Here in the age of Covid, we’ve become a bit medically myopic as investors.
With so much focus on the global pandemic, we seem to have forgotten that other maladies persist. That’s not to imply the hunt for Covid-19 vaccines doesn’t deserve the importance we afford it. Obviously, eradicating the current crisis and inoculating humanity against this economically and social debilitating disease is an absolute priority – which is why stocks such as Moderna (MRNA), Novavax (NVAX), and others have rocketed to the top of the charts in the last six months.
But as the Street FOMOs its way into all the various plays on Covid vaccines, it seems to be abandoning all the various plays on so many other diseases and afflictions.
Biogen (BIIB) is a fine example.
Earlier this month, the FDA fast-tracked a new Biogen compound that could become the first treatment to reduce the clinical decline of Alzheimer’s patients. This is big news. Someone, somewhere in the world, develops dementia every three seconds, according to Alzheimer’s Disease International. Currently, more than 50 million people globally suffer from dementia, a number that essentially doubles every 20 years.
On the FDA news, Biogen shares popped 10% in one day, surging to $305 from $277.
Today, two weeks later, Biogen has completed the round trip. The shares are back to where they began.
And where they began was a bargain to begin with … which means Biogen shares are a bargain once more.
They’re not just a bargain, they’re a value play with monster profitability numbers: 46.3% profit margins; 23.2% ROA; 52.4% ROE. That puts Biogen at the pinnacle of profitability among US companies.
Revenue growth at a tad more than 6% in the last 12 months certainly isn’t blistering, but approval of Aducanumab – the Alzheimer’s treatment now seeking final approval through the FDA Fast Track program – would mean billions in revenue, given the size of the dementia market globally.
Already, the biopharma giant has a strong stable of approved drugs generating more than $12 billion in annual sales, and a substantial and promising pipeline of potential drugs at various stages of development.
To be sure, Aducanumab has faced a bumpy path to this point and was nearly scrapped – and maybe that’s why investors initially bid up the shares on the FDA news, only to sour on the stock quickly. But Biogen reexamined a certain set of results and realized that at appropriately high doses, the drug demonstrated significant benefits in measures related to patient cognition and function, including memory, orientation, and language.
Not that the Street cares about any of that at the moment. Not only has Biogen returned from whence it came, the shares are actually down about 7% for the year, while the Nsadaq Biotechnology Index (NBI) is up more than 9%.
Which helps explain why Biogen now trades at a P/E ratio of 9.7.
Nine. Point. Seven.
For one of America’s largest and premier biotech companies … with a fast-tracked drug to treat a global scourge … which, if approved, will dump billions of dollars into the company’s coffers.
And if it doesn’t get approved? Well, how much lower does Biogen really go? The shares already trade at a valuation half that of peers such as Amgen (AMGN), Gilead (GILD), and Regeneron (REGN). And, yes, Biogen has some challenges with drugs coming off patent protection. But at 9.7, a lot of that would seem to be priced into the stock.
I’m certainly no bio-geneticist. But I look at the growth of Alzheimer’s, I look at the aging of America’s population, and I know the pressures that have been building for years inside the Alzheimer’s community to find a treatment for this disease. As an investor considering those realities, I’d be willing to own a single-digit P/E Biogen on a hunch that the FDA feels compelled to approve Aducanumab for use in the early stages of Alzheimer’s disease, since this is the first, best hope at tackling dementia and its associated costs on families and the healthcare system.