Biogen (BIIB) is set to report second quarter fiscal 2020 earnings results before the opening bell Wednesday. Shares of the biotech specialist, which is down 6% year to date, has suffered a near-30% decline from its April high of $340 to the June low of around $260.
The price action, which includes flattish-to-down movement over the past month, suggests that investors don’t see any near-term catalysts for Biogen. Not unlike, say, current Wall Street darlings Moderna (MRNA) or Novavax (NVAX), which are both trading at 52-week highs. But while Biogen has faced some operational hurdles due to the pandemic, the company recently filed an application with the FDA, seeking approval for its Alzheimer’s disease drug aducanumab.
The company says it also plans to discuss applications with regulators in Europe and Japan. The news initially sent the stock some 10% higher, but the shares have since given up those gains. Instead, the market has begun to focus on the issues that have impacted the company in recent years, namely the patent loss of several top-selling drugs which have hurt the company’s revenue. This topic has now resurfaced.
Most recently, the patent of the company’s Multiple Sclerosis medication Tecfidera, which last year accounted for $4.4 billion of Biogen’s $14.4 billion in revenue, was ruled invalid. This opens the door for rivals such as Mylan (MYL) to launch a generic versions of the drug — an outcome that will further pressure Biogen revenue. To be sure, Biogen is no stranger to defending its patents and is certain to appeal the ruling.
For the quarter that ended in June, the Cambridge, Mass.-based company is projected to earn $8.02 per share on revenue of $3.44 billion. This compares to the year-ago quarter when earnings came to $9.15 per share on revenue of $3.62 billion. For the full year, ending in December, earnings are projected to decline 1.7% year over year to $33 per share, while full-year revenue of $13.95 billion would mark a decline of 3% year over year.
With both the top and bottom lines expected to decline this quarter, this underscores the potential impact of the patent loss of Tecfidera. Just how much? Biopharma analyst Carter Gould of Barclays thinks the ruling, if upheld, could impact Biogen’s free cash flow by one-third. Gould recently downgraded the stock to Equal weight from Overweight and lowered his price target to $280 from $370. Essentially, this adds even more importance for Biogen to win FDA approval of aducanumab.
These are certain to be the key focus of analysts questions on Wednesday’s conference call. All of that aside, the company has a strong management team along with sound fundamentals. Aside from a strong balance sheet that includes some $4 billion in cash and $7 billion in operating cash flow, Biogen has consistently delivered above average returns of equity, returns of invested capital and gross margins percentage.
What’s more, from a valuation perspective, the shares are priced at just 8.5 times fiscal 2020 EPS estimates of $33 per share, which is more than ten points below the average stock in the S&P 500 Index. And based on fiscal 2021 estimates of $31.4 per share, the forward P/E rises to only 9. In other words, the market is not expecting Biogen to deliver outsized growth in the next 12 to 18 months. But assuming its Alzheimer’s drug aducanumab gets FDA approval and Biogen successfully appeals its Tecfidera patent, these shares should rebound handsomely.
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