Bye, Bye Biogen

Biogen (BIIB) reported second-quarter sales declined 25% to $2.8 billion with net income dropping 71% to $448.5 million and EPS declining 69% to $2.99 which included impairment charges of $542 million. The generic competition resulted in a 24% decline in multiple sclerosis (MS) revenue to $1.8 billion. Free cash flow declined 42% to $1.8 billion during the first half due primarily to the lower earnings.

Image Source: Pixabay

During the quarter, Biogen received accelerated FDA approval for ADUHELM for initiation of treatment in patients with mild cognitive impairment or mild dementia due to Alzheimer’s disease. The FDA approval has been swirled in controversy due to confusion on the science and data on the drug. The FDA is conducting an independent investigation into the approval.

Several large medical sites that specialize in Alzheimer’s have announced they will not administer the drug. ADUHELM revenue during the quarter was minimal at $2 million as it will take time, resources, and planning to get medical sites to administer the drug and for Medicare to determine if they will approve the $56,000 treatment. Biogen is working to provide additional clarity on ADUHELM and is continuing engagement with worldwide regulators on the drug.

With generic competition negatively impacting revenue and profitability for Biogen’s MS drugs and the controversy over ADUHELM limiting initial sales of the treatment, Biogen’s business fundamentals have deteriorated with sales, earnings, and cash flows all declining.

Given the stock’s weakening business fundamentals and 28% gain over the last three months, the stock appears overvalued. Accordingly, we plan to say bye-bye to Biogen by selling the position.

Trimming T. Rowe Price

T. Rowe Price (TROW) reported strong second-quarter results with revenues rising 36% to $1.9 billion, net income gaining 35% to $815.7 million, and EPS up 36% to $3.46.

The company ended the quarter with assets under management (AUM) of $1.62 trillion, a 33% increase over the prior-year period thanks to strong long-term investment performance. During the second quarter, AUM increased $105.1 billion primarily due to market appreciation with $600 million in net cash outflows as some large sub-advised clients trimmed their holdings of U.S. equities.

During the quarter, T. Rowe Price announced a transformation of its retirement recordkeeping business with the expansion of its 30-year partnership with FIS, a global technology leader. This led T. Rowe Price to increase its operating expense growth expectations from a range of 10%-14% to a range of 12%-15% for 2021.

T. Rowe Price remains debt-free and cash-rich with total cash and investments of about $7.5 billion as of quarter-end. During the first half of the year, T. Rowe Price repurchased 1.9 million of its common stock for $308.9 million at an average cost of $166.57 per share. The company also paid a special dividend on July 7, 2021, of $3.00 per share, or $699.8 million, which was in addition to its regular quarterly dividend of $1.08 per share, which was up 20% from the prior year.

In separate news, T. Rowe Price announced that CEO Bill Stromberg will retire at the end of 2021 and will be succeeded by Rob Sharps, TROW's current president, head of investments, and group CIO. Additionally, on 7/31/2021, CFO and COO Céline Dufétel stepped down from her roles to assume a leadership position with a fintech company. Jen Dardis, currently head of Finance, became CFO and treasurer effective August 1, 2021. COO responsibilities will transition on an interim basis to Robert Higginbotham.

T. Rowe Price’s stock gained 16% during the past quarter contributing to a 312% gain over the last decade. With the stock appearing fully valued, we plan to trim back our position in T. Rowe Price and reinvest the profits into more reasonably valued investments.

With the profits from Biogen and T. Rowe Price, we plan to buy Baxter International and Booking Holdings (see: Stock Profile: Baxter Inc. & Stock Profile: Booking Holdings).