If you're a former Biogen (BIIB +1.82%) investor like me, you might feel compelled to warn other people away from the stock. Since the U.S. Food and Drug Administration (FDA) approved its controversial Alzheimer's drug Aduhelm in mid-2021, very little has gone right for the pharma company. Its shares have fallen by more than 31% in the last three years, and in my view, there's even more difficulty to come.
Unless you're an especially daring investor, you should probably consider stepping away from this stock. Here are three critical issues that explain why.
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1. Aduhelm is a disaster
When Aduhelm was approved on June 7, Biogen's stock shot up wildly, as the market expected that the FDA would decline to let it proceed. That was a very reasonable expectation, as the FDA's own non-binding advisory panel panned the drug, which had already faltered in one of its two late-stage clinical trials. In the months since then, the situation has unraveled, and Aduhelm has become a quagmire that the company may struggle to escape.
The core of the troubles with the medicine is that there isn't enough evidence to convince clinicians and scientists outside Biogen that it can actually help patients in a safe and effective way.
As a result, in a major blow to the chances of Aduhelm's widespread adoption, the Centers for Medicare and Medicaid have considered declining to cover the drug's costs for its patients. That's doubtless a reaction to its high price tag, which was initially estimated to be $56,000 per patient per year, and which constituted another scandal in and of itself. Now, there's a congressional probe into the approval and the pricing.
What's more, Biogen now faces inquiries by the Securities and Exchange Commission and the Federal Trade Commission about the therapy's marketing and approval.
To cap it off, sales of Aduhelm since the approval have been completely abysmal, with the company bringing in a mere $3 million in 2021.
And all of the above is one giant red flag for Biogen's future.
2. Management keeps doubling down
Biogen's management team hasn't been a passive observer in the Aduhelm fiasco.
In fact, they've consistently pushed to make their problems even worse, starting from when Aduhelm was still in clinical trials. After two late-stage trials failed to show any benefit for patients, the business reanalyzed the data and claimed that one of the pair had actually shown some efficacy.
Typically, the right choice is for a company to discontinue work on a program when it has two data sets that say the same negative thing regarding effectiveness.
Then, after the approval and the surrounding controversy, rather than admitting that the medicine's efficacy required further elaboration in post-market trials, senior officers at the company accused detractors as purveyors of misinformation. Aside from being a poor way to deflect criticism, such accusations indicate that management might not be appreciating the reality of their present situation.
On Feb. 10, Biogen lodged a formal objection to the coverage decision from the Centers for Medicare and Medicaid that was mentioned earlier.
It's clear that it still wants to recoup the investment from developing the drug, even if the effort would be better spent elsewhere. And there's a slim chance that Biogen will be able to, which makes this behavior another big red flag.
3. Earnings and revenue haven't grown for years
The final red flag for investors to consider is that Biogen has quite a bit riding on Aduhelm, as it desperately needs something to drive growth.
Over the last three years, quarterly revenue has plummeted by 21.7%, quarterly net income has shrunk by 73.9%, and quarterly free cash flow has fallen by 42.2%. Furthermore, its profit margin is shrinking rapidly, and costs are ballooning as a percentage of revenue. And debt is rising, reaching $7.7 billion as of Q4 2021.
And from the five-year view, things are no better:
BIIB Revenue (Quarterly) data by YCharts
Though there are still a few reasons to buy the stock, pressure on the top and bottom lines is bound to continue. As it does, Biogen will likely be in deeper and deeper trouble, and it's hard to see how its stock could perform well.
So, I think it's prudent for most investors to consider avoiding this stock for the foreseeable future.
