Buckingham's Bets in Biotech

02/17/2020 5:00 am EST


John Buckingham

Principal, Portfolio Manager, and Editor, The Prudent Speculator

John Buckingham is a value-oriented money manager and editor of the industry-leading advisory service, The Prudent Speculator. Here he reviews two recommended healthcare stocks — both large cap players in the biotechnology sector.

Amgen (AMGN), one of the world’s largest biotech companies with annual revenue north of $23 billion, is engaged in the discovery, development and delivery of human therapeutics.

The firm has a global presence and its medicines treat cancer, kidney disease, rheumatoid arthritis, bone disease and other serious illnesses.

While chatter around drug pricing legislation has kept a cloud over AMGN, shares recently were whacked after Q4 bottom-line results trailed expectations and full-year guidance for 2020 (adjusted EPS of $14.85 to $15.60) was weaker than estimated.

We believe the 2020 outlook was purposefully conservative, while we continue to like the prospects of the company’s drug pipeline of new products and the addition of psoriasis drug Otezla acquired in 2019 from Celgene (CGNE).

The firm’s strong free-cash-flow generation, solid financial footing and 3.0% dividend yield are also a plus. We think that a forward P/E near 14 makes AMGN a bargain, while we also like the decent EPS growth potential.

Biogen (BIIB) discovers, develops and delivers innovative therapies for the treatment of neurodegenerative diseases and autoimmune disorders, leading the $20+ billion global multiple sclerosis (MS) market with its franchise which includes Avonex, Tysabri and Tecfidera.

While shares have fallen to start 2020, BIIB turned in a solid Q4 headlined by a top- and bottom-line beat (adjusted EPS $8.34 vs. $8.05 est. and revenue $3.7 billion vs. $3.5 billion est.).

Additionally, the company offered full-year 2020 guidance for revenue between $14.0 billion and $14.3 billion, and adjusted EPS of $31.50 to $33.50.

Biogen has strong retention in its older MS drugs despite competition, while its U.S. royalty stream has benefitted from Roche’s $4 billion MS therapy, Ocrevus.

While we would expect increased spending around a potential launch later in the year for the company’s Alzheimer’s drug, if the medication is widely accepted and effective, Biogen would have a mega-blockbuster on its hands.

Further, we think Biogen’s specialty-market-focused drug portfolio outside of MS, keying in on cancer and neurology disorders, is a positive long-term driver.

The firm’s pipeline has also seen progress in MS, pain management, Parkinson’s and ALS. BIIB generates robust cash flow, while the shares now trade for a very low sub-9 forward P/E.

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