Biogen (BIIB)

Biotech company Biogen (NASDAQ:BIIB) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 6.1% year on year to $2.43 billion. Its non-GAAP profit of $3.02 per share was 1% above analysts’ consensus estimates.

Company Overview

Founded in 1978 and pioneering treatments for some of medicine's most complex challenges, Biogen (NASDAQ:BIIB) develops and markets therapies for neurological conditions, including multiple sclerosis, Alzheimer's disease, spinal muscular atrophy, and rare diseases.

Over the next few years, therapeutic companies, which develop a wide variety of treatments for diseases and disorders, face strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

Biogen competes with pharmaceutical companies like Novartis (NYSE:NVS) and Roche (OTCQX:RHHBY) in multiple sclerosis treatments, Eli Lilly (NYSE:LLY) in Alzheimer's disease with its KISUNLA therapy, and Novartis and Roche again in the spinal muscular atrophy market with their respective ZOLGENSMA and EVRYSDI treatments.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $9.82 billion in revenue over the past 12 months, Biogen has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Biogen’s demand was weak over the last five years as its sales fell at a 7.4% annual rate. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Biogen’s annualized revenue declines of 1.4% over the last two years suggest its demand continued shrinking.

This quarter, Biogen reported year-on-year revenue growth of 6.1%, and its $2.43 billion of revenue exceeded Wall Street’s estimates by 8.6%.

Looking ahead, sell-side analysts expect revenue to decline by 6.4% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Biogen has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 25%.

Looking at the trend in its profitability, Biogen’s operating margin decreased by 9 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 13.1 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q1, Biogen generated an operating profit margin of 12.8%, down 11.6 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Biogen, its EPS declined by 15.1% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

We can take a deeper look into Biogen’s earnings to better understand the drivers of its performance. As we mentioned earlier, Biogen’s operating margin declined by 9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Biogen reported EPS at $3.02, down from $3.67 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 1%. Over the next 12 months, Wall Street expects Biogen’s full-year EPS of $15.82 to grow 1.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Biogen has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 21.2% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Biogen’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Biogen’s free cash flow clocked in at $222.2 million in Q1, equivalent to a 9.1% margin. The company’s cash profitability regressed as it was 13 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Biogen hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 14.2%, higher than most healthcare businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Biogen’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Biogen reported $2.60 billion of cash and $6.62 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.67 billion of EBITDA over the last 12 months, we view Biogen’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $130.9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Biogen blew past analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance slightly missed. Overall, this print was mixed. The stock traded up 1.5% to $122.87 immediately following the results.

Updated: June 1, 2025 at 11:47 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Biogen.

We cheer for all companies serving everyday consumers, but in the case of Biogen, we’ll be cheering from the sidelines. For starters, its revenue has declined over the last five years, and analysts don’t see anything changing over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its diminishing returns show management's prior bets haven't worked out.

Biogen’s P/E ratio based on the next 12 months is 8.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $171.95 on the company (compared to the current share price of $129.79).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.