This commentary was originally sent to Action Alerts PLUS subscribers at 10:15 on June 7.
Shares of Biogen (BIIB) are selling off after the company announced negative results from the Phase 2 study of its much-anticipated multiple sclerosis (MS) drug opicinumab (anti-LINGO). Data from the "SYNERGY" trial showed that the drug missed on both the primary end-point, which measured improvement in physical function, cognitive function, and disability, as well as secondary end-points, which measured slowing of progression on the same components, as well as safety.
The "novel" therapy which had been touted as the future of MS and the first drug capable of reversing the progression of the disease turned out to be yet another disaster in Biogen's history of overpromising and under-delivering. Fortunately, we have repeatedly, explicitly distanced ourselves from the stock, given management's incoherent strategy and increasingly speculative nature of the investment. If we were not restricted, we would exit the tiny remainder of our existing position above $260/share.
We downgraded the shares in early February, given concerns that "the MS franchise faces pricing risk...and the 'blockbuster' pipeline bets are early stage, highly risky and impossible to value given the associated uncertainty." We have been trimming the position aggressively over the past month in particular. Last week, we sold out of all but a sliver of our position (which represents a mere 1% of the portfolio) at above $290/share, expressing our high-level concern around the company's strategy to "patch together enough small-potato data points and announcements to keep investors at bay for the next few years of low growth".
We went on to state that "although the company is likely looking to acquire a company to bridge the growth gap, in the interim, management is feeding the story through thinly veiled promises of blockbuster pipeline bets ... we are less inclined to buy into business models that are short on growth assets and long on high risk/reward, early-stage bets -- and their resulting uncertainty."
We reiterate this concern, and believe that today's disappointing results lead Biogen and its management team down a rabbit hole of uncertainty, mediocrity and unpredictability. Biogen has zero room for error around its MS franchise (which, ex-hemophilia, makes up 95% of its sales); with half of its sales generated by a drug -- Tecfidera -- facing patent expiration within the next several years, management was banking on anti-LINGO to be the "transformational" MS drug that could bridge the loss of Tecfidera sales with the unveiling of a new novel therapy.
Unfortunately for Biogen, the company is now even more reliant on its early-stage, unproven and highly speculative Alzheimer's drug, aducanumab, to hold investor sentiment long enough on purely blind faith. In fact, pivotal trials for the drug are expensive (upfront costs total $2.5 billion), highly risky, slow and practically impossible to ascribe value to in the intermediate term, as Phase III results from these trials will not emerge until 2019 or 2020.
Biogen is the most speculative bet in large-cap biotech. We are restricted on the name, otherwise we would exit our tiny remaining position above $260 (our cost basis is $270).