Investing in beaten-up stocks in this period of uncertainty demands nerves of steel.
In fact, some biotechnology and healthcare stocks have been left for dead in recent months. Meanwhile, there are others that continue to deliver amidst the ongoing pandemic.
One of them is Biogen (BIIB).
Biogen has been consistently tagged as a high-risk-high-reward stock even before the COVID-19 pandemic started.
However, people seem to miss the fact that the company has relatively low debt and a surprisingly positive free cash flow in the past years.
Since 2019, the banner headline for Biogen has been its experimental Alzheimer’s disease treatment Aducanumab.
Recently, Biogen released promising progress following its decision to submit the Alzheimer’s candidate for a priority review to the FDA. It has also been accepted for review by European health regulators.
Although this move appears risky, the goal is to accelerate FDA’s timeline for Aducanumab.
That is, Biogen’s decision to submit the drug for approval earlier than expected also pushes the decision to an earlier date, which is March 7, 2021.
If approved, then Aducanumab will be the first-ever approved drug for Alzheimer’s disease.
The road to this point was not easy though. Biogen went through a series of failed trials and even a brief period of giving up on the project before the company gave the effort another chance.
Looking at the market opportunity for this sector, Biogen’s about-face no longer comes as a surprise.
For decades now, companies have been looking into ways to at least slow the progress of the condition, treat the symptoms, and offer faster ways to diagnose it.
There is currently no cure for this disease, which is ranked as the sixth leading cause of death in the country and accounts for approximately 2 million deaths globally.
Given that this disease takes years to progress, it means tens of millions of patients live with the condition on a daily basis -- and this sector comprise the target niche for Aducanumab.
In the United States alone, over 5 million people are diagnosed with Alzheimer’s disease annually and this number is projected to increase to nearly triple by 2050.
With all the treatments geared towards Alzheimer’s disease, sales for these products were estimated at $3.5 billion in 2018. This cost is expected to hit a 7.2% compound growth rate yearly until 2030.
If successful, Aducanumab can reach peak sales somewhere between $10 billion and $20 billion.
For context, the annual sales of Biogen today is only under $15 billion.
This underscores the significance of Aducanumab for the company as the drug can more than double its total earnings and even its market capitalization. It can also offer a 3x to 4x jump in Biogen’s share price.
Apart from Biogen, other big names working on an Alzheimer’s treatment are Eli Lilly (LLY) and Axsome Therapeutics (AXSM).
Outside Biogen’s work on Aducanumab, the company also has an impressive asset portfolio.
Its second quarter earnings results for 2020 showed that revenues from its multiple sclerosis drug segment contributed significantly to the company’s profits, with Ocrevus raking in $2.3 billion for the period.
The newly acquired rare spinal muscular atrophy disease drug Spinraza also performed well, reporting approximately $2 billion in annual sales.
Even its embattled multiple sclerosis treatment Tecfidera, which has been facing patent exclusivity issues with generic companies like Mylan (MYL), reported an increase from its notable $1 billion in revenue for the first quarter of the year to $1.2 billion in the second quarter.
Finally, Biogen has been working on expanding its biosimilar segment to increase its competitive advantage particularly for its drugs that are nearing the end of their patent exclusivity.
Amid the pandemic, Biogen’s revenue was up by 1% to hit $3.5 billion in the first quarter of 2020 and increased by 2% to reach $3.7 billion in the second quarter.
The company’s financial results also rose by approximately $100 million in the first three months of this challenging year.
However, a widely known caveat not only for Biogen but also for a number of biotechnology companies is the volatility of the stocks.
There is no one-size-fits-all formula for investing in beaten-up stocks. It comes with zero guarantees that their past performances would make a repeat either.
The strategy for these things though is quite basic. Make sure to look at businesses that offer sufficient bandwidth to bounce back once things normalize and the effects of the pandemic start to ease.
Looking at its overall performance, Biogen has achieved an impressively strong financial position despite the setbacks along the way. The company even offers room for growth regardless of the performance of its much-awaited Aducanumab.
