Biogen Earnings: Shares Look Undervalued Heading Into Three Potential Launches

Biogen’s 3% revenue decline and 6% non-GAAP EPS decline in the first quarter were roughly in line with our estimates, and we’re maintaining our $340 fair value estimate as the firm advances in a year that could include three launches: Alzheimer's drug Leqembi, depression drug zuranolone, and ALS drug tofersen. Although Biogen faced an even tougher commercial environment for its multiple sclerosis portfolio outside of leading drug Ocrevus than we had expected in the quarter, Biogen also recorded much higher contract manufacturing revenue than we had included in our model, and much of this is tied to manufacturing Leqembi. This lower-margin manufacturing revenue was a drag on margins, although we expect margins to improve as the firm’s cost saving initiatives advance later in the year. We’re slightly raising our long-term projections for Leqembi and zuranolone as we gain more confidence in their ability to serve significant unmet needs, particularly as we now expect Leqembi to receive Medicare reimbursement in conjunction with potential full FDA approval in July. And the recent announcement of VA coverage of Leqembi is also encouraging. Biogen also announced the termination of BIIB093 for stroke due to strategic considerations and paused the start of phase 2b for BIIB131 for stroke to assess the program. We have removed both from our model but given our more bullish stance on Leqembi and zuranolone, this had no significant impact on our valuation. While Biogen continues to de-risk its pipeline and considers business development in areas including neuropsychiatry, immunology, and rare disease, we think the firm’s current portfolio and pipeline—albeit more focused on higher-risk neurology programs—looks undervalued. We continue to see Biogen’s MS portfolio and new launches in Alzheimer’s and depression as supporting a wide moat.