When you think about biotech leaders, the name Biogen (BIIB 3.18%) may come to mind. Over the years, this biotechnology giant built a powerful multiple sclerosis (MS) treatment platform that has brought in billions of dollars in earnings. And earnings growth helped the stock soar to its peak back in 2015. But, in recent times, Biogen has faced one big challenge: Its top drugs have lost exclusivity. As a result, revenue has been on the decline, and the share price has stagnated.
Biogen prepared for the loss of exclusivity by developing new products, most specifically one to treat Alzheimer's disease. The company and partner Eisai recently scored a win when the U.S. Food and Drug Administration (FDA) granted Leqembi traditional approval. Still, a lot is riding on this Alzheimer's treatment and Biogen's other pipeline candidates, and that equals risk. Considering this, I was concerned about Biogen -- until I heard 11 words from its chief executive officer during the company's July 25 conference call with analysts.
Biogen's current situation
Before we get to the comments from CEO Christopher Viehbacher, let's take a closer look at Biogen's situation. In its second-quarter earnings report this week, the company said MS product revenue fell 15% thanks to generic competition.
Biogen also highlighted various problems it's been facing, including significant operating expenses in spite of an aging product portfolio, high investments in older products, and a pipeline of risky and costly programs.
All of this has weighed on Biogen's share price. Yes, the stock has soared on occasion amid positive Leqembi news, but it's quickly come down from those peaks and generally traded between $240 and $320 a share over the past decade. Now here's where I'll talk about Viehbacher's encouraging comment.
"We are laser-focused on changing the trajectory of our share price," he said during the earnings call. Then Viehbacher added to those 11 words: "Our share price hasn't really moved in 10 years. So that's where we are focused on really driving -- being much more focused on shareholder value, and that means allocating capital in a way that's commensurate with that."
These words are great, but what gives them substance is the fact that the company also announced measures to help reach this goal of share performance. Biogen says it will cut 1,000 jobs as part of the plan, make "value-based" investment decisions regarding older products, and focus big investments on new product launches.
Millions to invest in R&D
These and other efforts should help the company achieve net savings of $700 million by 2025. This refers to savings on research and development (R&D) costs and selling, general, and administrative expenses. And this will leave Biogen with about $300 million to reinvest in R&D programs and product launches.
Now, let's talk about products and potential products. As mentioned above, a lot is riding on the newly approved Leqembi for a couple of reasons. First, a successful launch and sales thereafter could offer Biogen a boost in its new focus area of Alzheimer's disease. The company currently has two other Alzheimer's disease candidates in clinical studies and a few more in preclinical development. So, gains in market share with Leqembi could help Biogen build a solid reputation in this treatment area.
Second, Leqembi could offer Biogen a new source of billions of dollars of revenue, even if it splits profits with Eisai. The drug could bring in $12.9 billion in sales by 2028, according to GlobalData forecasts. Today, Biogen's annual revenue has declined to about $10 billion from a peak of more than $14 billion, so Leqembi could be a significant product for the company.
Leqembi profit won't happen overnight, though. The new product actually will weigh on earnings this year as Biogen increases investment to support the launch. This means Leqembi's commercialization expenses will surpass its revenue in 2023.
It's also important to keep in mind that launching such a product isn't as easy as launching a pill. Leqembi requires infusion at infusion centers, and prior to getting Leqembi, patients must go through a PET scan for a solid diagnosis. The risk of a possible side effect of bleeding in the brain also could weigh on uptake of the new treatment.
Reason to be optimistic
All of this means there isn't a 100% guarantee that Leqembi will soar to success. But there's still reason to be optimistic, thanks to solid clinical trial data. Meanwhile, Biogen's pipeline includes other promising work such as candidates for immunology and neuromuscular disorders. And Biogen is awaiting an early August regulatory decision on zuranolone for major depressive disorder and postpartum depression.
So, now let's get back to the CEO's quote. As mentioned, Biogen still carries risk, and it's at the very early stages of this new potential growth phase. It still may not be the best investment right now for a cautious investor.
If you can handle a bit of risk though, like me, you may find Viehbacher's words and new plan encouraging. He recognizes the problems and has made share performance a priority. And if the CEO's plan works out, investors in the stock could have a lot to gain over the long run.
