On Jan. 30 before the market opened, Biogen Inc. (BIIB, Financial) reported its fourth-quarter and full-year earnings for 2019.
Biogen is a Cambridge, Massachusetts-based biotech company that specializes in treatments for neurological diseases. For the fourth quarter, it reported earnings per share of $8.34, beating analyst estimates of $8 and rising 19% year over year. Revenue was $3.67 billion and net income was $1.43 billion compared to $3.52 billion and $944 million in the prior-year quarter.
Revenue for the full year came in at $14.37 billion, up 7% compared to 2018, while GAAP earnings per share came in at $31.42, a 46% increase from 2018.
Following the news, shares were down approximately 2.22% to $276.26 in afternoon trading.
As of Jan. 29, Biogen has a market cap of $50.71 billion, a price-earnings ratio of 9.93, a cash-debt ratio of 0.7 and a return on capital of 144.08%. Over the past three years, revenue has grown at an average rate of 12.1% per year while earnings per share have grown 13.6% per year.
Contributors to growth
Biogen’s revenue growth was primarily driven by increases in product sales. Overall sales revenues increased 4%. Sales of Roche’s (XSWX:ROG, Financial) Multiple Sclerosis drug Ocrevus increased 35% to $205 million, proving to be strong competition for Biogen’s MS drugs, though Biogen receives royalties on the drug’s U.S. sales.
Among Biogen’s drugs, the top growers were biosimilar products (up 35% year over year), Spinraza (up 22%) and Tecfidera (up 5% year over year).
The company spent 12% less on research and development during the year compared to 2018, though administrative costs were up 13%.
Valuation
In addition to strong sales growth for existing products, Biogen also made significant research and development progress during 2019. The company revived testing for its Alzheimer’s drug aducanumab after a premature risk analysis put the study on hold and is now engaging with the Food and Drug Administration to complete regulatory filings for the treatment. Second-phase data for its Lupus drug came out positive, and it also began seven new clinical programs.
“Our pipeline has grown and is maturing, as we added 7 new clinical programs in 2019 and expect 11 mid- to late-stage data readouts by the end of 2021. We look forward to multiple near-term opportunities for value creation, including in Alzheimer’s disease, ALS, stroke, lupus, ophthalmology, and biosimilars, as we aim to build a multi-franchise portfolio. Across all areas of investment, we remain focused on diligent capital allocation to maximize returns for our shareholders over the long term,” CEO Michel Vounatsos said.
Despite the positive results, Biogen’s stock continues to trade below the Peter Lynch earnings line, as it has ever since the initial decision to put development of its Alzheimer’s drug on hold. This may reflect investor fears that the drug will not gain FDA approval, or that drugs from the company’s competitors will gain more ground.
A free cash flow-based discounted cash flow model places the stock’s intrinsic value at $354.74, which implies that its current price is trading with a 22% margin of safety.
Looking forward
For 2020, Biogen provided guidance of $14 billion to $14.3 billion in revenue and $29.50 to $31.50 in GAAP earnings per share, which would represent slight decreases from the 2019 numbers.
Given the aging population in the country, the U.S. Bureau of Labor Statistics estimates that the health care field will grow 14% from 2018 to 2028. In the stock market, this translates to increased industry value and increased competition. Biogen will continue to face competition for some of its drugs and the threat of competition for others. In order to lower competition risk, the company aims to further diversify its products.
Disclosure: Author owns no shares of any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful analysis or consult registered investment advisors before taking action in the stock market.
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