Biogen Inc Content With "Resilience" of Its Multiple Sclerosis Franchise

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Biogen (NASDAQ: BIIB) grew earnings faster than revenue in the third quarter, which is what investors should be looking for from any mature company in their portfolio. Nevertheless, shares went down yesterday after reporting earnings because top-line revenue growth is still indicative of the biotech's future; companies can only cut costs for so long.

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Biogen results: the raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$3.08 billion

$2.96 billion

4%

Income from operations

$1.65 billion

$1.43 billion

16%

Earnings per share

$5.79

$4.71

23%

What happened with Biogen this quarter?

  • While 4% revenue growth looks bad, revenue was up 13% year over year if you back out hemophilia drug sales, which were spun out into Bioverativ (NASDAQ: BIVV), from the year-ago quarter.
  • Management noted the "resilience" of its multiple sclerosis franchise, which is a nice way of saying that sales were basically flat in what has become a very competitive drug market for this disease. Sales of Avonex, Plegridy, and Tysabri were all down year over year. Top-selling Tecfidera increased 3%, although it would have been a little higher if not for an inventory build in the year-ago quarter. Sales of Fampyra increased 15% year over year, but it's a small player, bringing in just $24 million in the third quarter.
  • Biogen's new spinal muscular atrophy drug, Spinraza, was the main driver of the year-over-year revenue growth since it wasn't on the market a year ago. The drug raked in $271 million, with most of the quarter-over-quarter growth coming from overseas sales through launches in Germany and Turkey.
  • In the U.S., there was a 75% increase in U.S. patients taking Spinraza from the end of the second quarter to the end of the third quarter, but that didn't translate into increased U.S. sales because there was a $20 million inventory build in the second quarter and, more importantly, because patients are dosed every four months after the initial loading doses, so some patients who started therapy in the second quarter skipped the third quarter altogether. Patients who had two loading doses in the second quarter and the third loading dose in the third quarter also contributed to the lower quarter-over-quarter sales.
  • The biosimilar business continues to grow nicely with revenue more than tripling year over year, although it's still a relatively small contributor with just $101 million in combined sales for all of Biogen's approved biosimilars.
  • Biogen renegotiated its Alzheimer's disease agreement with Eisai, taking a bigger stake in the U.S. and EU while giving its partner a bigger stake in its home base of Japan. Biogen also announced that it was paying Neurimmune $150 million in exchange for a 15% reduction in previously negotiated royalty rates for the Alzheimer's disease drug Aducanumab. The move should save Biogen more than the one-time payment if Aducanumab gets on the market, but will be wasted cash if Aducanumab flops in its phase 3 trials that are currently underway.
  • Some of that confidence in Aducanumab likely comes from recently released long-term phase 1 data that showed patients treated up to 36 months saw their amyloid plaques -- a marker of Alzheimer's disease -- continue to decrease, with patients taking the 10 mg dose having reached a level below what is considered a positive scan.

What management had to say

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CEO Michel Vounatsos seems content with the status quo for the multiple sclerosis franchise given how much cash it's throwing off:

We continued to add patients globally with a 3% increase versus the prior year and a relatively stable patient count versus Q2. This core franchise helped drive $1.1 billion in free cash flow this quarter, which is key to fueling our investment for future growth.

For the near term, Spinraza is clearly the growth driver, and Vounatsos gave some tidbits about unmet demand:

As of the end of the third quarter, over 180 sites have administered Spinraza, an increase from 145 sites last quarter. And we now have over 250 sites that have submitted start forms. Importantly, we have received hundreds of start forms from patients that are not yet on therapy, a great indicator for demand.

Nevertheless, Vounatsos warned that sales will continue to be lumpy at least through the fourth quarter, "Due to the impact of the dosing scheduling, we anticipate Spinraza revenue growth in Q4 will be mostly driven by ex-U.S. markets."

Although later, Matthew Calistri, Biogen's vice president of investor relations, tried to clarify the comment a bit:

I think the message is that there would be growth in the U.S., but the majority of growth would come from outside of the U.S. So I don't think we're trying to send a message that you're not seeing growth in Spinraza in the U.S. We're just comparing it to the dynamics in the rest of the world.

Looking forward

While the lackluster sales for Biogen's multiple sclerosis drugs seem to be hampering growth in the short term, there's still plenty for long-term investors to be excited about.

In addition to increasing sales of Spinraza, Biogen has quite a few drugs in the clinic that could help drive sales growth in the years ahead. Opicinumab, which tries to get at the root cause of multiple sclerosis, is in a phase 2b trial called Affinity. A phase 1 trial for BIIB054 to treat Parkinson's disease will read out this year, and management is already talking about starting a phase 2 trial before the end of the year. Pain drug BIIB074 is also in a phase 2 trial. And Biogen is working to expand the approved uses for Tysabri into epilepsy and stroke. Next year, Biogen plans to start a phase 2b trial for STX-100 in idiopathic pulmonary fibrosis after recently releasing positive phase 2a data.

And, of course, the biggest opportunity comes from Alzhiemer's disease drug Aducanumab, although the phase 3 data are still a couple of years away.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Biogen and Bioverativ. The Motley Fool has a disclosure policy.