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Biogen (BIIB 3.01%) reported earnings on July 21, and the stock saw a nice (roughly 8%) gain by end of day due to beating Wall Street's expectations on both revenue and earnings -- and this was notwithstanding the announcement of the imminent departure of CEO George Scangos. As a Biogen shareholder, I was happy to see the stock get a nice bump, but the long-term investor in me is not nearly so sanguine. In fact, I'm concerned that strong performance in this particular quarter is helping mask some worrisome underlying issues. Let's dig in.
Issue #1: Tecfidera's marketing push
In the wake of flat Tecfidera prescription volume after its label was updated to reflect FDA concerns about potentially fatal PML infections in some patients, Biogen spent several quarters pushing a marketing plan to try to reignite domestic revenue growth.
It failed.
Biogen CFO Paul Clancy explained the results in the Q2 earnings call (quote courtesy of S&P Market Intelligence):
We have sunsetted the television campaign as it relates to Tecfidera. I think our -- I mean look, it was an innovative -- I'd applaud our organization for thinking about it and giving it a try. I think that our judgment at this point is that it didn't have a discernible movement on scripts and potentially came with... some drawbacks as well.
Ouch.
Tecfidera's domestic sales did increase by 8.3% year over year...but that was primarily due to price increases, not growing prescription volume. So one of Biogen's major growth engines looks like it will likely continue, well, not growing.
Issue #2: opicinumab trial data
Opicinumab, also known as anti-LINGO-1, was a drug with a lot of excitement baked in. Its potential for rolling back the myelin damage caused by multiple sclerosis had analyst estimates peaking as high as $10 billion in annual sales. The drug flopped in its mid-stage trial earlier this year, with opicinumab whiffing on the trial's primary and secondary endpoints.
Not good.
Management put a positive spin on it, with R&D head Mike Ehlers noting "evidence of a clinical effect with a complex unexpected dose response." Opicinumab "lost efficacy at the highest dose" but showed some evidence of a clinical effect with the middle doses, per CMO Alfred Sandrock. Given that you usually expect to see a drug get more effective the more of it you put into a patient, it's an unexpected outcome -- and not a good sign for the drug. Biogen is planning to do more analysis of the current data and announce its intentions with opicinumab later this year, but I'm not exactly optimistic.
And yet...
Biogen still has other opportunities -- aducanumab in Alzheimer's, which is currently enrolling its phase 3 trials, nusinersen in spinal muscular atrophy, and a number of other early- and mid-stage drugs. It also has $3.8 billion in cash and short-term investments, money that management has indicated it plans to use to make an acquisition or three.
Yes, Biogen has had some (major) setbacks. Yes, it's unclear which (if any) of its new drugs can help reignite growth. And yet, with Biogen valued at about 17 times trailing-12-month earnings, those concerns seem to be adequately priced in to the stock. Based on recently buyout speculation, it seems that I'm not the only one intrigued by this established company at this depressed price. As a shareholder, I'm content to wait and see whether management can deliver wins beyond this quarter. And I suspect that with or without a buyout, investors with a long-term mindset will likely be rewarded by this unpredictable stock.
