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Stock Analyst Update

Everything Isn't Coming Up Roses at Biogen

The company beats the Street, but its pipeline problems remain.

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The second quarter wasn't too bad for Biogen (BGEN), but the company still faces some long-term problems. Biogen is one of the cheapest big biotechnology firms on a P/E basis, but given its pipeline problems, it still couldn't be called a bargain.

The firm beat estimates when it announced second-quarter earnings of $0.43 a share, excluding a one-time sale of securities, after the market closed Tuesday. Consensus estimates were $0.42.

Perhaps more important, though, was that sales of its multiple sclerosis therapy Avonex--the company's only marketed drug--came in at $190 million. Many analysts had estimated Avonex revenue would be $185-$188 million for the quarter.

Even though Avonex sales continue to increase, there is increasing concern that this growth is going to slow in the coming quarters. Avonex has already achieved considerable market penetration in the United States and faces fierce competition in Europe.

Biogen's biggest challenge is its weak pipeline of new drugs. The company stopped all human trials of Antova in November, after a number of patients suffered blood clots. And in February, management decided to halt testing on Adentri--a drug to treat congestive heart failure--in favor of a backup molecule. As a result, clinical testing on that product will take longer than anticipated.

Only Amevive, the company's psoriasis drug, is in later-stage testing. Psoriasis is a huge potential market, but Biogen may face competition from a number of other biotechnology companies, including Genentech (DNA), that also have psoriasis drugs in trials.

Thus, even though Biogen is down more than 40% from its highs, the stock's current valuation still courts some risk.

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