Four First In Class Treatments Will Expand Global Reach

Key Takeaways

• Biogen's launch of innovative disease-modifying products is expected to boost revenues by capturing market share in unserved therapeutic areas.
  
• Streamlined pipeline and reduced expenses enhance cash flow for reinvestment, supporting long-term revenue and earnings growth.
  
• Revenue pressures from competition and challenges in launching new products like SKYCLARYS could negatively impact Biogen's growth and earnings.

Catalysts

Biogen Inc. discovers, develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases in the United States, Europe, Germany, Asia, and internationally.

• Biogen has launched four first-in-class, disease-modifying products in Alzheimer's, Friedreich's ataxia, depression, and ALS. These innovations are poised to boost revenues significantly as they capture market share in unserved therapeutic areas.
  
• The company has streamlined its pipeline, focusing on key late-stage developments expected to begin generating data by 2026, with the potential to expand peak sales beyond their current biopharmaceutical business, positively impacting future revenues and earnings growth.
  
• Biogen has reduced operating expenses, freeing up substantial cash flow for reinvestment into growth opportunities. This strategic reinvestment is intended to bolster long-term revenue and earnings performance.
  
• Skyclarys, a treatment for Friedreich's ataxia, is anticipated to continue its growth with expected approvals in international markets like Latin America, which could drive increased revenue growth outside the U.S.
  
• The company is advancing its Alzheimer's portfolio, including promising trials like AHEAD 345, which has the potential to show the preventative effects of treatments, providing a significant impact on future earnings as the treatment landscape evolves.

Biogen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Biogen compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Biogen's revenue will grow by 1.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.9% today to 30.4% in 3 years time.
• The bullish analysts expect earnings to reach $3.1 billion (and earnings per share of $21.5) by about April 2028, up from $1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, up from 10.5x today. This future PE is lower than the current PE for the US Biotechs industry at 20.2x.
• Analysts expect the number of shares outstanding to grow by 0.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.02%, as per the Simply Wall St company report.

Biogen Future Earnings Per Share Growth

Risks

• Biogen is experiencing revenue erosion from its multiple sclerosis franchise due to increased competition, impacting future revenue growth negatively.
  
• The launch and commercial execution of first-in-class products present significant challenges in educational outreach, potentially affecting future earnings.
  
• There is a risk of underperformance from new product launches like SKYCLARYS in niche markets due to the complexity in diagnosing rare diseases, which could impact revenue.
  
• European reimbursement for products such as SKYCLARYS involves complex negotiations, which may delay revenue realization and affect net margins.
  
• Biogen's projected mid-single-digit revenue decline in 2025 due to potential biosimilar and generic competition in its multiple sclerosis portfolio could negatively influence net margins and overall earnings.

Valuation

• The assumed bullish price target for Biogen is $254.04, which represents one standard deviation above the consensus price target of $194.88. This valuation is based on what can be assumed as the expectations of Biogen's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $342.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $10.1 billion, earnings will come to $3.1 billion, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 7.0%.
• Given the current share price of $116.98, the bullish analyst price target of $254.04 is 54.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.