Attention New Biotech Investors: Biogen Inc's Recent Weakness Is Your Opportunity
Investing in biotech stocks can be very intimidating for beginners, as many investors consider the word "biotech" to be synonymous with "risk". Press releases are filled with scientific jargon, many companies are losing money, and normal valuation metrics like the price-to-earnings ratio are more often than not useless. It's no surprise many investors simply ignore the entire sector.
Yet, biotech remains a terrific place to find multi-baggers, as companies that cansuccessfullybring a new drug to market can see their share price soar, providing investors with huge returns in a short period of time.
I'd advise anyone interested in making their first biotech investment to start off with one of the blue chips in the space that is profitable, has multiple products already on the market, and has a rich pipeline full of opportunity. One company that fits that description perfectly isBiogen, making it a great candidate for a first investment in the sector -- particularly given the recent drop in share price.
A long and profitable historyOriginally founded as IDEC Pharmaceuticals in 1985 with a focus on cancer, the company change its name toBiogen Idec in 2003 after merging with Biogen, a fellow biotech company focused on multiple sclerosis. Earlier this year the company officially dropped the "Idec" from its name, creating the blue chip name we know today.
Revenue growth at Biogen has simply been astounding over the last decade, particularly over the past year. Revenue grew a whopping40% in 2014 to more than $9.7 billion thanks largely to the company's dominant presence in the multiple sclerosis market.
Multiple treatments formultiple sclerosisMultiple sclerosis, or MS, is a disease in which the body's immune system mistakenly attacks its own central nervous system, which includes the brain, spinal cord and optic nerves. For reasons that are still unknown, the immune system attacks the fatty substance that surrounds and insulates nerve fibers called myelin, causing scar tissue to form. Myelin is critical to helping nerve impulses properly send signals in the body, and the scar tissue created from MS disrupts this process, causing a huge range of symptoms like fatigue, difficulty walking, and numbness. In more severe cases mobility can become extremely limited, requiring patients to receive full time care to survive. MS is estimated to afflict about 400,000 individuals in the US and about 2.3 million worldwide.
Biogen has successfully developed a number of medications that help treat MS, and together these drugs are generating billions of dollars in sales. The company dominates this space and estimates that 38% of MS patients worldwide are currently using one of Biogen's products. Best-selling medications include Avonex and Tysabri, each of which helps to slow the progression of MS. These drugs have been on the market for years, and together rang up nearly $5 billion in sales in 2014.
More recently, Biogen has launched two new MS medications,Plegridy and Tecfidera, in an effort to extend its leadership position in the space. Tecfidera is off to a fast start, reaching more than $2.9 billion in sales last year since launching in 2013, and has recently become the most prescribed oral MS therapy around the world. Tecfidera has became a critical drug to help drive Biogen's top and bottom line, so investors need to watch its commercial progress closely.
A very profitable joint ventureBiogen also generates a significant amount of revenue from a collaborationagreement withGenentech, a subsidiaryofRoche, in which the two companies share operating profits and losses relating to cancer medications Gazyva and Rituxan.
Rituxan is approved to treat a wide range of diseases, including the blood cancers non-Hodgkin's lymphoma and chronic lymphocytic leukemia, as well as rheumatoid arthritis.Gazyva, which launched in 2013, is indicated for the treatment of patients with previously untreated chronic lymphocytic leukemia. While revenue from this joint venture only grew about 6% in 2014, it is still an important driver of value to Biogen, as it brought more nearly $1.2 billion in revenue for 2014.
Beyond multiple sclerosisWhile the vast majority of Biogen's revenue is currently concentrated in the MS market, Biogen has recently made efforts to expand its product portfolio with its recent entry into the hemophilia market. Hemophilia is a genetic disorder in which a patient's blood does not clot properly, causing excessive bleeding. People with severe cases of hemophilia can bleed internally into joints and muscles, causing pain, joint damage, and life-threatening hemorrhages. The Centers for Disease Control and Prevention estimates that there are about 20,000 people with hemophilia in the US, and about 150,000 patients worldwide.
Despite the relatively small population size, treating hemophilia is big business, with estimates running as high as $7 billion in annual spending worldwide. Biogen boasts two recently approved products that help patients control and prevent bleeding episodes -- Elocatate andAlprolix -- which are designed for treating hemophilia A andhemophilia B, respectively.
Total revenue for these newly launched drugs was $134 million in 2014, which is tiny when compared to the $9.7 billion that Biogen rang up for the year, but peak sales estimates for each drug currently sit around $500 million. When combined, they offer the potential to bring in a billion in revenue, which would offer Biogen investors nice diversification.
Available at a good priceWhile there are plenty of reasons to be bullish on Biogen's future, Wall Street has hammered the stock recently based on slowing growth for Tecfidera.International pricing pressure for the drug appears to be dragging down recent sales growth, sending investors running and bringing Biogen's price-to-earnings ratio to a level it hasn't seen in several years.
While a slow down in Tecfidera's revenue growth is certainly something for investors to keep an eye on, sales still did increase more than 7% over the first quarter, and on a unit basis the drug grew more than 14% internationally over the first quarter quarter. This tells me that physicians still see real value in the drug, even if overall sales aren't growing as quickly as investors had hoped.
Despite this weakness, Biogen is still offering strong guidance for the year, as the company is currently expecting revenue growth of 14 to 16%, and Non-GAAP earnings-per-share between $16.60 and $17.00. If the company can hit the midpoint of that guidance it would represent more than 21% growth when compared the $13.83 EPS produced in 2014.
I think this recent hit to Biogen's share price could prove to be an attractive entry point for prospective investors. The company is now trading for around 17 times 2016 earnings estimates, and analysts are predicting growth of nearly 17% over the next 5 years. Biogen also recently authorized a $5 billion share repurchase program, which when compared to its $73 billion market cap holds the potential to retire more than 6% of the shares outstanding. When you add it all up, Biogen's stock looks like a compelling opportunity right now, and remains a great stock for new biotech investors to consider.
The article Attention New Biotech Investors: Biogen Inc's Recent Weakness Is Your Opportunity originally appeared on Fool.com.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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