Why Biogen Inc (NASDAQ:BIIB) May Be A Bargain
Biogen Inc (NASDAQ:BIIB) is a successful drug company with a diversified portfolio of treatments for various medical conditions and a steady stream of revenue. The company’s pipeline of drug candidates also continues to expand and advance at the same time. In addition to working to develop new drugs, the company’s efforts are also geared towards expanding the treatment mandate of its existing products to widen its revenue opportunities.
However, Biogen is among the drug stocks taking a serious beating in a visibly weak market environment. The stock has declined to languish at a price about $200 below its 52-week peak. Should you at this time enter or hit the exit door in Biogen? Whatever you choose to do, you need to make an informed decision, especially by separating facts from myths.
Democratic presidential aspirant, Hillary Clinton, recently caused something like a whirlwind in the pharmaceutical sector with her comments about price-gouging by drug companies. She has promised to make treatment more bearable for Americans by keeping cost of drugs low and also ending tactics that allow pharmaceutical companies to continue selling their products at exorbitantly high prices.
With such comments, your head could easily spin if you are an investor in a high-value drug company, such as Biogen. If you aren’t one already, the comments could put you off, and possibly deny you the benefits you could reap through your investment.
Biogen Inc (NASDAQ:BIIB)’s drugs aren’t cheap. Some of its treatments cost upward of $60,000 per patient per year. With such eye-popping drug prices, the “price-gouging” comment directly refers to Biogen and others like it who have priced their products expensively.
Besides price caps for drugs, there have also been suggestion about shortening drug marketing exclusivity periods. With that, branded drugs that are usually priced highly will be open to generic competition faster than in the past. Rapid introduction of generic drugs would accelerate price erosion, thus hurting margins of branded pharmaceuticals, and Biogen would be impacted.
However, what amount of risk can you ascribe to drug pricing measures being proposed by politicians? There is a genuine cause for concern amid such proposals. However, for the most part, it clear is that the drug price policy proposals are speculative at best. In other words, there is no guarantee that any of the measures to significantly reduce drug prices would see the light of day.
If that is the case, Biogen Inc (NASDAQ:BIIB) could be a steal at its current, hugely discounted, stock price. Not only is Biogen appearing attractive because of the possibility of escaping tough drug pricing measures, but also because its product portfolio and pipeline are a source of immense investment inspiration.
Biogen’s drug portfolio and pipeline
Biogen Inc (NASDAQ:BIIB) has multiple specialty drugs in its portfolio and a drug pipeline that has been expanding and advancing towards the market. The company’s treatments capture conditions such as multiple-sclerosis (MS), cancer, hemophilia and more. Treatments for these conditions enjoy strong demand and prices are attractive.
Biogen’s MS drugs include Tecfidera, Avonex, Tysabri and Plegridy. Outside of MS the company has medicines such as Gazyva, Rituxan. Biogen has two hemophilia drugs – Alprolix for hemophilia B and Eloctate for hemophilia A. Its pipeline includes Alzheimer’s disease focused treatment BIIB037, which achieved positive results in Phase I. Biogen is determined to take the development of BIIB037 to Phase III and hopefully bring it to market.
Biogen’s Rituxan is a standard treatment in hematological cancer cases. Avonex is favored in MS treatments because of clean safety record and convenient administration – once weekly. Tysabri boasts outstanding efficacy, although its profile is dogged by serious side effects. There are efforts to target the drug on patients who are less likely to experience serious side effects. Tecfidera is a strong revenue contributor to Biogen’s topline. Although its sales have been impacted by PML fears, Biogen is working towards a remediation that should spur its prescription.
Biogen Inc (NASDAQ:BIIB) continues to invest in R&D to maintain its lead in MS and other treatment categories by widening the mandate of its existing drugs and developing fresh ones. The great thing about strong presence in the MS market is that pricing is strong in the category, which allows Biogen to tap high margins.
One of the concerns that have been raised about Biogen Inc (NASDAQ:BIIB) is the rise of biologics copycats, called biosimilars. There is a valid reason to be worried about the rise of biosimilars, but Biogen is trying to hedge against them by expanding the label of its existing products and rapidly developing new potential blockbusters. Other facts, such as biosimilars being complex to develop and market, could also limit the number of competitors, thus enabling biologics makers, such as Biogen, to escape steep margin erosion because of competition. Moreover, the complexity of developing biosimilars could also delay their coming to market, allowing branded drugs to continue making strong sales.
Areas of concern
Balance sheet health
Biogen Inc (NASDAQ:BIIB)’s balance sheet was strong in the past years, but cracks are beginning to set in, so to speak. The company recently issued $6 billion worth of debt to, among other things, fund share repurchases and working capital. The new debt adds to the $600 million in debt obligation that it had at the end of the June quarter. Although the company’s balance sheet reflects about $2.4 billion in cash balance and short-term investments, it is not as strong as it used to be.
A strained balance sheet is clearly risky for Biogen, given that the company could be forced into more debts to raise funds for drug development to fend off growing competition.
Patent expiration poses serious risk for Biogen. Rituxan, one of Biogen top-selling MS treatments, will lose its marketing exclusivity in 2018, a development that could see sales decline and margins weaken. Biogen is also facing other generic competition threats in the MS market. For example, Tecfidera could come under immense pressure as rivals Alkermes and XenoPort launch their alternatives to the drug.
Biogen’s other concern is Gazyva. The value attached to Gazyva through collaboration with Roche Holding Ltd. (ADR)(OTCMKTS:RHHBY) could decline if data points fail to show that the treatment is getting better than Rituxan.
Because of sales challenges relating to Tecfidera, Biogen Inc (NASDAQ:BIIB) moved to lower its fiscal 2015 revenue guidance. The company now expects full-year revenue to rise by 6% to 8% compared to 14% to 16% that it previously guided. However, the balance of the years could see improvement in Tecfidera, allowing Biogen to surpass its sales projections. The chart below shows Biogen’s annual revenue trend.
Biogen Inc (NASDAQ:BIIB) presents both risks and opportunities, but with the foregoing, you be the judge.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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