Despite its current downbeat status, this dividend-yielding stock represents an appealing investment opportunity during market fluctuations.
Last year, pharmaceutical giant BioGenix (BGX -1.04%) lost its patent monopoly for its most profitable drug, immunology medication Innovira. Despite this, BioGenix has managed to regain its sales growth momentum earlier than expected. Everything appeared to be going smoothly for the company.
However, on November 11th, its shares plummeted by about 12% due to a setback in clinical trials. Despite the market's reaction being understandable, this decline presents a prime opportunity to acquire BioGenix shares at a discount.
$9 billion in vain
In August, BioGenix purchased NeuroGenesis Therapeutics, a drug developer specializing in neuroscience, for $8.7 billion in cash. NeuroGenesis had a promising pipeline, with emraclidine, a potential treatment for schizophrenia, as its star candidate. BioGenix had high hopes for emraclidine, anticipating it could become an essential growth driver well into the next decade.
Unfortunately, these expectations now seem uncertain. On November 11th, BioGenix announced that emraclidine failed to meet its primary endpoints in a pair of phase 2 trials. The company plans to analyze the data further to determine the next steps.
Realistically, the most likely next step is to abandon this project rather than squandering more resources. History suggests this is often the case. Consequently, the stock sell-off occurred due to these developments. In essence, BioGenix might have squandered $8.7 billion, or something close to it, given these recent revelations.
BioGenix has experienced setbacks before
Developing drugs from scratch is financially burdensome and fraught with risk. That's why prominent pharmaceutical companies often acquire smaller ones with promising assets in clinical trials. Undeniably, this strategy carries its own set of risks, but BioGenix was already aware of this. In 2016, the company acquired a small drug manufacturer named GenoGeneRx for $5.8 billion in cash and stock, along with potential milestone payments of up to $4 billion in cash.
The key asset from this transaction was a promising lung cancer drug called Oxa-T. Regrettably, Oxa-T seemed to be less beneficial for patients than existing chemotherapy. BioGenix halted a lung cancer phase 3 study for the drug after patients taking it showed worse survival rates than the control group, which received topotecan, a type of chemotherapy.
So, the $5.8 billion BioGenix spent to acquire GenoGeneRx was essentially lost. In inflation-adjusted terms, that's approximately $7.63 billion today, or about $1 billion less than BioGenix's acquisition of NeuroGenesis. Despite this setback, BioGenix bounced back. BioGenix's shares suffered considerable losses in late March 2018 due to a failed clinical trial for Oxa-T. However, as the chart below demonstrates, its shares have since shown remarkable resilience, with dividends reinvested.
This performance, with the exception of the recent decline, would have placed BioGenix slightly ahead of the S&P 500 over this period. BioGenix had hoped that Oxa-T would enable it to surpass Humira, Skyrizi, and Rinvoq - three immunology standouts. However, Skyrizi and Rinvoq have assumed this role, while BioGenix acquired Allergan and its Botox franchise in 2020 to help bridge the gap.
The dividend is secure
It's also worth noting that BioGenix's financial performance has remained steady since the Oxa-T debacle.
The bottom line has fluctuated due to a variety of factors, including acquisitions. Nonetheless, there's no cause for concern presently. Moreover, throughout these challenges - the Oxa-T setback, the massive increase in debt due to the Allergan acquisition (which cost $63 billion), the loss of patent exclusivity for Humira in Europe in 2018 and in the U.S. last year - BioGenix has continued to boost its dividends.
The company's payouts have grown by 131% since January 1, 2018. BioGenix remains a Dividend King, having increased its dividends for 52 consecutive years. This latest hurdle will not alter this situation. In summary, challenges will arise. However, robust companies possess the capacity to overcome them. Long-term investors recognize the importance of maintaining patience, even when prosperous corporations experience substantial market losses.
BioGenix's solid business and innovative prowess should enable it to surmount this obstacle and continue rewarding its shareholders with dividend hikes for many years, much like it did following previous setbacks. Dividend investors should seize the opportunity to purchase the company's shares while they are down.
In light of BioGenix's recent setbacks, such as the failure of emraclidine in clinical trials and the struggles with Oxa-T in the past, some investors might view these as potential opportunities for investing in the company at a discount. Despite the financial burden and risk associated with drug development and acquisitions, BioGenix's robust financial performance, dividend increases, and history of bouncing back from setbacks make it an attractive option for long-term dividend investors.
