Biogen Is The Comeback Story To Watch

With a seven-year trading range of $200 to $400 and every price in between, shares of Massachusetts based Biogen (NASDAQ: BIIB) know exactly what it’s like to be a biotech company where your future depends on your next drug.

Shares are currently bobbing along in the middle of that range after slipping 20% from post COVID highs set in April. It’s been a rollercoaster year, if not a decade, with the coronavirus pandemic only one of many factors that management and investors have both had to overcome.

Court Troubles

2020 started well, with Q4 earnings at the end of January topping estimates and moving in the right direction. Then came a favorable patent ruling in February on the multiple sclerosis drug Tecfidera, which made up 40% of Biogen’s 2019 sales. With that kind of dependence, it’s easy to see why Tecfidera has been a key driver for shares in recent months.

However, fellow biotech Mylan (NASDAQ: MYL), who wants to make a generic version, has consistently challenged the validity of Biogen’s eight years of exclusivity. Biogen’s stock popped almost 40% on the news in early February before sliding into the rest of Q1 as COVID-19 gripped equity markets.

Then in June, a federal court tossed out Tecfidera’s patent protections. Biogen immediately lodged an appeal and the ruling on that may take up to a year. In the meantime, many on Wall Street have started to throw in the towel. Barclays cut their rating on the stock almost immediately after June’s ruling as upwards of 30% of Biogen’s free cash flow was seen to be at risk.

Dodgy Data

Around the same time Aducanumab, the company’s Alzheimer's treatment, was also facing an uphill battle for approval with Raymond James reducing their rating on the stock and saying they couldn’t “go lower than 0% probability” on the drug’s approval chances. Citi shared similar sentiments and gave the stock a street low price target of $240. Multiple questions have been raised about the validity of the drug’s trial data. Even though the company managed to push the submission through for FDA approval at the start of July, few are bullish on the prospects of a positive ruling.

For all this though, the stock has shown some pluck, refusing to go down to the multi-year lows it printed last summer. And with much of the downside baked into the price, the opportunity for an upside surprise increases. The company’s Q2 report last week was just that, as it topped analyst expectations and showed revenue growth year on year albeit only at 1.7%.

Potential Upside

Then on Monday of this week, Morgan Stanley were out with a surprise double upgrade to the stock, moving it straight to Overweight from Underweight. Analyst Matthew Harrison has thrown his lot in on the potential for a positive result with the Aducanumab submission and raised his price target to $357. This would be about a 30% jump from where share’s closed on Tuesday and a welcome reprieve for long-suffering investors.

Biogen has definitely had a bad run of luck and much of the company’s revenues are under threat. However, their price-to-earnings ratio is only 8.2 so it could be said that shares are trading at a significant discount relative to biotech peers. For context Mylan’s price-to-earnings number is 134. It will be a brave investor that backs Biogen at this point but the upside is tremendous if their luck shifts and they get a favorable ruling or two.

With shares close to long term support as we enter the second half of the year and with several yes / no decisions on the horizon, it could be the turnaround story of 2020.