What: Shares of biotech blue chip stock Biogen (NASDAQ:BIIB) were creamed in April, with its shares dipping 11% according to data from S&P Capital IQ, after the company reported disappointing first-quarter earnings results on April 24.
So what: For the quarter, Biogen delivered $2.56 billion in revenue, a 20% increase over what it delivered on the top line in the year-ago period. This was led by Biogen's trio of multiple sclerosis giants, including $825 million from oral relapse-remitting drug Tecfidera, $693 million from Avonex, and $463 million from Tysabri. New MS drug Plegridy contributed $62 million, while Biogen's hemophilia duo nearly delivered $97 million combined.
The problem, put plainly, was weakness in Tecfidera. Sales of the drug were about $110 million below what Wall Street had been expecting, and ultimately this translated into an adjusted profit of $3.82 per share, also $0.09 light of consensus estimates. Biogen blamed Tecfidera's weakness on one fewer shipping week in the U.S. and increased discounts on the drug. Excuses weren't what investors were looking for from a stock that's up more than 665% over the past five years.
Now what: What we're seeing here is one of the few downsides to owning Biogen: its overwhelming reliance on a single disease (MS) to drive its growth. While I don't doubt that Biogen has a product lineup that can sustain profits for years to come, investors also have to realize that Tecfidera is nearing its peak sales saturation point, which is likely around $3.5 billion to $4 billion. For investors it means Biogen's top-line growth is going to slow unless its hemophilia drugs and Plegridy really ramp up quickly.
Biogen also has a lot riding on its two experimental compounds, aducanumab for Alzheimer's disease, and anti-Lingo-1 for MS as a next-generation drug. Both have shown promise thus far (aducanumab more so in my view), but both experimental drugs are also in fields with a very high rate of failure. There have been a handful of Alzheimer's drugs that have wowed in phase 1 studies only to fail miserably in late-stage studies, which is where aducanumab is now. There's quite the premium built into Biogen's share price based on the early results from aducanumab and anti-Lingo-1, so additional positive or negative data will almost certainly sway Biogen's share price.
As for me, I continue to view Biogen as the equivalent of a hold, or a wait-and-see. I believe long-term investors will do just fine holding on or even dipping their toes into the water, but its lack of therapeutic diversification is a bit worrisome and leads me to believe there are faster growing and cheaper biotech blue chip alternatives out there.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of, and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.