Biogen: A "Cheap" Pick in Biotech

03/24/2016 8:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

The fortunes of this featured recommendation—as with many other biotech companies—hinge on its pipeline and a handful of drugs already in production says Richard Moroney, editor of Dow Theory Forecasts.

Biogen Idec (BIIB) generated nearly 80% of its revenue last year from three medicines, all used to treat multiple sclerosis.

Biogen’s biggest drug, multiple sclerosis treatment Tecfidera, drove growth last year, as did a pair of hemophilia drugs that launched in 2014.

Per-share profits advanced 29% in 2015 on revenue growth of 11%. Cash from operations jumped 26%.

The pipeline boasts promising new treatments for multiple sclerosis, Alzheimer’s, and Parkinson’s. Results from studies involving these drugs are due out later this year.

Biogen does not pay a dividend, though it spent $5 billion on stock buybacks last year, shaving 6% from the share count. It also spent $383 million last year on three deals to enhance its pipeline.

Noting the improving environment for acquirers within the biotech industry, Biogen says it will explore scooping up licensing rights for mid- to late-stage experimental drugs or buying closely held firms before they go public.

The industry’s recent weakness partly stems from rising scrutiny of drug prices by presidential candidates and Congress. Somewhat encouragingly, higher drug volumes and not price hikes drove Biogen’s 2015 growth.

Management’s 2016 guidance assumes no price increases. The stock’s trailing price/earnings ratio of 16 hovers near its lowest levels since 2011.

The P/E doesn’t look especially cheap relative to our research universe, though it represents a 25% discount to the average biotechnology stock in the S&P 500 Index.

2016 will be crucial for Biogen’s pipeline, and the stock’s low valuation offers investors an attractive risk-reward scenario.

With a Value rank of 70, Biogen is one of few stocks in the industry that looks cheap. Biogen, earning an Overall score of 94, is a Long-Term Buy.

Subscribe to Dow Theory Forecasts here…

By Richard Moroney, editor of Dow Theory Forecasts

More from

Intrexon Targets Zika

Niche Bets in Biotech

Bristol-Myers Bets on Curing Cancer

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS