Some questions are flat out hard to answer. Others are easy as can be. I'd put the question of whether 2018 will be Biogen's (BIIB +2.44%) best year yet in the latter category.
I'll go on record as saying that absolutely, definitely, positively, and undoubtedly the answer to the question is -- no way. There is no scenario under the sun that I can imagine that will make 2018 Biogen's best year ever in terms of stock performance -- and probably not for revenue growth or earnings growth, either. Here are three reasons why.
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1. The comps are practically impossible to beat
What would it take for 2018 to be Biogen's best year yet? Well, the stock would only have to generate a gain of more than 818%. That's Biogen's all-time best performance, set back in 1995. If there's anyone who thinks Biogen will break that record, there's some oceanfront property in Arizona they might be interested in.
How about revenue growth? In 2004, Biogen reported revenue of nearly $1.5 billion -- around 8.7 times bigger than the prior year. This huge jump stemmed from a merger between Biogen and IDEC Pharmaceuticals. I guess there's the tiniest of possibilities that Biogen could undergo another merger in 2018 that could give it a larger revenue boost than it had in 2004. Don't hold your breath, though.
The same story applies for earnings growth. Biogen's earnings soared 540% between 2004 and 2005. Barring a near miracle, the biotech won't come anywhere close to that kind of improvement this year.
2. Stiff competition in multiple sclerosis
Even if the prior-year comparisons weren't so difficult to top, there's a big reason Biogen won't have its best year yet in 2018. The company depends heavily on its multiple sclerosis (MS) franchise. Tecfidera accounts for over 40% of total revenue all by itself. Biogen's entire MS franchise generates 85% of total revenue. And that franchise will come under greater competitive pressure this year than ever.
One big threat will ironically come from a drug Biogen originally developed -- Ocrevus. Roche (RHHBY +1.48%) licensed the MS drug from Biogen several years ago. Ocrevus won FDA approval in March 2017. Although Biogen receives royalties, most of the revenue and profits from the drug go to Roche. Ocrevus has already taken market share away from Biogen's Tysabri, and, to a lesser extent, Tecfidera.
To make matters worse, another challenger appears to be on the way. Celgene (CELG +0.00%) hopes to win FDA approval for promising MS drug ozanimod later this year. Mark Alles, Celgene's CEO, spoke at the J.P. Morgan Healthcare Conference on Jan. 8. It was clear in his comments that he viewed ozanimod as a disruptive force in the MS market. And the drug most in danger to lose market share from ozanimod is Tecfidera.
3. No major catalysts on the way
It would help matters if Biogen had several major catalysts coming in 2018. Unfortunately, it doesn't.
The biotech will provide some clinical updates this year. Results from a study evaluating natalizumab in treating acute ischemic stroke are expected in early 2018. Data from a study of BIIB074 in treating painful lumbosacral radiculopathy are also expected later this year. However, both of these are phase 2 studies. I don't see either one of them being significant enough to move the needle much for Biogen.
Perhaps Biogen will make an acquisition this year that could provide a spark for its stock. Maybe Biogen could find itself a target of an acquisition. My view, though, is that neither of these scenarios would be enough to make 2018 one for the record books.
Potential bright spots for the future
Don't think I'm totally down on Biogen, however. The company's pipeline candidates targeting Alzheimer's disease could be game-changers for patients and for Biogen.
One candidate especially stands out -- aducanumab. Market research firm EvaluatePharma ranked the experimental drug as the most valuable pipeline candidate in the biopharmaceutical industry, giving it a net present value of more than $10 billion. Some observers believe that aducanumab could reach peak annual sales of close to $20 billion. As I said, it could be a game-changer.
The problem, though, is that there's no guarantee that the drug pans out. Although Biogen reported encouraging results from earlier studies, the landscape is littered with once-promising Alzheimer's treatments that flamed out.
Biogen is evaluating aducanumab in two late-stage studies. Initial results from one of them should be available in late 2019, with the other study reporting the following year. While 2018 is highly unlikely to become Biogen's best year yet, if those results are positive, 2019 or 2020 could be.
