Biogen (NASDAQ:BIIB) is a significant-cap biotech that has witnessed significant volatility this year, with over 40% cost swings in both equally instructions. As it turns out, market individuals have been primarily betting on the result of its capacity to progress aducanumab, a potential treatment for Alzheimer’s disease, to regulatory acceptance. That has been a very lucrative enterprise for traders, but not so much for extended-time period shareholders who are let down with spikes in the share selling price that are coupled with sudden jolts back again down to actuality.
There is a lot at stake for Biogen, as the firm is experiencing a significant revenue decline of its now-marketed therapies and is obtaining trouble discovering means to make up these misplaced income. Will the enterprise be in a position to enrich buyers for the next five decades?
A declining business
Biogen encountered a key setback when previous month, after a panel of specialists at the U.S. Foods and Drug Administration voted unanimously that aducanumab unsuccessful to exhibit efficacy in a vital late-phase research. The agency nevertheless has until eventually March 2021 to make a ultimate selection, but rejection of the drug’s Biologic License Software (BLA) looks like a given at this point. (A BLA is the identical as a regular New Drug Application, but it applies to medicines that are composed of biological entities alternatively of chemical kinds.) With this failure, the enterprise correctly set off — if not fully shed — an opportunity to deal with a portion of the wide $818 billion world wide treatment method current market for dementia.
To make matters worse, Biogen also dropped a litigation fight resulting in the invalidation of U.S. patents covering its a number of sclerosis drug, Tecfidera. The patents ended up struck down thanks to deficiency of published description in its primary submitting software, resulting an end to Tecfidera’s monopoly that would have lasted to 2028. Last yr, Tecfidera accounted for approximately 50% of the company’s $14.38 billion in revenue.
There are currently various copycat prescription drugs for Tecfidera on the current market. As a end result, Biogen’s revenue and earnings for each share (EPS) in the third quarter of 2020 declined by 6% and 4%, respectively, when compared to Q3 2019, to $3.38 billion and $8.84.
As extra generic competitors are commercialized, Tecfidera’s U.S. revenue would possible turn into negligible in the grand scheme of Biogen’s gross sales owing to considerable pricing strain. While it has 7 clinical courses in phase 3 (not counting aducanumab), Biogen would have a rough time changing its lost income considering the existing magnitude of Tecfidera’s contributions.
Can a $1.5 billion guess save the corporation?
Last month, Biogen declared it was providing $875 million in dollars to melancholy drug developer Sage Therapeutics (NASDAQ:SAGE) as nicely as getting a $650 million stake in the business. In exchange, Biogen would be eligible for royalties on a important applicant in Sage’s pipeline, assuming it receives regulatory approval.
Ideal now, Sage’s only commercialized drug is Zulresso, a procedure for postpartum depression. Apart from likely side consequences of significant sedation or decline of consciousness, Zulresso is challenging to administer: Delivery includes intravenous injection at a hospital or clinic. For all these explanations, the drug is not promoting perfectly and only generates about $1.6 million in revenue for every quarter, just about unchanged from Q3 2019.
Regretably, the top applicant in Sage’s pipeline just isn’t definitely promising at all. That experimental treatment is known as zuranolone and is in stage 3 medical screening as a treatment for despair. It failed just one this kind of examine again in December 2019, but the organization is yet selecting to progress with further more investigations. The remedy candidate experienced an influence in the very brief time period, but failed to distinguish its efficacy from placebo following just two months of procedure.
Sage thinks that it can sooner or later strike the mark by upping the experimental drug’s dosage and running a lot more huge-scale clinical trials. New details for zuranolone will probable be out there subsequent yr.
What is actually the verdict?
The failure of aducanumab to acquire the blessing of Fda gurus, loss of exclusivity on Tecfidera, and a billion-dollar bet on an unpromising drug are all instead damaging developments for Biogen. The inventory, nonetheless, by now has these chance elements priced in, with a dirt inexpensive valuation of three occasions product sales and 8 moments earnings.
In five years, Biogen’s financials would look very equivalent to what they are now, as its sales come across a steep around-expression drop just before the advancement of new pipeline candidates takes above. If you have a value-investing mindset and want to hold shares for the long expression, go for Biogen. Or else, the organization just will not have the progress it demands correct now to uplift the stock. For all those who prefer speedy-moving growth stocks, test out these organizations instead.