Worldwide, 44 million people have Alzheimer’s. In the U.S., an estimated 5.5 million people have it, including more than 5 million above 65. That’s more than 10% of those above 65. With the world’s aging position expected to increase significantly, this proportion will increase significantly. Alzheimer’s currently has no FDA approved treatments.
That’s why, based on Biogen’s (NASDAQ: BIIB) announcement of likely approval of its new Alzheimer’s drug, the company’s share price increased by 44%, a $16 billion market capitalization increase.
Aducanumab Results Update
The FDA and Biogen have announced a number of recent updates on Aducanumab.
The company has had a volatile share price for several years on the back of volatile news on its Aducanumab drugs. This drug is focused on targeting a plaque that forms in the brain cells of Alzheimer’s patients, one of the first drugs to target it, and it has been in development for nearly a decade. Across this time it’s gone through numerous studies.
However, recent FDA and Biogen results indicate that re-examining the data could lead to drug approval.
Aducanumab targets the plaque that forms in brain cells of Alzheimer’s patients. After initially concluding that its drug had failed its Phase 3 trial, Biogen re-examined the data and found what it says is evidence that the treatment works.
In its briefing documents, the FDA staff agreed. It said the reanalyzed Phase 3 trial “provides primary evidence of effectiveness,” which is further supported by chemical changes detected in patients, as well as evidence from an earlier Phase 1 study.
In a note following Wednesday’s FDA filings, Wells Fargo Securities analyst Jim Birchenough said he expects Friday’s advisory committee to recommend approval. “While predicting any FDA panel outcome is difficult,” he wrote, “we believe that risk-reward is favorable and view positive recommendation as more likely than a negative vote.”
The initial indication is that the data wasn’t sufficient. However, Alzheimer’s patients don’t have much for them. This drug could be a blessing. Initial indications were just a 20% chance of approval, but the potential for $12 billion peak sales. Biogen is at a low double digit P/E ratio, and this drug could allow the company to double profit.
That’d be massive for the company and shareholder returns. At its current price, if the drug is approved, that’d make the company worth more than double its current value. This Friday, we’ll potentially hear about whether the drug will be approved. However, the market currently believes that approval is more likely than not.
Biogen Overall Asset Pipeline
Biogen has an impressive asset pipeline that it’s continuing to focus on developing.
Biogen Asset Pipeline – Biogen Investor Presentation
Biogen has 30 clinical programs, with 22 new clinical programs since 2017. The company has 8 programs in Phase 3 and filed, and the company expects 6 mid-to-late stage readouts expected by the end of 2021. The company has announced 20 new deals, and has a number of exciting deals across the entirety of its portfolio.
Overall, Biogen is focused on expanding and improving its overall portfolio. The company’s new drug readouts should help to expand its portfolio despite concerns around the existing portfolio. Potentially combined with Aducanumab, along with the company’s major near-term data readouts, the company should be able to reward shareholders significantly.
Biogen 3Q 2020 Financial Results
Financially, the company has continued to perform incredibly well.
Biogen 3Q 2020 Results – Biogen Investor Presentation
Some of Biogen’s core businesses have continued to struggle on the back of an incredibly difficult year. The company has seen revenue drop 6% YoY and Non-GAAP EPS dropping by 4% YoY. The company’s annualized EPS will come in at more than $35, meaning a P/E ratio of roughly 10, not counting Aducanumab, after today’s share price increase.
However, there are some bright spots worth looking at. The company’s biosimilar revenues are now roughly 8% of its business. This is a business without patent expiration forming a core part of the company’s results. The company’s Spinraza drugs are nearly 20% of its business and its new Anti-CD20 business is also nearly 20%.
The company’s GAAP EPS took a one-time hit from unexpected R&D, but the company’s overall business has remained strong.
Biogen Balance Sheet and Guidance
More importantly, the company’s overall balance sheet has remained strong and the company’s guidance is promising.
Biogen Balance Sheet – Biogen Investor Presentation
Biogen has $4.6 billion in cash and marketable securities and $7.4 billion in debt at the end of the quarter. That means the company has a very modest $2.8 billion net debt position. This means that the company is well positioned to make a significant acquisition or growth. Given recent consolidation in the sector, the company could be looking to do just that.
The company’s capital expenditures have been minimal, and the company’s FCF in 3Q 2020 was $1.1 billion. That’s annualized FCF of $4.4 billion, highlighting the company’s strength. The company has the potential to generate massive FCF on top of Aducanumab, on the back of its current asset base.
Biogen Guidance – Biogen Investor Presentation
It’s worth taking a look that the company has changed its guidance on the basis of its strength. The company has reduced its revenue guidance by $800 million and its non-GAAP diluted EPS guidance by ~$2 / share at the midpoint. Those difficulties have come on the back of a difficult year for some of the company’s largest products, which have hurt its share price.
However, this doesn’t change the company’s value at the current time nor its ability to generate long-term shareholder returns.
Biogen’s risk is of course that the drug industry is one that requires massive R&D with no guarantee of its performance or success. The volatility that the company has faced in its portfolio with Aducanumab is no more an indication of the volatility that healthcare companies face than anything else. However, indications are that the company will continue to perform for the long run.
Overall, Biogen has an impressive portfolio of assets that it has continued to perform incredibly well with. The company recently saw its share price perform incredibly well on the basis of a potential approval for Aducanumab, although its worth noting that even without that approval, the company’s overall portfolio is very impressive.
Going forward, we see the company as having the potential to generate substantial shareholder rewards. We expect the next week to be very volatile, but with Aducanumab having the potential to double the company’s size that’s not unsurprising. We recommend investing in Biogen as a core long-term portfolio holding.
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Disclosure: I am/we are long BIIB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.