After a not-so-great second-quarter earnings release that sent its shares down 22%, it was refreshing to see Biogen (NASDAQ:BIIB) beat earnings guidance and raise full-year guidance after its third-quarter earnings release. Shares were up 4% on Wednesday, and up slightly the day after the release.
Of course, a beat is all relative. It's obviously easier to beat guidance that's been lowered already.
Not everything is perfect with Biogen in the pipeline department. Separate from the earnings release, Biogen said that its clinical trial testing Tysabri in secondary progressive multiple sclerosis failed. It's not too surprising given the inability for other drugs to work on patients with the secondary progressive form of the disease, and the results won't affect Tysabri's current sales for the relapsing forms of multiple sclerosis. But given the unmet need, Biogen had potential for a nice upside if Tysabri had helped patients with secondary progressive multiple sclerosis.
Back to the numbers
Revenue increased 11% year over year. Biogen's guidance was for revenue growth of 6% to 8%, so 11% is a solid win, although it's still well short of the year-over-year revenue growth guidance of 14% to 16% that management was previously planning for.
Much of the better-than-expected revenue came from U.S. sales of Tecfidera, which increased 5% quarter over quarter. Unfortunately, the increase wasn't because there was higher demand for the multiple sclerosis drug -- rather, an increase in inventory at specialty pharmacies, and a price increase.
In the U.S., at least, it appears that most of the patients who were going to switch from injectable drugs, such as Teva Pharmaceuticals' (NYSE:TEVA) Copaxone and Rebif from Pfizer (NYSE:PFE) and EMD Serono, as well as Novartis' (NYSE:NVS) arguably inferior oral Gilenya, have already switched to Biogen's oral Tecfidera. That's obviously good news for Teva Pharmaceuticals, Pfizer, and Novartis, but we'll have to wait until the companies report third-quarter earnings to confirm that it's actually helped them. The other possibility is that the multiple sclerosis market in the U.S. is shrinking, and Teva Pharmaceuticals, Pfizer, and Novartis are losing market share while Biogen keeps its sales stable.
Sales of Tecfidera outside the U.S. came in higher than expected, too, but they're so much smaller than U.S. sales -- $754 million in U.S. sales versus $183 million outside the U.S. -- that the beat doesn't move the revenue needle as much. Thinking longer term, it's key for Biogen to increase Tecfidera sales outside the U.S., as it's clearly a growth opportunity.
Biogen announced a restructuring program that will cut 11% of its workforce, and cut operating expenses by approximately $250 million. The savings won't flow to the earnings line, though, as the company said it plans to increase spending on Tecfidera marketing, as well as research and development.
There's certainly nothing wrong with a drugmaker cutting fat, and turning it into future growth. But the key to the plan is that it has to create increased sales. Otherwise, investors would be better off with the company using the added income from the reduced expenses to buyback stock, offer a dividend, or license/purchase drugs developed outside its walls.
Of course, Biogen has already been following the stock-buyback model for boosting investor value. As of the end of the third quarter, Biogen had purchased about $3 billion worth of its $5 billion share repurchase plan, and has purchased another $0.9 million since then.
With the solid beat on lowered guidance, Biogen raised its 2015 revenue guidance to an increase of "8% to 9% compared to 2014," up from the aforementioned 6% to 8% year-over-year increase.
Adjusted earnings per share for the year are now expected to be in the $16.20 to $16.50 per-share range. Previously, the company was looking for earnings between $15.50 and $15.95 per share. While that 4.5% increase at the bottom end isn't too bad, keep in mind that adjusted earnings don't typically cover one-time charges such as restructuring costs.