Biogen (BIIB 0.23%) started the biotech earnings season off with a bang, generating enough revenue for the company to have confidence to increase its revenue guidance for the year. Earnings weren't nearly as hot, but Biogen has a good excuse: one-time investments in the company's future that lowered the bottom-line results. Beyond the profit-loss statement, Biogen laid out plans for diversifying away from its multiple sclerosis (MS) franchise as it looks to accelerate growth.
Biogen results: The raw numbers
|
Metric |
Q2 2017 |
Q2 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$3.078 billion |
$2.894 billion |
6% |
|
Income from operations |
$1.2 billion |
$1.46 billion |
(18%) |
|
Earnings per share |
$4.07 |
$4.79 |
(15%) |
Data source: Biogen.
What happened with Biogen this quarter?
- While 6% revenue growth doesn't sound too exciting, the spinout of Bioverativ (BIVV) had a negative effect on the revenue line. Excluding those hemophilia sales, revenue was up a solid 15% year over year.
- Sales of Biogen's MS drugs were up only 5% year over year, but considering the competitive environment, that's not a bad showing. Tecfidera sales increased 13%, while interferons -- Avonex and Plegridy -- combined for a 5% year-over-year decline, and Tysabri sales were flat year over year.
- A good portion of the increased revenue came from Spinraza, the spinal muscular-atrophy (SMA) drug developed with Ionis Pharmaceuticals (IONS -1.44%). In just the second full quarter on the market, the drug generated $203 million in sales, putting it well on its way to blockbuster status, even considering that $30 million of the sales were due to a build in inventory.
- Sales of biosimilar drugs grew 37% year over year, but they remain a small revenue source, bringing in just $91 million in the second quarter.
- The lower income from operations and earnings was due to research-and-development expenses that included $360 million related to the licensing deal with Bristol-Myers Squibb (BMY -8.51%) for its anti-tau Alzheimer's disease drug candidate, now called BIIB092, and a $120 million charge related to the acquisition of a phase-3-ready stroke treatment, BIIB093, from Remedy Pharmaceuticals.
Image source: Getty Images.
What management had to say
"Overall, we believe Spinraza will become one of our largest commercial assets shifting the center of gravity for Biogen beyond MS to generate new growth," said Michel Vounatsos, Biogen's CEO. Vounatsos thinks Biogen can generate plenty of cash over the next few years and laid out plans for how to use it:
Through the end of the decade, we expect cash flows to significantly grow, driven by continued performance of our commercial assets and the anticipated expiration of the contingent payments related to Tecfidera in the first half of 2019. This cash flow will enable us to invest in and build an industry-leading neuroscience pipeline that we believe will transform Biogen into the fastest growing large-cap biotech company. This represents a shift in approach from emphasizing share repurchases to prioritizing business development and investing for growth always with a priority toward maximizing shareholder value.
Later in the call, Vounatsos noted that, while external growth is important, the deals still have to make financial sense, and he's not completely ruling out share buybacks:
We will explore deals of all sizes, and we remain disciplined in our approach. We look to deploy capital to generate returns meaningfully above our cost of capital. We view investment in growth as our top priority, but we also recognize the value of opportunistically returning excess capital to shareholders through share repurchases.
Looking forward
Management raised its 2017 revenue guidance to a range of $11.5 billion to $11.8 billion, citing the solid Spinraza launch as the main reason for the increase. Investors should keep in mind, though, that we're probably at the steepest part of the launch sales curve because sales growth will likely slow in coming quarters since patients get more frequent treatments when they start therapy compared to the maintenance phase. Also, many of the older SMA patients have had spinal surgeries, which makes injecting Spinraza into the spinal canal challenging.
Management also laid out longer-term plans to save up to $400 million annually by 2019. Rather than the savings flowing to earnings, Biogen plans to spend the savings on additional research and development through internal development, as well as the aforementioned move toward acquiring and licensing products. Investors should expect more lumpy quarters on the earnings line like we saw this quarter.
