Drug-developer Biogen (BIIB 0.55%) reported a pretty strong earnings increase in the first quarter. While revenue growth wasn't as solid, investors appear to be giving management a pass, thanks to its explanations on why slowing first-quarter sales aren't a sign of future trouble.

Biogen results: The raw numbers


Q1 2018

Q1 2017

Year-Over-Year Change


$3.13 billion

$2.81 billion


Income from operations

$1.53 billion

$1.02 billion


Earnings per share (EPS)




Adjusted EPS




Data source: Biogen.

What happened with Biogen this quarter?

  • Excluding the hemophilia drugs that were spun off last year, revenue was up an even more impressive 15% year over year.
  • With multiple sclerosis patients switching from older to newer medications, it's best to look at the group as a whole. But even with that correction, the year-over-year comparison doesn't look that great, as sales dropped from almost $2.3 billion in the year-ago quarter to $2.1 billion in the first quarter. Management blamed some of the decline on inventory dynamics.
  • The only reason for the decently sized year-over-year increase in revenue came from sales of Spinraza, Biogen's spinal muscular atrophy drug. Sales were only $47 million during its first quarter on the market last year, but the drug had already reached blockbuster status, at $363 million in the fourth quarter, and sales were basically flat quarter over quarter, at $364 million in the first quarter.
  • Sales of biosimilars doubled, although they still only make up $128 million combined, so they only are moving the revenue needle a little.
  • Earlier this month, Biogen struck a 10-year, $1-billion deal with Ionis Pharmaceuticals that brought Spinraza to Biogen, as well as some other pipeline candidates, to use Ionis' antisense technology to develop drug candidates for a broad range of neurological diseases.
  • The company also added to its pipeline through a deal with Pfizer for its schizophrenia drug PF-04958242, which now goes by the equally nonspecific name BIIB104.
  • The company repatriated $3.5 billion of cash and now is holding 85% of its $7.1 billion nest egg in the U.S.
Form with multiple sclerosis diagnosis on it with medication, thermometer, and a book.

Image source: Getty Images.

What management had to say 

Despite the flat sales, the number of patients treated with Spinraza grew quarter over quarter, by 16% in the U.S. and 56% elsewhere. The problem is that due to the dosing schedule, patients get fewer doses once they reach the maintenance phase, as Biogen's chief financial officer Jeff Capello explained:

In the U.S., approximately 40% of Spinraza revenues in the first quarter were attributed to maintenance doses as compared to 25% in the fourth quarter. This correlates with a continued decline in the average doses per patient from 1.6 to 1.1 from Q4 last year to Q1 of this year.

Capello pointed out that the new-found cash, backed by greenbacks, give Biogen a lot of options:

Given our capital situation [and] our cash flow generation, we can both add to the pipeline -- both later-stage assets and mid-stage assets -- and also return capital to shareholders. And I do want to reiterate, we have $2.75 billion remaining under our share repurchase program, and we expect to be active on that front as well.

Looking forward

Biogen's multiple sclerosis drugs are important to the company's overall health since they make up about two-thirds of revenue, but they don't have to necessarily drive growth. Maintaining the status quo should be sufficient as long as Biogen can generate hits with its newer medications in other areas.

In the U.S., Spinraza revenue should hit an inflection point toward the end of the year after Biogen works through the previous bolus of patients, at which time the revenue from new patient starts will counteract the decreases from patients hitting the maintenance phase. Outside the U.S., expect Spinraza sales to continue to grow as Biogen secures reimbursement in more countries where many patients will transfer from being free-medication patients to revenue-generating patients.

The biggest pipeline readout this year likely will come from Alzheimer's disease drug BAN2401, which Biogen is developing with Eisai and is scheduled to read out in the third quarter. The more important late-stage Alzheimer's program for aducanumab isn't due out until 2020 or so.

Editor's note: In a previous version of this article, the columns in the table were mislabeled "Q4 2017" and "Q4 2016." The Fool regrets the error.