Company Reports

Biogen’s new product launches and cost-cutting programs are countering headwinds from a declining portfolio of older multiple sclerosis drugs, and first-quarter product revenue fell 3% while non-GAAP EPS grew 8%. We’re maintaining our $303 fair value estimate, as we think Biogen’s neurology, rare disease, and immunology portfolio and pipeline look well positioned to drive growth beyond 2024 and support a wide moat. Data from programs in ALS, Angelman’s, lupus, and essential tremor should be available by mid-2024, and positive data could create upside to our valuation.

We’re maintaining our $303 fair value estimate for Biogen after the firm reported 2023 results that were in line with our expectations and earnings guidance for 2024 that was ahead of our prior forecast, as contract manufacturing declines are poised to improve gross margins more than we had anticipated, and as the firm’s cost savings program develops further, allowing bottom-line growth in 2024. We think the market is likely disappointed by the slow launch of Alzheimer’s drug Leqembi as well as Biogen and Eisai’s decision to invest in a 30% U.S. Leqembi salesforce expansion. Biogen remains in transition as the firm’s portfolio of multiple sclerosis drugs comes under pressure from generic and branded competition, and as newer drugs are just starting to launch, but we think top-line growth will return in 2025. Overall, we continue to see Biogen’s newer products and innovative pipeline supporting a wide moat. Biogen ended 2023 with $5.9 billion in net debt, although with additional deferred payment from Samsung (more than $400 million expected in April), as well as the potential sale of the firm’s remaining biosimilar distribution rights, we think the firm could add more tuck-in acquisitions to help mitigate risk around its core neurology pipeline.

We have slightly lowered our Biogen fair value estimate from $327 to $303 following third-quarter results that were relatively in line with our estimates but reflected continued slow uptake of Leqembi in the U.S. market despite full U.S. Food and Drug Administration approval (and Medicare coverage) in early July. Overall, we think the cost of Leqembi’s rollout could be higher than we had anticipated, and we’ve also lowered our assumed 2023 Leqembi sales (booked by partner Eisai) to below $50 million. That said, we think progress with blood-based tests and subcutaneous delivery of Leqembi could begin to benefit patients as early as 2025, driving increased market penetration and eventual annual Leqembi sales of more than $7 billion. Management slightly boosted top-line expectations for 2023 from a mid-single-digit decline to a low-single-digit decline, but this was mostly a result of a change in accounting for Leqembi, with collaboration costs now flowing through operating expense lines instead of revenue. Non-GAAP EPS guidance was lowered to account for the Reata acquisition, or essentially narrowed from original guidance excluding the impact of this deal. Overall, we remain enthusiastic about long-term potential for Leqembi and Biogen’s pipeline, although we expect continued sales declines in 2024. Data from several programs in ALS, Angelman’s, lupus, and essential tremor should be available by mid-2024, and positive data could create upside to our valuation. We think Biogen’s neurology and rare disease portfolio still supports a wide moat.

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and recently launched Alzheimer's disease drug Leqembi.

We’re lowering our Biogen fair value estimate to $327 per share from $340 following the announced pending acquisition of rare neurology drug firm Reata Pharmaceuticals for $7.3 billion. Reata recently gained Food and Drug Administration approval of Skyclarys for Friedreich ataxia, a rare genetic neuromuscular disorder, in the United States and expects to expand the launch to Europe in 2024. We think Reata fits well with Biogen’s strategy of expanding in rare diseases to support its wide moat, following Biogen’s successful global launch of spinal muscular atrophy drug Spinraza and the recent launch of amyotrophic lateral sclerosis drug Qalsody. Reata's pipeline drug cemdomespib is also entering phase 2 development for diabetic neuropathic pain, although given limited data, we do not assign the drug value in our Biogen model.

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs, including Leqembi in Alzheimer's disease.

We’re maintaining our $340 fair value estimate for Biogen following in-line results for the second quarter, and we continue to see a mid-single-digit revenue decline and non-GAAP EPS between $15 and $16 per share this year, consistent with management’s reaffirmed guidance. Biogen saw a 15% decline in multiple sclerosis revenue in the second quarter due to generic and branded competition. Contract manufacturing revenue growth helped counter this headwind, with total revenue down just 5% in the quarter. With full U.S. Food and Drug Administration approval of Alzheimer’s disease drug Leqembi in early July, the drug now has coverage with the Centers for Medicare & Medicaid Services. This has facilitated a true launch of the drug in the U.S., and we expect approvals in Europe, Japan, and China in the coming months. That said, we think the launch will proceed somewhat slowly, as there are several hurdles that potential patients will likely need to overcome before starting treatment. We assume that Biogen will begin to record profit from its collaboration with Eisai beginning in 2025, with potential peak sales of Leqembi reaching $7 billion by 2032. Overall, we think Biogen—under the leadership of new CEO Chris Viehbacher—is making progress in developing a cost discipline and improving the quality and diversification of its neurology-rich pipeline, supporting its wide moat. We expect to see small bolt-on acquisitions move the firm further into areas like rare diseases (building on current SMA drug Spinraza) and neuropsychiatry (following the potential launch of anti-depressant zuranolone later this year), and the firm has $7.3 billion in cash to drive these deals (as well as any proceeds from the potential sale of its biosimilars business).

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.

We're maintaining our $340 fair value estimate for Biogen following in-line performance in the fourth quarter of 2022 and guidance for 2023 that was slightly ahead of our expectations. Fourth-quarter and full-year revenue slipped 7%, and full-year non-GAAP EPS was down 8%, as MS revenue fell 11% in 2022 due to a combination of Tecfidera generics and continued declines of interferon drugs Avonex and Plegridy. With the MS portfolio in decline, the two biggest potential growth drivers over the next few years remain Alzheimer's drug Leqembi and depression drug zuranolone. Leqembi received accelerated approval in the U.S. in January, and we continue to expect the launch to begin to take off more strongly late this year, following potential full approval (based on the phase 3 study) and Medicare reimbursement, with $5 billion in peak sales split between Biogen and Eisai. We've also raised our assumed probability of approval for zuranolone, given the drug's recent filing with the FDA and expected approval in August, and we assume peak sales approaching $1 billion. We see shares of Biogen as undervalued, as Leqembi's potential should allow positive revenue growth in 2024 and beyond. We think Biogen's pipeline is underappreciated by investors and helps support a wide economic moat.

The U.S. Food and Drug Administration has granted accelerated approval to Biogen and Eisai’s Alzheimer’s disease drug lecanemab (now branded as Leqembi), and we’re slightly raising our Biogen fair value estimate to $340 from $330 after boosting our probability of approval from 90% to 100%. While this approval was based on the drug’s ability to lower amyloid plaque levels (a surrogate endpoint for clinical benefit) in a phase 2 study, we expect that positive phase 3 data presented in November will allow Leqembi to gain full approval and strong reimbursement from private payers and Medicare by the end of 2023. Eisai announced plans to launch the drug by late January at a price of $26,500 annually, in line with Biogen’s $28,000 price for Aduhelm and our own pricing estimates. We model $5 billion in annual Leqembi sales by 2031 (with profits shared by the two partners). The potential for maintenance monthly dosing (after amyloid levels have been significantly cleared) could eventually put pressure on average prices, but this would also reduce the burden on infusion centers and open up more space for new patients, therefore making it unlikely to have a significant impact on our valuation. Maintenance dose pricing would also put Leqembi within the cost-effective pricing range estimated by the Institute of Clinical and Economic Review, which could reduce future pricing risks for Biogen’s Alzheimer’s-related cash flows and lower the uncertainty rating (currently at High) we assign to Biogen’s shares. We see shares of Biogen as slightly undervalued, as Leqembi’s potential should allow Biogen’s revenue growth to swing to positive territory in 2024 and beyond. In the longer term, Biogen is focusing on an undervalued pipeline that includes tau-targeting Alzheimer’s drugs as well as potential launches in lupus, stroke, and Parkinson’s in the second half of the decade. We think Biogen’s neuroimmunology pipeline is underappreciated by investors and helps support a wide moat.

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide economic moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs, including Leqembi in Alzheimer's disease.

On the heels of positive results for Biogen and partner Eisai’s Alzheimer’s disease drug candidate lecanemab, Biogen reported third-quarter results that were in line with our expectations, and we’re maintaining our $330 fair value estimate.

We've raised our Biogen fair value estimate to $330 from $305 following lecanemab's strong phase 3 data in Alzheimer’s disease. We had already incorporated a 50% probability of roughly $5 billion in 2031 sales for lecanemab (profits split equally with partner Eisai), and with this data, we've increased that probability to 90%. We expect accelerated approval of the drug in January 2023, with full approval and strong reimbursement from private payers and Medicare by the end of 2023. Biogen’s neurology-focused portfolio and pipeline continue to support a wide economic moat.

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide economic moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs, including lecanemab in Alzheimer's disease.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide economic moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs behind Aduhelm in Alzheimer's disease.

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).

We think Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide economic moat. Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs behind Aduhelm in Alzheimer's disease.

We're lowering our Biogen fair value estimate from $343 to $305, as despite the in-line performance for most of Biogen's portfolio in the second quarter, we're updating our model for recent news on generic and biosimilar competitive threats as well as the termination of three pipeline programs.

Morningstar now directly incorporates cost-effectiveness analysis into our biopharmaceutical ratings through what we're calling our capsule system. Given the lack of regulatory oversight on whether U.S. drug launch prices or price increases are justified, an independent, private organization—the Institute for Clinical and Economic Review, or ICER—has gained prominence and authority assessing cost-effectiveness. Drugs that are priced above ICER's cost-effectiveness thresholds or that record high unsupported price increases contribute to Morningstar's ESG Risk Rating Assessment and equity research methodology for incorporating environmental, social, and governance risk into our fair value estimates and moat and uncertainty ratings.