Biogen stock looks "too good to ignore," an analyst said Monday as he argued for the value of Biogen's base business despite its Alzheimer's mishaps.
Wells Fargo analyst Mohit Bansal says investors aren't accounting for Biogen's royalty streams, which bolster its revenue and valuation, he said, according to a report from TheFly.com. Meanwhile, shares have fallen precipitously amid setbacks for its approved Alzheimer's drug, Aduhelm.
This sets the stage for a potential rebound as Biogen's partner, Japan's Eisai, submits data to the Food and Drug Administration for a second Alzheimer's drug, BAN2401. There is more upside than down for Biogen stock as the FDA reviews the data, Bansal said.
On the stock market today, Biogen stock lost a penny to close at 212.54.
Biogen Stock Could Outplay Alzheimer's Problems
Biogen is well known for its controversial Alzheimer's drug. Aduhelm works by removing amyloid, an abnormal plaque that builds in the brains of Alzheimer's patients. The FDA approved Aduhelm solely based on this mechanism. Biogen still has to prove Aduhelm has a benefit on patients' cognition.
But Aduhelm is Biogen's lowest revenue-generating drug. In the fourth quarter, Aduhelm brought in $1 million in sales. Complicating matters, the Centers for Medicare and Medicaid Services will only reimburse the cost of treatment for patients enrolled in clinical studies.
Well Fargo's Bansal encourages investors to look at Biogen's royalty products which, he estimates, account for 15% of revenue and 40% of the valuation for Biogen stock.
Biogen reports royalties from Ocrevus, a multiple sclerosis treatment it shares with Roche. During the fourth quarter, Ocrevus royalties climbed 29% to $261.2 million. That accounted for nearly 10% of Biogen's total revenue.
Royalty Revenue Is Key For Value: Analyst
Biogen stock investors are undervaluing the company's royalty revenue, Bansal said.
This makes him see a "very compelling" risk/reward as Eisai submits BAN2401 data to the FDA. The company began sending data in September. Eisai says it's also planning to ask the FDA to accelerate the approval for BAN2401 based on clinical, biomarker and safety data from a midstage study.
Eisai notes BAN2401 is effective in removing amyloid from the brain. This is "reasonably likely to predict clinical benefit." If approved under the accelerated route, Biogen and Eisai will have to take a page from the Aduhelm book and continue testing the drug to prove its benefit on cognition.
Still, Bansal only sees a $35 per share downside risk on poor test results for BAN2401. The upside for Biogen stock could be $135 per share, he said.
Lowly Rated Biotech Stock
Biogen stock closed narrowly above its 50-day moving average, MarketSmith.com shows. Still, shares are well below their 200-day line.
Further, Biogen stock has a poor Relative Strength Rating of 25. This means it has underperformed 75% of all stocks in terms of 12-month performance, according to IBD Digital.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
