's revenue decline is the lower demand for Spinraza (nusinersen), an anti-sense oligonucleotide approved by regulators to treat patients with spinal muscular atrophy. Its sales were $412.6 million for the three months ended Dec. 31, down 10.10% from the prior year.
Source: Author's elaboration, based on quarterly securities reports.
Meanwhile, Spinraza's share of the company's total revenue is about 17.30%, which is a significant amount, and, as a result, many institutional investors continue to overlook Biogen. Ultimately, this caused its share price to fall by more than 20% since the start of 2024.
The crucial reason why demand for Spinraza continues to fall year over year is the significant increase in competition in the global spinal muscular atrophy treatment market, especially after the launch of Evrysdi (risdiplam) in the second half of 2020.
We believe demand for Evrysdi, which PTC Therapeutics (PTCT, Financial) developed in partnership with Roche Holding, will continue to rise due to its competitive advantages, which include its high efficacy, more favorable safety profile relative to Novartis' gene therapy Zolgensma and its oral route of administration.
We would like to note that Spinraza is injected into the cerebrospinal fluid, which takes a relatively long time and causes inconvenience to patients.
As a result, Evrysdi sales were approximately 354 million Swiss francs ($388.15 million) in the fourth quarter of 2023, an increase of 8.60% year over year.
Source: Author's elaboration, based on quarterly securities reports.
In addition to Spinraza, sluggish demand for Avonex (interferon beta-1a) negatively impacted Biogen's year-over-year revenue. The drug was approved by the FDA in 2009 to treat patients with multiple sclerosis, which the World Health Organization estimates affects about 1.80 million people worldwide.
Avonex's mechanism of action is based on its ability to bind to type I interferon receptors, which leads to the activation of various anti-viral and immunomodulatory mechanisms in the body, thereby helping to slow the progression of this disabling neurological disease.
Its sales were $206.1 million in the fourth quarter of 2023, down 10.40% year over year, mainly due to the company's efforts to shift patients away from injection therapies to more effective drugs whose crucial patents do not expire until the next decade.
Source: Author's elaboration, based on quarterly securities reports.
The pharmaceutical company is expected to release its financial report for the first quarter of 2024 on April 24. According to analysts, Biogen's revenue for the quarter is anticipated to range from $2.24 billion to $2.44 billion, about $140 million lower than expectations for the previous quarter.
Source: Author's elaboration, based on GuruFocus data.
Nevertheless, our model projects the company's total revenue to be slightly below the median of this range, reaching $2.25 billion, mainly due to a more pessimistic outlook for sales of its MS franchise as well as its biosimilars, Spinraza and Leqembi, an FDA-approved drug to treat Alzheimer's disease.
Source: created by Author.
Biogen's operating income margin was about 19.30% for the fourth quarter, down 6% year over year, primarily due to falling sales of its multiple sclerosis drugs as well as higher marketing expenses for Leqembi.
According to our estimates, this financial metric will reach 18.50% in 2024 and increase to 21.50% by 2025, mainly due to steps taken by the company's management to optimize administrative costs, reduce inflation and increase sales of Skyclarys, which was approved by the FDA at the end February 2023 for the treatment of Friedreich's ataxia.
However, these factors partially offset the expected renewed growth in Biogen's R&D spending due to clinical trials aimed at assessing the efficacy and safety of experimental drugs such as litifilimab, BIIB124, BIIB122, BIIB121 and BIIB080 for the treatment of patients with Alzheimer's disease, Parkinson's disease and Angelman syndrome.
Source: Biogen.
Analysts forecast the company's first-quarter earnings per share to range from $3.06 to $4.57, up only slightly year over year. According to our model, its earnings will be 7 cents below the median of this range and reach $3.45.
Source: Author's elaboration, based on GuruFocus data.
After the approval of generic versions of Tecfidera, Biogen's financial position deteriorated despite the steps taken by its CEO, including pursuing a more aggressive merger and acquisition policy. As a result, its trailing 12-month non-GAAP price-earnings ratio was 13.84, which is 18.70% higher than the average over the past five years.
However, on a more global scale, Biogen's operating income is expected to grow over the next five years, causing its price-earnings ratio to fall to 9.46 by 2026. We believe the value of this financial metric is attractive, but due to the persistence of financial risks, investors and traders remain wary of the company's prospects in 2024.
Source: Author's elaboration, based on analyst data.
Conclusion
In recent months, the pharmacetical company's share price has continued to move in a downward trend, reflecting institutional and retail investors' pessimism about the business' prospects even after Leqembi received regulatory approval for the treatment of Alzheimer's disease.
The key factors that negatively impact Biogen's investment attractiveness are the fall in sales of Tecfidera and Spinraza, the decrease in its operating income and the increase in total debt after the acquisition of Reata Pharmaceuticals for $7.30 billion. So, the company's total debt-Ebitda ratio increased from 1.90 to 3.13, which is a negative signal for investors, limiting its ability to pursue an aggressive R&D policy in the coming quarters.
Source: Author's elaboration, based on GuruFocus data.
On the other hand, Skyclarys' sales growth rate continues to surprise us pleasantly. The company has a rich portfolio of product candidates that demonstrate high efficacy in the treatment of various neurological disorders, and its management is taking steps aimed at improving its margins, which, according to our estimates, will begin to bear fruit from 2025.
We initiate our coverage of Biogen with a market perform rating for the next 12 months.
