Biogen: What’s the Story behind Old Buddy Rocking the Neighborhood?

Biogen's biologic license application for Aduheln (aducanumab), its experimental Alzheimer's treatment, received FDA approval, but under the so-called accelerated approval pathway. Aduhelm works by reducing plaques and will also lead to a reduction in the clinical decline of dementia. The treatment became the first anti-Alzheimer's remedy approved since 2003. Because Aduhelm was approved under the accelerated approval process, Biogen is yet to conduct a phase 4 study to confirm efficacy.

The regulator highlighted the acute need for a therapy for Alzheimer's, with more than 6 million Americans living with Alzheimer's disease and the disease is the sixth leading cause of death in the U.S. This number is expected to grow as the population ages.

Reportedly, at least three FDA panel members have resigned as a result of the agency's controversial speedy decision on the drug. Some doctors have said they refrain from prescribing aducanumab until more profound studies are conducted and results certified.

However, Biogen’s CEO Michel Vounatsos said the company would start the product shipping in about two weeks and has prepared 900 treatment centers to implement the treatment. The price target set at $56K per year at the maintenance dose for an average patient of 74-Kg is likely to remain unchanged over the next four years.

Speaking about the market valuation, currently Biogen’s P/E stands at around 21 with net margin of 24%, MarketCap of $60 billion and Enterprise Value of $65 billion. But P/S close to 5X looks excessive. The stock fluctuated around $270 since 2017 with occasional spikes caused by announcements of new drugs approved by FDA. Apparently, investors, for some reason, aren’t keen on pricing this stock respectfully. Why is that?

Biogen’s total revenue of $13.4 billion in 2020 compared to $13.5 billion in 2018. However, its revenue and earnings fell by 24% and 49% YoY, respectively, to $2.694 billion and $813 million in Q1 2021. The decline was driven by loss of patent protection on its blockbuster drug Tecfidera, resulting in multiple generic entrants that erased more than $600 million of its sales. Also, the company saw its net margins contract 2.9% to 29.8% in 2020, compared to 32.9% in 2018, resulting in a 10% decline in net income.

Although from a valuation standpoint, shares are even cheaper than before the historic announcement, Biogen is a good biotech company but looks like not a good stock to continuously own. The reason is that the company's product line is heavily tilted towards potentially life-changing, but often purely experimental drugs. As a result, the company’s performance too much relies upon the hard-to-predict drug certification procedures and requires a certain degree of betting approach from an investor looking to pocket quick handsome profits like it happened last Monday.