It has been about a month since the last earnings report for Biogen (BIIB). Shares have lost about 0.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Biogen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Biogen Beats on Q1 Earnings, Spinraza Drives Sales
Biogen reported first-quarter 2019 earnings per share of $6.98, which beat the Zacks Consensus Estimate of $6.84. Earnings rose 15% year over year, backed by higher revenues and a lower share count due to share buybacks in the quarter.
Sales came in at $3.49 billion, up 11% from the year-ago quarter. Sales also beat the Zacks Consensus Estimate of $3.38 billion. Revenue growth was principally driven by higher sales of Spinraza and higher contribution from biosimilars.
Quarter in Detail
Product sales in the quarter were $2.68 billion, up 6% year over year. Royalties on sales of Ocrevus were $112 million in the quarter, up 46% year over year. Revenues from Biogen’s share of Rituxan and Gazyva operating profits increased almost 11% from the year-ago period to $405 million. Other revenues rose 78% in the quarter to $292 million primarily due to the sale of approximately $200 million of inventory associated with the Bioverativ spinoff.
Biogen’s multiple sclerosis (MS) revenues of $2.1 billion in the reporter quarter, including Ocrevus royalties, were flat year over year. However, excluding Ocrevus royalties, MS revenues declined 2% year over year.
In the first quarter, U.S. MS product revenues were hurt by approximately $170 million due to a decrease in channel inventory.
In 2019, Biogen expects the growth rate in core MS revenues (excluding Ocrevus) to be similar to 2018, which means a decline year over year.
Tecfidera sales rose 1% year over year to $999 million. U.S. sales in the quarter were $717.7 million, down 1.5% year over year while ex-U.S. sales were $281.1 million, up 9%. Tecfidera U.S. sales were hurt by lower volumes and higher discounts and allowances. Strong ex-U.S. performance in the quarter was driven by double-digit volume increases in Europe and Japan, which offset the impact of ongoing price decreases in certain European countries.
Tecfidera sales declined 10% sequentially in the quarter due to lower U.S. sales. Tecfidera U.S. revenues were hurt by a decrease in channel inventory of approximately $110 million against an increase of $60 million in the previous quarter.
Tysabri sales were flat year over year and fell 1% sequentially to $460 million. Tysabri U.S. sales declined 1.9% to $245.0 million in the quarter due to lower channel inventory levels. International revenues rose 1.4% to $215.4 million.
Combined interferon revenues (Avonex and Plegridy) in the quarter were $500.9 million, down 9% year over year. Avonex revenues declined 12% from the year-ago quarter to $397 million. Plegridy contributed $104 million to revenues, up 4% year over year.
U.S. Interferon revenues have been declining due to transition of patients to other oral or high efficacy MS therapies as well as higher discounts and allowance.
Sales of Spinraza increased 42% year over year to $518.0 million. Spinraza sales rose 10.3% sequentially as strong sales performance in ex-U.S. markets offset lower sales in the United States.
Spinraza U.S. sales were $223.3 million in the quarter, down 5.5% sequentially hurt by seasonality. In ex-U.S. markets, Spinraza sales rose 26% sequentially to $295.2 million driven by new country launches and increased penetration across all major geographies.
The number of patients on Spinraza grew approximately 5% in the United States and 24% outside the United States in the quarter compared with the end of the fourth quarter of 2018.
In the United States, the number of adult patients on Spinraza rose approximately 8% in the quarter compared with the last quarter, with the company making strong progress in capturing the under-penetrated adult segment. In the first quarter, approximately 50% of the new patient starts in the United States comprised adults.
Biogen said that approximately 75% of U.S. sales in the first quarter were from patients who received less intensive maintenance doses (dosing only once/4 months) versus 65% in the previous quarter. Moreover, the percentage of free doses decreased to 10% versus 15% in prior quarters.
On the call, the company said that there are around 45,000 SMA patients globally much higher than the company’s initial expectation of 20,000, which represents an incremental growth opportunity.
In 2019, global Spinraza revenues are expected to grow in the mid to high-teens range with growth in both the U.S. and ex-U.S.
In the quarter, biosimilars revenues increased 36.7% year over year to $175 million in the quarter driven by Imraldi’s launch. Imraldi, launched in mid-October last year, generated sales of $35.7 million in the first quarter. Benepali recorded sales of $124 million in the quarter, up 3% year over year. Flixabi sales of $14.7 million more than doubled from $6.6 million in the year-ago quarter.
In 2019, the company expects biosimilars to record double-digit revenue growth, primarily driven by the launch of Imraldi.
Research and development (R&D) expenses increased 13% year over year to $564 million. R&D costs included $39 million related to the Skyhawk Therapeutics deal and $45 million closeout costs for aducanumab studies. Selling, general and administrative (SG&A) expenses were up 13% year over year to $563 million. However, both R&D and SG&A costs declined sequentially in the first quarter.
In the quarter, Biogen repurchased approximately 2.4 million shares worth $656 million. In April 2019 so far, it has repurchased another 2.1 million shares worth approximately $492 million and has approximately $1.0 billion remaining under the share repurchase program authorized in August 2018. In the first quarter of 2019, Biogen’s board of directors authorized a new share buyback plan of up to $5 billion.
Update on Alzheimer’s Programs
On the conference call, Biogen said that on further analysis of data it has decided not to initiate a phase III secondary prevention study to evaluate whether early use of aducanumab can prevent or delay the clinical onset of Alzheimer's disease. Earlier in March, while announcing the decision to discontinue aducanumab, Biogen had said the decision whether to pursue the prevention study would be taken after further evaluation of data from ENGAGE and EMERGE studies.
Also, Biogen said that it is analyzing the results from the aducanumab phase III studies and BAN2401 phase II study. Based on the findings from these data, Biogen will inform about the future development plans for BAN2401. However, Biogen remains committed to its anti-tau antibody, BIIB092/gosuranemab.
The company did not provide any new update on the earnings and sales guidance issued on the fourth quarter conference call
While revenues are expected in the range of $13.6-$13.8 billion, earnings per share are expected between $28.00 and $29.00, indicating growth of 7% to 11%. Gross margin is expected to be 85% to 86%.
For the remainder of 2019, Biogen expects R&D expenses to be reduced by approximately $125 million following the closing of the aducanumab studies. This will result in net savings of $80 million for 2019 adjusting for the $45 million closeout costs incurred in Q1.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Biogen has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Biogen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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