Since Biogen (BIIB 2.33%) got regulatory approval last year to sell its Alzheimer's disease drug, Aduhelm, things have gone from bad to worse. As a result of fierce and widespread criticism about its efficacy, safety, and cost, the drug only brought in $3 million in 2021, and earlier in April the government ruled that it wouldn't be covered by Medicare, effectively dooming its commercial prospects.
Now, Biogen's shares are down more than 16% in the last six months, and if you bought this stock at practically any time in the last five years, you've lost (at least) some money. Nonetheless, Biogen might be able to recover from its tailspin. Let's take a look at what could be in its future, given where it is today.
It's targeting a high-growth market
The first reason to suspect that Biogen will eventually make a turnaround is that there is a massive market waiting to be penetrated if it does eventually commercialize an Alzheimer's therapy that's popularly recognized as being safe and effective.
Unfortunately, the number of people living with Alzheimer's in the U.S. is going to grow by more than double 2020's sum between now and 2060. That means more and more people will need medicines that treat the disease's underlying causes. And no other biopharma has been able to bring such a medicine through the clinical trials process and to the market so far.
Even if Biogen's first commercialized attempt to treat these patients is a bust, it has plenty of time, not to mention experience, to try again. And, if it succeeds in the future, it'll have an even larger market to penetrate than it did with Aduhelm, which is a strongly positive sign for its hopes of turning around its poor fortunes.
Don't write this stock off just yet
Given its failure with Aduhelm, will Biogen survive long enough to get another big Alzheimer's drug out the door and succeed in making a turnaround? Probably yes, though it might not be pretty for shareholders in the meantime, per this chart:
As shown here, Biogen has had a rough time recently. It's still profitable, but annual revenue is down, reaching $10.9 billion in 2021, and its total expenses have risen considerably as a proportion of sales. Even its cost of goods sold (COGS) has grown sharply as a percentage of revenue, and its yearly free cash flow (FCF) has practically collapsed.
It's not all bad news, though. Research and development expenses, which totaled $2.5 billion in 2021, have grown to be a larger share of revenue than previously while also growing in absolute terms by more than 9.6% over the last three years. That's key, because it means the company's engine of innovation is still running full blast to advance the projects in the pipeline.
Then there's the fact that its pipeline has a phase 3 program for Alzheimer's called lecanemab, not to mention a pair of programs in phase 1. That makes for three opportunities to potentially mint a blockbuster Alzheimer's drug this decade. Including its projects for other indications like lupus and major depressive disorder, it has a total of nine phase 3 candidates. Therefore, it doesn't even need to succeed with an Alzheimer's therapy to have a realistic shot at returning to revenue growth over the next few years.
Don't rush to buy it
In the long run, I suspect Biogen will indeed make a turnaround.
Still, with management's guidance calling for up to $10 billion in revenue for 2022, which is a bit less than 2021's total, this company isn't one that you should be buying shares of right now anyway. Plus, in all likelihood, it'll take the stock a while to recover from its present doldrums, and any residual controversy surrounding the botching of Aduhelm will prolong the process. There's no telling exactly how long that recovery will take.
Furthermore, if the business does make another go at commercializing an Alzheimer's therapy, it'll correctly face a tremendous amount of scrutiny, too. And as a former shareholder, it won't be regaining my trust anytime soon. But, if you're tolerant of risk and you're willing to speculate, it could be a fruitful investment, provided that its drug development operations can make new therapies that are winners.