Biogen (BIIB +0.82%) has been a volatile investment over the past year. From highs of more than $460 to lows of less than $193, investors have both made and lost a lot of money from the stock. Currently, it's trading a lot closer to its 52-week low than to its high. And at a drastically reduced price, it may be worth taking a second look at the drugmaker's stock to see if it's worth an investment today.
Holding up better than expected
Since the start of the year, shares of Biogen are down around 7%. Although that's not great, it's in line with the S&P 500, which has fallen by around the same amount. The stock also recently received an upgrade from Wells Fargo as there is hope that its shares may have reached a bottom. And what's encouraging is the stock is showing strength even though there have been some negative developments recently.
NASDAQ: BIIB
Key Data Points
This month, the Centers for Medicare & Medicaid Services (CMS) announced that it will only cover patients using Aduhelm in approved trials. It was devastating news for Biogen, which said, "This unprecedented CMS decision effectively denies all Medicare beneficiaries access to Aduhelm." Aduhelm is the company's Alzheimer's treatment that the Food and Drug Administration granted accelerated approval for last year, even though the agency's panel was not convinced of its effectiveness.
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Despite what seems to be horrible news for the company and its blockbuster drug that analysts previously projected could hit $10 billion in annual sales, the healthcare stock hasn't fallen off a cliff. The probable reason is that given all the negativity surrounding Aduhelm, investors may have already been bracing for this decision and so the surprise was minimal.
But the future remains uncertain
Although things appear to be stable right now, that doesn't mean the risk is gone. In recent years, the company's top line has been nosediving with sales of $14.4 billion in 2019 falling to just under $11 billion this past year. Its top-selling multiple sclerosis drug, Tecfidera, faces competition from generics, which means there will be more revenue loss in future quarters and years. For the three-month period ended Dec. 31, the drug's revenue totaled $486.5 million -- down 20% year over year.
Diversifying and launching Aduhelm was supposed to help offset some of that risk for investors. Without that, it's hard for investors to ascertain just how well the business will do in the years ahead. To make matters worse, one of its other promising Alzheimer's treatments, lecanemab, could face similar challenges. Like Aduhelm, it is an amyloid-beta targeting therapy that would likely face the same restrictions from CMS.
What's positive, however, is that the company has more than a half-dozen other late-stage trials besides lecanemab. Plus, the company's profit margin over the past 12 months has remained north of 14%, and Biogen has consistently generated at least $3 billion in free cash flow in each of the past four years. Even if the business struggles, it has the potential through its pipeline and financials, which remain strong, to invest in its pipeline and expand its opportunities.
Should you consider investing in Biogen?
Despite the drop in share price, Biogen trades at a forward price-to-earnings multiple of 14, which isn't exactly cheap. By comparison, the average stock in the Health Care Select Sector SPDR Fund averages a valuation that's more than 16 times its future profits.
It's not a huge discount, but Biogen does have the potential to generate some positive returns. Although multiple analysts have lowered their price targets for the stock this month, most still set targets of more than $260 for the stock. That would translate into a potential upside of more than 18% from the roughly $221 that it trades around today.
That's probably not going to be enough of a carrot for investors to justify taking on so much risk. The safer strategy is to wait because the stock price could still go lower, especially if the company's earnings report next month proves to be underwhelming.
