EUR 850.00 For Business Accounts Only

Morningstar | Biogen's Strong 2Q Highlights MS Stability and Pipeline Growth; Raising Our FVE. See Updated Analyst Note from 23 Jul 2019

Biogen reported strong results for the second quarter and raised guidance for the full year, and we've slightly increased our fair value estimate to $353 per share from $327 to account for recent share repurchases (at prices significantly below our fair value estimate), lower tax rate guidance, and stronger performance than we had modeled for Biogen's MS franchise, driven by U.S. Tecfidera and royalty revenue from Roche's Ocrevus. With an advancing pipeline and several potential drivers excluded from our model (including lupus, pain, and Alzheimer's programs), we think Biogen shares look undervalued at recent prices. However, we caution that there is significant near-term uncertainty surrounding Spinraza's potential decline in the face of new competition from Novartis' SMA gene therapy Zolgensma (approved in the U.S. at the end of May) as well as Tecfidera patent litigation (with a likely decision on the validity of a key patent by early 2020). Overall, Biogen's MS franchise and solid strategy to expand into adjacent areas like neuromuscular and movement disorders, as well as immunology and ophthalmology, contribute to our wide moat rating.

Despite the expected overhang from Tecfidera and Spinraza uncertainty, we do see a few potential positive catalysts over the remainder of 2019. We expect imminent data for the head-to-head study of Vumerity versus Tecfidera, which could give Biogen a better case for initiating new patients on Vumerity (with longer and more solid IP protection than Tecfidera) if the drug can show improved gastrointestinal tolerability. We currently assume, however, that Tecfidera's potential patent headwinds could bring Biogen's combined sales of Tecfidera and Vumerity down to $2 billion by 2023, well below consensus estimates. We also expect the first key tau data (in supranuclear palsy) and mid-stage data for lupus drug BIIB059 later this year. We do not model lupus sales given prior failures and mixed data from another compound in development with UCB, and we model relatively conservative sales for the PSP program, rising as high as $500 million by year 10 in our model.

Turning to headwinds, we expect biosimilar Rituxan to begin to weigh on Biogen's U.S. profit share for this cancer drug in the second half, and Spinraza's growth should begin to dip as Zolgensma gets better reimbursement access in the U.S. We model a gradual erosion for Spinraza beginning in 2020, as Zolgensma's access improves and as the label is expanded to include older patients (Zolgensma is currently only approved for patients under the age of 2). We expect Biogen's pipeline progress to accelerate in 2020, as data begins to roll out for Parkinson's drug candidate BIIB054 and Nightstar's gene therapy programs NSR-REP1 and NSR-RPGR, followed by data for ALS drug tofersen in 2021.