EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Biogen FVE Following 2018 Results; Core Franchises Stable and Pipeline Expanding

Biogen reported 2018 results that were broadly in line with our top- and bottom-line expectations, with multiple sclerosis sales holding up slightly better than we had expected, but slightly less growth from biosimilars and Spinraza than we had modeled. In 2019, we now model higher Spinraza and MS sales as well as lower R&D expenses, and our top- and bottom-line estimates are in line with management's guidance. However, we have boosted our SG&A expenses in the long run to account for multiple potential launches in neurology, led by aducanumab in Alzheimer's in 2020, and we're maintaining our $420 fair value estimate. We continue to believe that Biogen's neurology portfolio and pipeline warrant a wide moat rating and that the shares look undervalued, partly due to investor concerns about the outcome of phase 3 trials of aducanumab. We think the shares look undervalued regardless of aducanumab's trial outcome, as Biogen's pipeline is seeing significant progress beyond Alzheimer's in markets like MS (two midstage remyelinating agents), ALS (entering pivotal trial), Parkinson's (phase 2), stroke (phase 3), and pain (entering phase 3 in trigeminal neuralgia).

Biogen's MS franchise is seeing improved stability, in our opinion, and outside of a likely inventory drawdown in the first quarter, we think quarter-over-quarter growth should remain stable. The drain on Tysabri from Roche's Ocrevus appears to be lessening, and delays for Celgene's ozanimod will give Tecfidera and Vumerity another year of relatively minimal changes to the oral MS drug landscape. While Novartis looks poised to launch SMA gene therapy Zolgensma (AVXS-101) this year, we think Spinraza will continue to grow in 2019, as Zolgensma will likely be labeled only for type 1 infants, and our midteens Spinraza growth is in line with Biogen's forecast. We assume average annual declines in the midsingle digits for Spinraza following 2019, due to Zolgensma and Roche's phase 2 oral drug risdiplam.

While the biggest catalyst remains phase 3 aducanumab data in early 2020 (we continue to assign a 60% probability of success), Biogen should also see 2019 catalysts for Vumerity (MS approval and head-to-head data on gastrointestinal tolerability versus Tecfidera), Tysabri (epilepsy data), and tau antibody BIIB092 (data in progressive supranuclear palsy). For a detailed analysis of Biogen's top-line growth prospects and pipeline candidates, please see our healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."