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Stock Strategist

Biogen Remains Undervalued

Its MS market dominance and neurology pipeline support a wide moat.

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 Biogen’s (BIIB) fortunes have been heavily tied to its sales of therapies to treat multiple sclerosis; we estimate that the firm holds a roughly 40% share of this $20 billion global market, accounting for 80% of Biogen’s 2015 sales. The stock trades at a steep discount to our $356 fair value estimate because we believe investors have grown disillusioned with MS growth prospects as a result of novel competition, intellectual property concerns, pricing pressure on older therapies, and fewer untreated patients. However, we think the market overestimates Biogen’s future reliance on MS and underestimates the firm’s potential to expand into other neurological diseases. We think Biogen’s novel but well-validated pipeline in neurodegeneration (Alzheimer’s, Parkinson’s, and amyotrophic lateral sclerosis) and neurology-related indications (spinal muscular atrophy, myotonic dystrophy, and neuropathic pain) supports its wide economic moat and long-term growth.

Tecfidera Launch Ensures Multiyear Dominance
Biogen’s strategy has its roots in the 2003 merger of Biogen (MS drug Avonex) and Idec (cancer drug Rituxan). Rituxan’s market penetration is already high, and patents in the United States, where Biogen derives its profit share from Roche, expire in 2018. However, we think a subcutaneous Rituxan as well as novel antibody Gazyva will allow for extended oncology revenue. Avonex generates $3 billion in annual sales and remains the leading MS interferon therapy. Biogen acquired full rights to MS antibody Tysabri (almost $2 billion in annual sales) from partner Elan. A diagnostic test can isolate patients with the lowest progressive multifocal leukoencephalopathy risk, which allows the 50% of patients who have not been exposed to the JC virus to benefit from Tysabri’s strong efficacy profile with low PML risk. That said, older products like Avonex could see pricing power and demand erode now that a generic version of Teva’s (TEVA) Copaxone has launched and novel high-efficacy drugs are reaching the market.

Karen Andersen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.