Biogen Inc

NASDAQ:BIIB   3:32:26 PM EDT
234.01
-2.10 (-0.89%)
StockTwits Share  Twitter Share  Facebook Share

Biogen Is Inches Away From Changing the World





##Symbol##BIIB
##***Biotech

Biogen is doing everything right. The stock is reacting to that "rightness" by smashing through its moving averages and making new highs. But Biogen is trying to do something else. Biogen is trying to change the world by curing one the fiercest killers on our small planet. Whether you're long Biogen or not, let us all hope that the impossible will be done. Let us hope that Biogen cures Alzheimer's.

Biogen has 9 products in Phase II trials and 4 products in the Phase III trials with one of the richest pipelines in the entire world. I earlier wrote that "Gilead May be the Strongest Company in the World. Biogen may be the second strongest biotech, together with Celgene and Amgen.

The company has seen revenue (TTM) grow to new all-time highs for 20 consecutive quarters and net income (TTM) grow for 11 consecutive quarters as operating margins have been rising. Biogen is a leader in multiple sclerosis (MS) research and therapies with five approved products in this field that accounted for $2.1 billion in sales in Q1 2015 (out of a total of $2.6 billion in sales). The company discloses its rich pipline for all phase products on its website. In the image below, we have plotted the number of Phase III trials on the y-axis and the number of Phase II trials on the x-axis for large cap biotechs. Note that BIIB does have a smaller pipeline (in terms of pure number of products) than the other big four (AMGN, CELG, GILD).


But, the big news for Biogen is its Alzheimer's research. For the first time ever, a drug has appeared both to significantly remove the brain plaques associated with Alzheimer’s disease and to slow the cognitive decline suffered by patients. It's breathtaking. It's promising. It's frightening, of the 244 compounds that drug companies had tested against the disease in clinical trials from 2002 to 2012, just one had received FDA approval, according to a study last year by researchers at the Cleveland Clinic (Source: Can Biogen beat the memory thief?).

Here's a startling image from Biogen's clicnical trial.


Buckle up, friends. Biogen is in rarefied air if this drug goes through.

While biotech stock valuations are at highs as overall market valuations rise, if we take a step back and look at the fundamentals, we see a very powerful firm with a rich present and future.

Technicals | Support: 299.1 | Resistance: 475.98
BIIB also has a five bull (top rated) technical rating meaning that it is trading above its 10-, 50-and 200- day moving averages and the stock is up on the day.

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.

EARNINGS ESTIMATES
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-07-22 $4.08 $2,703.8 M $2,696.0 M $2,555.0 M Provided by ZACKS


Let's look at the core elements that drive the company's fundamental rating.


Fundamentals Rating Summary



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 10,126 7,645 5,640

Operating Margin (QTR) 1.788 1.49 1.56 RISING

Net Income (TTM US$ Millions) 3,277 1,916 1,504

Levered Free Cash Flow (TTM US$ Millions) 2,791 1,913 -1,537 RISING

Research and Development (US$ Millions) 461 529 284 FALLING

Research and Development Expense/Revenue 0.180 0.248 0.201 FALLING





Stock Returns and Chart

BIIB is down -4.2% over the last three months and up +15.9% over the last six months. The stock price is up +32.3% over the last year. Again the firm's technicals look strong with the price trading above the short-, medium and long-term moving averages.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
Click here to interact with this stock chart


Now let's examine the visualizations of the critical financial measures.



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 10,1267,6455,640


Just about everything we're going to look at is good to excellent for BIIB. perhaps the prettiest picture of them all is revenue (TTM), which is trending higher meaning that it has increased for at least five consecutive quarters (in this case it's been more than 30 straight quarters).

BIIB grew revenue by 32% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating. Keep in mind, this is a $97 billion market cap company that's growing like it's a small cap.

What do all these numbers mean?
BIIB's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


Click Here to Interact With This Chart



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Operating Revenues/Operating Expense 1.7881.491.56RISING


This is a "heady" metric which isn't discussed in most casual conversations about a company, but it's critically important. Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter BIIB showed a ratio of 1.79 which is absurdly high. For context, Facebook is at ~$1.3, Apple is at ~1.45, while "Gilead the Great" is a staggering 3.41.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was "just" 1.49 so in the last year we can a large operating margin increase.

BIIB's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.


Click Here to Interact With This Chart


before we move onto earnings, let's take a second to look at revenue per employee (in $ millions) for the large cap biotech/pharma sector. On the x-axis we have equal spaced the companies (rank) and on the y-axis we have revenue per employee ($millions).


Click Here to Interact With This Image

Gilead obviously throws the whole thing into "crazy land," but outside of GILD, Biogen's $1.29 million in revenue per employee is the second highest. Celgene is close behind with $1.28 million in revenue per employee.

METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 3,2771,9161,504


The wonder with al of these great large cap biotechs is how they can continue to grow revenue at insanely fast paces for company's of their size yet at the same time generate profits (unlike a lot of fast growing technology companies). Net Income (after tax profit) over the trailing twelve months (TTM) for BIIB is up to $3.3 billion, an increase 71% year-over-year. Hello?

Net Income (TTM) (aka annual earnings) is trending higher meaning that annual earnings have increased for at least five consecutive quarters (in this case 10 quarters).

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line.


Click Here to Interact With This Chart

METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Levered Free Cash Flow (TTM US$ Millions) 2,7911,913-1,537RISING


Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For BIIB the metric is rising (it was $1.9 billion last year). For the most recent trailing-twelve-months the company reported Levered Free Cash Flow (TTM US$ Millions) of $2.8 billion, so an increase year-over-year of 46%.

This cash metric is up $4.3 billion from 1$1.5 billion two-years ago.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time.



Click Here to Interact With This Chart

METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Research and Development (US$ Millions) 461529284FALLING


R&D is so interesting for Biogen. While the raw number is generally rising (though down from a year ago), the spend per dollar of revenue is dropping rather significantly. R&D is down ~13% year-over-year but is up substantially (62%) from two-years ago.

R&D per dollar of revenue for the latest quarter is $0.18. Last year this measure was $0.25. Normally that could be a warning sign for under investment, but BIIB has such a massive pipeline, we just can't really go there with this company.

In our final time series chart we plot Research and Development (US$ Millions) in the blue bars and R&D [per dollar of revenue in the orange line.


Click Here to Interact With This Chart




Tale of the Tape


For the naturally curious reader, in our final visualization we take a look at nine critical fundamental measures comparing BIIB to three more peers (GILD, CELG, and REGN).


Click here to interact with this chart

Summary
Biogen is doing everything right. The stock is reacting to that "rightness" by smashing through its moving averages and making new highs. But Biogen is trying to do something else. Biogen is trying to change the world by curing one the fiercest killers on our small planet. Whether you're long Biogen or not, let us all hope that the impossible will be done. Let us hope that Biogen cures Alzheimer's.