Analysts' Choice: Biogen Shares Not As Sick As They Look

3/7/2016


  Recent Price
$274
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
16
  Shares (millions)
221
  Long-Term Debt As % Of Capital
41%
  52-Week Price Range
$480.18 - $242.07

The fortunes of Biogen Idec ($274; BIIB), as with many other biotech companies, hinge on its pipeline and a handful of drugs already in production. Three medicines, all used to treat multiple sclerosis, generated nearly 80% of Biogen's revenue last year. 2016 will be crucial for Biogen's pipeline, and the stock's low valuation offers investors an attractive risk-reward scenario. With a Value rank of 70, Biogen is one of few stocks in the industry that looks cheap. Biogen, earning an Overall score of 94, is a Long-Term Buy.

Business breakdown

Multiple sclerosis drugs account for 80% of Biogen's total revenue, hemophilia 5%, and psoriasis less than 1%. Biogen generated the rest of its sales from joint ventures and royalties. About 74% of sales comes from the U.S., 20% from Europe, and 2% from Asia.

Biogen's biggest drug, multiple sclerosis treatment Tecfidera, drove growth last year, as did a pair of hemophilia drugs that launched in 2014. Per-share profits advanced 29% in 2015 on revenue growth of 11%. Cash from operations jumped 26%.

Tysabri (18% of 2015 revenue) loses its U.S. patent exclusivity this year, followed by Tecfidera (34%) in 2018. However, rival drugmakers have struggled to gain approval for biosimilar versions of Biogen's older drugs and may shy away from Tysabri, given the drug's complicated monitoring process and potentially deadly side effects. None of Biogen's other drugs have U.S. patents expiring before 2026.

The pipeline boasts promising new treatments for multiple sclerosis, Alzheimer's, and Parkinson's. Results from studies involving these drugs are due out later this year.  

Biogen does not pay a dividend, though it spent $5 billion on stock buybacks last year, shaving 6% from the share count. Noting the improving environment for acquirers within the biotech industry, Biogen says it will explore scooping up licensing rights for midstage to late-stage experimental drugs or purchasing closely held companies before they go public. It spent $383 million last year on three deals to enhance its pipeline.

Conclusion

S&P 500 biotech stocks have lost an average of 11% over the past six months, nearly double the broad health-care sector's decline. The sell-off has not spared Biogen shares, down 10%. The industry's recent weakness partly stems from rising scrutiny of drug prices by presidential candidates and Congress. Somewhat encouragingly, higher drug volumes and not price hikes drove Biogen's 2015 growth. Management's 2016 guidance assumes no price increases.

The stock's trailing price/earnings ratio of 16 hovers near its lowest levels since 2011. The P/E doesn't look especially cheap relative to our research universe, though it represents a 25% discount to the average biotechnology stock in the S&P 500 Index.

Rising analyst estimates call for Biogen to grow per-share profits 10% to $18.64, above its peer group's average estimated growth of 6%. An annual report for Biogen Inc. can be obtained at 225 Binney St., Cambridge, MA 02142; (617) 679-2000; www.biogen.com.

BIOGEN IDEC
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '15
4.50
vs.
4.09
8%
311.65
-
254.00
19 - 15
Sep '15
4.48
vs.
3.80
11%
412.24
-
265.00
26 - 17
Jun '15
4.22
vs.
3.49
7%
432.88
-
368.88
28 - 24
Mar '15
3.82
vs.
2.47
20%
480.18
-
334.40
35 - 24
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
10.76
17.01
0.00
480.18
-
254.00
28 - 15
2014
9.70
13.83
0.00
361.93
-
270.62
26 - 20
2013
6.93
8.96
0.00
298.82
-
139.72
33 - 16
2012
5.52
6.53
0.00
157.18
-
111.44
24 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
77
70
98
89
89
29

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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