Hang On for Biogen

Back in September, I asked if Biogen's (BIIB) rough ride was over. Looking at the chart, I would say no -- but I think investors will make money if they hang on.

On Sept. 6, Biogen stock was up 2% for the year after a gigantic 40% move off the bottom. But since then, the stock has been sliding down. Year to date the stock is down 9.6%. What's going on?

Two weeks ago, Biogen reported a very strong quarter. The company had third-quarter earnings of $5.19 per share, 21 cents ahead of consensus estimates. Revenue rose 6.4% to $2.96 billion. The company's multiple sclerosis therapy, Tecfidera, posted sales of $1.034 billion, up 10%. The interferon business was also up 10% to $708 million, lead by Avonex, which was up 15% to $580 million. Tysabri reported revenue of $515 million, up 7%, and Plegridy grew 28% to $128 million.

Management said the global market share of Tecfidera is 15% and the U.S. patient population is stable at 20% of market share. In Europe, the number of patients using Tecfidera increased by 30%.

While Tecfidera sales benefited by a $40 million to $50 million inventory build in the quarter, Tecfidera sales would have still beat the consensus estimate. Foreign exchange took $54 million out of the company's results.

Biogen announced its new drug application for nusinersen; an investigational treatment for spinal muscular atrophy was accepted by the FDA for priority review. If approved, the company plans to market the treatment under the brand name Spinraza.

Spinal muscular atrophy is a genetic disease characterized by the loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Ultimately, individuals with the most severe type of SMA can become paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. People with Type 1 SMA, the most severe and  life-threatening form, produce very little SMN protein and do not achieve the ability to sit without support or live beyond 2 years without respiratory support.

Since infants with type 1 SMA are very difficult to treat, Spinraza is believed to be a breakthrough treatment and could generate $2 billion to $3 billion in revenue.

At the current stock price, Biogen is trading at just 14 times forward estimates of $20.19. Historically, Biogen trades between 21 and 23 times estimates, so I don't think it's a stretch to see this stock trade around $380.

While investors are concerned about slowing sales of Tecfidera and management changes, including the resignation of the CEO, the company still has an exciting pipeline of potential treatments. Approval of Spinraza in the second half of 2017 and a positive readout of phase III trial data from its Alzheimer's treatment, aducanumab, could act as a catalyst to drive the stock higher.

Despite the rough ride, I think investors will make money if they hang on to Biogen.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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