Biogen Earnings: Slightly Lowering Our FVE, but Leqembi and Pipeline Undervalued

We have slightly lowered our Biogen fair value estimate from $327 to $303 following third-quarter results that were relatively in line with our estimates but reflected continued slow uptake of Leqembi in the U.S. market despite full U.S. Food and Drug Administration approval (and Medicare coverage) in early July. Overall, we think the cost of Leqembi’s rollout could be higher than we had anticipated, and we’ve also lowered our assumed 2023 Leqembi sales (booked by partner Eisai) to below $50 million. That said, we think progress with blood-based tests and subcutaneous delivery of Leqembi could begin to benefit patients as early as 2025, driving increased market penetration and eventual annual Leqembi sales of more than $7 billion. Management slightly boosted top-line expectations for 2023 from a mid-single-digit decline to a low-single-digit decline, but this was mostly a result of a change in accounting for Leqembi, with collaboration costs now flowing through operating expense lines instead of revenue. Non-GAAP EPS guidance was lowered to account for the Reata acquisition, or essentially narrowed from original guidance excluding the impact of this deal. Overall, we remain enthusiastic about long-term potential for Leqembi and Biogen’s pipeline, although we expect continued sales declines in 2024. Data from several programs in ALS, Angelman’s, lupus, and essential tremor should be available by mid-2024, and positive data could create upside to our valuation. We think Biogen’s neurology and rare disease portfolio still supports a wide moat.