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Stock Analyst Update

Biogen's Slight Earnings Miss Isn't Its Only Problem

Reliance on one drug, weak pipeline could threaten future profits.

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Although Biogen's (BGEN) earnings fell short of the consensus first-quarter profit forecast, the biotechnology company's biggest problems may lie ahead.

Biogen reported late Monday that profits in the period rose to 77 cents a share. But excluding the one-time sale of certain securities, earnings came in at 41 cents a share, two cents less than the consensus estimate.

The earnings shortfall is a reflection of  Biogen's dependence on Avonex, its top-selling multiple sclerosis drug. The prescription growth of Avonex has slowed this year, apparently owing partially to seasonal factors, although the company has achieved considerable market penetration.

Sales of Avonex are still expected to climb, however. Since its release in 1996, it has grown into the leading U.S. drug for treating relapse-remitting multiple sclerosis. First-quarter sales of the drug jumped more than 33% from the year-earlier period. Moreover, Biogen is in the midst of trials that may eventually expand Avonex's potential patient population.

But the success of Avonex and Biogen's earnings miss Monday highlight the firm's biggest problem. Like many young biotech companies, Biogen is essentially a one-trick pony at present.

Moreover, Biogen's drug pipeline has encountered significant difficulties in recent months. In November, for example, the company halted trials of its drug Antova after several patients suffered blood clots. And in February, Adentri, Biogen's compound for patients with congestive heart failure, ran into trouble. Although researchers reported positive results from Phase II clinical trials, the company announced it would start using a backup compound instead, which will seriously extend the amount of time it takes to bring the drug through clinical trials. Only Amevive, Biogen's treatment for psoriasis, is progressing with apparent ease, having entered Phase III trials in December.

Thus, as Avonex's sales slow, Biogen could find itself struggling to find a top seller to replace it. In such a situation, the firm's impressive earnings growth could decelerate.

Emily Hall does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.