A lot has changed for Biogen (BIIB 3.99%) in just a year's time. It was June 7, 2021, that the Food and Drug Administration granted accelerated approval for the company's Alzheimer's treatment, Aduhelm. Since then, multiple experts have resigned from an FDA panel that suggested the agency not approve the drug. And even the company itself, Biogen, has effectively given up on the drug due to a lack of a coverage for it under Medicare.
Unsurprisingly, the stock has crashed hard -- down nearly 60% from the high of $468.55 that it hit a year ago when investors learned of the approval. The positive is that the company still posts a profit and has many products in its pipeline. Has Biogen truly become a bust, or is the stock one of the better bargain buys out there today?
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Biogen's business beyond Aduhelm
In May, the company announced that its CEO, Michel Vounatsos, would be stepping down and that it "will substantially eliminate its commercial infrastructure supporting Aduhelm." The company effectively is throwing in the towel on the drug, which it thought might have become a blockbuster, bringing in billions in revenue. Now, investors need to look beyond just Aduhelm.
The problem is that both revenue and profits have been trending in the wrong direction over the past few years for Biogen:
BIIB Revenue (Quarterly) data by YCharts
The bulk of the company's revenue comes from multiple sclerosis (MS) drugs. However, its top-selling treatment in years past, Tecfidera, has lost exclusivity, and competition has chipped away at market share. In 2021, the company's total revenue from MS drugs was just under $6.1 billion -- down 29% from two years earlier.
The only other segment that generated more than $1 billion in revenue for the company was spinal muscular atrophy, due entirely to Spinraza. But there hasn't been growth from that area either with Spinraza's sales of $1.9 billion this past year declining by 9% from the $2.1 billion it generated two years earlier.
Biogen does have a large pipeline that features multiple trials in phase three for products that could help add revenue in the not-too-distant future. This includes another Alzheimer's treatment: lecanemab. But it's hard to be too optimistic as it is similar to Aduhelm in that it is an amyloid-beta targeting therapy. So if Aduhelm struggled to obtain coverage from Medicare, it may be wishful thinking to think that lecanemab will fare much better if it gets FDA approval.
Is Biogen's stock a bargain?
Biogen is currently trading at 13 times its future profits. By comparison, the average stock in the Health Care Select Sector SPDR Fund trades at a multiple of just under 16. And the company's profits could come in better than analysts expect since Biogen expects to save $1 billion in annual costs through efforts to trim expenses. This includes $500 million from its recent decision to remove the commercial infrastructure that was supporting Aduhelm.
Biogen is certainly cheap compared to other healthcare stocks, but it's not at such a significant discount that I would consider it a bargain. At present, Biogen is a stock that has all the hallmarks of a value trap. Its low valuation looks promising, but when taking into context the falling sales and an uncertain road ahead, the picture is a whole lot different.
Investors are once again hoping for a big FDA approval somewhere to ignite the stock's potential. That makes Biogen a bit safer than your average biotech stock with limited resources, but there are safer options out there for investors. Even analysts have begun to give up on the stock with multiple brokerages lowering their price targets this month for Biogen -- with the highest at just $225.
Only contrarian investors with high risk tolerances should consider taking a chance on Biogen right now.
