New Biogen CEO Positioned to Rework Pipeline

We’re maintaining our $340 fair value estimate for Biogen BIIB following in-line performance in the fourth quarter of 2022 and guidance for 2023 that was slightly ahead of our expectations. Fourth-quarter and full-year revenue slipped 7%, and full-year non-GAAP EPS was down 8%, as MS revenue fell 11% in 2022 due to a combination of Tecfidera generics and continued declines of interferon drugs Avonex and Plegridy.

With the MS portfolio in decline, the two biggest potential growth drivers over the next few years remain Alzheimer’s drug Leqembi and depression drug zuranolone. Leqembi received accelerated approval in the U.S. in January, and we continue to expect the launch to begin to take off more strongly late this year, following potential full approval (based on the phase 3 study) and Medicare reimbursement, with $5 billion in peak sales split between Biogen and Eisai. We’ve also raised our assumed probability of approval for zuranolone, given the drug’s recent filing with the FDA and expected approval in August, and we assume peak sales approaching $1 billion. We see shares of Biogen as undervalued, as Leqembi’s potential should allow positive revenue growth in 2024 and beyond. We think Biogen’s pipeline is underappreciated by investors and helps support a wide economic moat.

We expect Biogen to reconsider its current portfolio and pipeline as new CEO Chris Viehbacher gets more familiar with the costs of continuing development and commercialization. We think the firm could be best suited for future investment in psychiatry and rare diseases, particularly given Biogen’s rare-disease experience with spinal muscular atrophy drug Spinraza, and the earlier (cheaper) validation of pipeline candidates in psychiatry than in many other therapeutic areas. We think the biosimilars business growth prospects may not be worth the additional investment, particularly as Regeneron’s upcoming launch of high-dose Eylea could make Biogen’s standard dose Eylea biosimilar less popular.