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Warren Buffett’s Love Affair with Biogen

Coca-Cola (KO). Apple (APPL). American-Express (AXP). And now…. Biogen (BIIB).

Has the Oracle of Omaha turned into the Gambler of Omaha? Warren Buffett turned heads when news broke that Berkshire Hathaway bought 648,447 Biogen shares with a combined worth of $192.4 million.

With a huge question mark hanging over the biotechnology company for months now, this is an unusually risky move for an investment powerhouse known for its rock-solid strategies.

By Buffett standards though, $192.4 million is nothing but a drop in the over half-trillion-dollar bucket. This indicates that the conglomerate isn’t exactly betting the farm on the stock especially with questions on its Alzheimer’s cure still remaining unanswered.

Nonetheless, I can think of at least three reasons why Biogen stock attracted the fourth wealthiest man in the world.

A quick look at Biogen’s profile and the remarkable history of its blockbuster spinal muscular atrophy drug Spinraza immediately outshines the rest of the drugs in its portfolio.

Despite worries that Novartis’ (NOVN) newly released gene therapy Zolgensma would bump off Spinraza, the Biogen drug has been holding down its own, showing off a 16% jump year over year to hit $543 million in sales in the fourth quarter of 2019.

Another exciting development for the biotechnology company is its strengthened multiple sclerosis (MS) franchise.

While Biogen’s MS sales have been struggling to hit its usual stellar numbers recently, the company scored a huge victory earlier this month when the Patent Trial and Appeal Board of the US Patent and Trademark’s Office rejected Mylan’s (MYL) challenge against Biogen’s key patent for Tecfidera.

Since Tecfidera is one of Biogen’s top grossing treatments, this recent ruling secured that the MS bestseller won’t have to worry about generic competition until 2028. Apart from that, this win means that the company could count on a sustained earnings from this bestseller.

The third reason is arguably the most controversial, but possibly the most important one to date.

Following a near-death experience with its Alzheimer’s disease treatment Aducanumab last year, Biogen stunned the biotechnology world when it decided to resurrect the experiment based on new clinical data.

Given that Phase 3 is dubbed as the “graveyard” stage since practically 99% of experimental drugs fail here, Biogen’s move to keep pushing despite its expensive failures has investors baffled and excited at the same time.

Basically, the problem in finding an Alzheimer’s cure is our inability to fully grasp the underlying science.

What we know so far is that the disease is caused by plaques in the brain. Now, experts normally pursue two leads. They either go after the plaques and search for ways to cure those or take a step back and look at the possible causes of the plaques and target those instead.

Biogen worked on these hypotheses up until March 2019, when they announced that the trial had been discontinued.

However, the company went back months after and disclosed that they’ll resume the study. After combing through their data, they noticed that the group of patients in the earlier stage of the disease actually responded well on Aducanumab.

One notable effect of the experimental Alzheimer’s disease medication is that it slowed down the patients’ cognitive decline.

While it’s certainly reasonable to question these retrospective ad-hoc reports especially since companies tend to mine for data just to recoup their investments on the trials, Biogen’s ability to back their claims with verifiable numbers makes them more credible.

This gamble is far from a slam dunk but an FDA approval for Aducanumab would guarantee the addition of another blockbuster drug in the Biogen lineup.

And though the company has a long way to go, this Alzheimer’s gamble is definitely a high-risk, high-reward opportunity, with an estimated $10 billion in peak sales.

Aside from Aducanumab, Biogen has other promising candidates. The notable ones include rare amyotrophic lateral sclerosis treatment BIIB067 and ischemic stroke medication BIIB093.

Buffett has never been much of a gambler when it comes to his career. With this recent investment on Biogen stock though, the billionaire investor appears to have given his stamp of approval to what can only be the riskiest bets in Berkshire’s history.

January 23, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
January 23, 2020
Fiat Lux

Featured Trade:

(BIOGEN’S BIG ALZHEIMER’S BET),
(BIIB), (BMY), (PFE), (IONS), (MYL)

Biogen’s Big Alzheimer’s Bet

Biotech Letter

Biotech giant Biogen (BIIB) failed to impress in 2019. Surprisingly, the company is sticking to its strategy this 2020.

Despite the majority of biotech companies posting market-beating gains last year, Biogen’s shares suffered a 1.4% loss to their value. Taking a look at its performance, there are three obvious reasons why Biogen stock lost ground in 2019.

For one, its revenue generation, particularly for the multiple sclerosis portfolio, flatlined last year. Another reason is the company’s move not to acquire another company the way Bristol-Myers Squibb (BMY) took over Celgene.

Biogen’s decision to not make any major acquisition in 2019 was deemed as an inability to achieve significant business development milestones, thereby failing to positively influence the company’s near-term outlook.

The third reason is Biogen’s decision to halt trials for its widely anticipated Alzheimer’s drug candidate, Aducanumab, in March 2019.

With so much invested in the development of this product, the investing community expected Biogen to completely drop the project altogether.

However, it seems that Biogen has found a way to resolve the issues it initially encountered in the Aducanumab study.

In October 2019, the company announced its plan to resurrect all its Aducanumab-related efforts. To show its commitment to the plan, Biogen kicked off 2020 with a massive purchase from Pfizer (PFE).

Since Biogen aims to apply for regulatory approval by early 2020, the company has been aggressively pursuing avenues to ensure that its Alzheimer’s drug candidate will get the green light as soon as possible.

One of its efforts is its $700 million deal to buy Pfizer’s castoff drug, PF-05251749.

The Pfizer drug was created to treat Irregular Sleep-Wake Rhythm Disorder suffered by Alzheimer’s and Parkinson’s disease patients. This condition, also known as Sundowning, affects 20% of those afflicted by these neurological diseases.

According to the terms of the deal, Biogen will shell out $75 million upfront to gain the rights to the Pfizer drug.

The company will also pay an additional $635 million in the form of milestone payments. Pfizer will receive tiered royalties as well.

On top of this $700 million deal with Pfizer, Biogen also added another $45 million to fund its Alzheimer’s research with Ionis Pharmaceuticals (IONS). Apart from these, the two companies have been working on ION859, which is a possible treatment for Parkinson’s disease.

As if all of these are not enough to show Biogen’s dedication to finding the cure for Alzheimer’s disease, the company has a similar drug in its pipeline: BAN2401. This new drug, which uses a similar approach to Aducanumab, is actually already in its late-stage testing phase.

However, Biogen’s deal with Pfizer is not the first of its kind.

Prior to this, the company paid a whopping $300 million upfront to Bristol-Myers Squibb to own the rights to neurological drug Gosuranemab. Unfortunately, that study failed to deliver the desired results.

Even though Biogen has yet to actually file for regulatory approval for Aducanumab, the company is already preparing for the treatment’s launch this year. This is a rather confident move especially in light of the niggling doubts on the drug’s approval.

Apart from working on Aducanumab, Biogen has been testing for a higher dosage for spinal muscular atrophy medication Spinranza. This is done as a precautionary measure against Novartis’ (NVS) blockbuster gene therapy Zolgensma.

Its exclusive rights on Tecfidera, which has been challenged by Mylan (MYL), is also anticipated to hold until 2028. This means Biogen can still expect to reign supreme in this niche, hanging on to its blockbuster drug that raked in $4.3 billion in 2018 alone and $2.15 billion in the first half of 2019.

In addition to Alzheimer’s and Parkinson’s disease, Biogen is active in searching for treatments for Lou Gehrig’s disease along with stroke and choroideremia as well.

Biogen has also set in motion its plan to venture into rare eye diseases via its $800 million acquisition of Nighstar Therapeutics back in June 2019.

Notably, though, Biogen has been steering away from any major acquisition in 2020.

This strategy could be a stroke of genius if the company’s bet on Aducanumab pays off.

December 30, 2019

Diary, Newsletter, Summary

Global Market Comments
December 30, 2019
Fiat Lux

Featured Trade:

(WILL SYNBIO SAVE OR DESTROY THE WORLD?),
(XLV), (XPH), (XBI), (IMB), (GOOG), (AAPL), (CSCO), (BIIB)

December 12, 2019

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
December 12, 2019
Fiat Lux

Featured Trade:

(THE STAMPEDE INTO BIOSIMILAR DRUGS),
(BIIB), (NOVN), (REGN), (ALXN), (NITE), (PFE), (AMGN), (MRK)

The Stampede Into Biosimilar Drugs

Biotech Letter

It’s been roughly a year since Biogen (BIIB) tightened its partnership with Samsung Bioepis and the Massachusetts-based biotech giant handed over an additional $100 million to funnel new programs to its own growing biosimilars pipeline.

On top of the upfront payment, the South Korean company is also eligible to gain up to $210 million depending on milestones achieved plus a $60 million fee if Biogen chooses to exercise its option in Europe. This comes in the heels of the $700 million it paid Bioepis in 2018 in an effort to boost its stake to 49.9% in their joint venture in the biosimilar space.

How has that gone?

In return, Biogen brought home two new ophthalmology biosimilars. One is a knockoff of Novartis AG’s (NOVN) prized Lucentis and the other is Regeneron Pharmaceuticals’ (REGN) top-selling Eylea. The terms of the recent deal give Biogen the exclusive commercialization rights worldwide.

Here’s a quick summary of the differences between biosimilars and generics.

Generics are identical versions of brand name products that lose patent protection. Biosimilars are considered as brand name products. However, these are highly similar to those existing branded drugs available in the market. The competitive edge of biosimilars against the “original” brand name products is the fact that they can deliver equivalent results at cheaper alternatives.

This latest update on Biogen’s partnership with Bioepis is dubbed as the “second wave” of biosimilar candidates joining the Biogen lineup. Aside from the Lucentis and Eylea biosimilars, Alexion Pharmaceuticals (ALXN) red blood cell treatment Soliris is also expected to join this batch.

Apart from that, the company can also commercialize a number of anti-tumor necrosis factor drugs in China with the list including plaque psoriasis drug Imraldi, rheumatoid arthritis treatment Benepali, and Crohn's disease medication Flicabi. Both companies have left their options open to potentially expand their current agreement in Europe for an additional five years.

Biogen’s first aggressive foray in the eye diseases sector was signified by its acquisition of clinical-stage gene therapy company Nightstar Therapeutics (NITE) earlier this year. At the time, the smaller company has already attracted attention for their research on rare retinal disorders.

Despite the promising announcements though, some investors remain wary of this growth direction Biogen has decided to pursue.

A commonly voiced concern is the issue of the production timeline, especially since neither biosimilar drug from the new deal has actually completed clinical trials to prove their efficacy compared to the reference drugs. At this point, the Lucentis biosimilar is in Phase 3 testing while the Eylea copycat is still in the preclinical phase. Patent issues are notable roadblocks as well.

Regardless of the issues, Biogen appears to be set on this track. Even before the “second wave” was implemented, the company has already presented a convincing lineup of biosimilars. A look at its third quarter earnings report showed that the biosimilars lineup managed to generate almost $184 million during that period alone, with copycat versions of Enbrel, Remicade, and Humira taking the lead in sales.

The biosimilars movement remains strong among biotech and pharmaceutical companies. Unlike in the generic drug sector, the leaders of the biosimilar movement are also the big names in the “branded” products market.

In fact, biotech heavyweights eagerly jumped at the opportunity to become frontrunners in the move to cut down on the staggering costs of branded medicine. Novartis has quickly developed its biosimilars arm, with Sandoz AG quickly taking over the European market.

Pfizer’s (PFE) partnership with South Korean biosimilar developer Celltrion Healthcare as well as its $17 billion acquisition of generic injectable pharmaceuticals producer Hospira in 2015 signify its plans to emerge as a strong contender in this sector. Even Amgen (AMGN) and Merck & Co. (MRK) have cranked up notable biosimilar development programs to join the race.

Needless to say, the biosimilar rush is all the rage right now. Big biotech companies have already learned their lesson on how the generic drugs business practically took over the pharmaceutical market, growing to almost 90% of overall prescriptions filled but only accounting for less than 30% of the total expenses. Plus, it’s also clear that big money is being made from blockbuster biologics.

October 28, 2019

Diary, Newsletter, Summary

Global Market Comments
October 28, 2019
Fiat Lux

Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DON’T FIGHT THE FED),
(BIIB), (IBB), (TSLA), (VIX), (BA), (AMZN), (AAPL), (MSFT), (GM)

The Market Outlook for the Week Ahead, or Don’t Fight the Fed

Diary, Newsletter

Don’t fight the Fed.

That was the overwhelming message of the market last week as it ground up to a new intraday all-time high. The economy may be going to hell in a handbasket. But as long as the Fed keeps lowering interest rates, stocks will go up, kicking and screaming all the way. It’s that simple.

America’s central bank will get its next chance to cut rates on Wednesday at 2:00 PM from the current overnight rate of 2.00%.

The big question is: Will the curse of the Fed continue? For the last two times the Fed lowered interest rates, substantial stock market selloffs ensued, the last one reaching a 7.5% haircut. We will know shortly.

The Mad Hedge Lake Tahoe Conference held last weekend was a blowout success, with a great time had by all. The weather couldn’t have been more perfect, with the lake waters calm and crystal clear. A day of market insights were delivered by me and Mad Hedge Technology Letter author Arthur Henry.

The only drawback was that several guests were prevented from going home by mandatory evacuations of several Bay Area cities and the closure of Interstate 80 going back to San Francisco. A handful (including me), had no electric power to return to when they got home.

I’ll share with you the most disturbing chart of the entire day showing the S&P 500 (SPY) has been grinding up to new highs, earnings forecasts have been absolutely falling off a cliff. Clearly, with the Volatility Index (VIX) back down to the lowly $12 handle, this is a market that is cruising for a bruising….someday.

Brexit failed again, taking the quagmire into its fourth year. An EC deal is postponed until January 31, but they’re really not interested at all. British pounds collapsing, creating a new “RISK OFF” leg worldwide. Prime minister Johnson has lost 5 consecutive parliamentary votes, an all-time record. When will he get the message?

US Capital Investment has ground to a halt, with business fixed investment down 1% YOY. No one knows where to put their money, inside the US or not, so they're doing nothing until it is sorted out. Call me when its over.

Biogen (BIIB) exploded to the upside on its FDA application for its new Alzheimer’s drug. Written off for dead six months ago, the company secretly kept working on Aducanumab until today’s blockbuster announcement. The drug reverses amyloid plaques thought responsible for Alzheimer’s. The stock is up an incredible 38% and has even dragged up the biotech ETF (IBB) 3%. Buy (BIIB) on dips.

Boeing soared on accelerated production timeline for 2020. Good thing I bought it just recently. The stock had been severely oversold on a $45 dive in two days. Buy (BA) on the dips.

The trade war is back in business with the Chinese demanding a total end to tariffs before any big ag buys. The rumors knocked stocks back on their heels. The Middle Kingdom also takes issue with recent Pence comments about basketball. Trump is definitely cornered. The trade war pain has gone global, with Europe taking the biggest hit. Some 40% of Germany’s GDP comes from exports. Growth will be on the skids for the next two years, even if a deal is done tomorrow.

Tesla shocked, bringing in a profit for only the third time in company history, and causing the stock to soar $55. The 100,000-unit production target within yearend looks within reach. Most importantly, they opened up a new supercharger station in Incline Village, Nevada! Tesla is now America’s most valuable car maker, beating (GM). The ideological Exxon-financed shorts have been destroyed once and for all. Buy (TSLA) on dips. There’s a ten bagger in this one.

Amazon put out a gloomy Christmas forecast on the back of a disappointing earnings report, crushing the shares by 7%. Looks like the trade war might cause a recession next year. Q3 revenues were great, up 24% to an eye-popping $70 billion. Good thing I took profits on the last option expiration. Poor Jeff Bezos, the abandoned son of an alcoholic circus clown, dropped $7 billion in net worth on Thursday. Buy (AMZN) on the dips.

The safest stock in the market, Microsoft, says it’s all about the cloud. Azure revenues grew a stunning 59% in Q3. (MSFT) is now up 37% on the year. Keep buying every dip, if we ever get another one.

Apple stock soared to new all-time high, taking the market cap just short of $1.1 trillion. iPhones are now less than 50% of total sales. The company is firing on all cylinders. My target is $200. Buy (AAPL) on dips.

Existing Home Sales dropped, down 2.2% in September to 5.38 million units. It’s shocking given the incredibly low level of interest rates. A shortage of supply?

This was a week for the Mad Hedge Trader Alert Service to stay level at an all-time high. With only one position left in Boeing (BA), not much else was going to happen.

My Global Trading Dispatch reached new pinnacle of +349.47% for the past ten years and my 2019 year-to-date accelerated to +48.42%. The notoriously volatile month of October stands at a blockbuster +11.91%. My ten-year average annualized profit held steady at +35.24%.

With my Mad Hedge Market Timing Index sitting around the neutral 62 level, it is too close to neutral to do anything dramatic.

The coming week is pretty non eventful of the data front. Maybe the stock market will be non-eventful as well.

On Monday, October 28 at 8:30 AM, the September Chicago Fed National Activity Index is published. Alphabet (GOOGL), and AT&T (T) report.

On Tuesday, October 29 at 9:00 AM, we get a new S&P Case Shiller National Home Price Index for August. Amgen (AMGN) and Pfizer (P) report.

On Wednesday, October 30, at 8:30 AM, the first read on US Q3 GDP is announced. At 10:30 AM, EIA Energy Stocks are published. Then at 2:00 PM, we obtain the FOMC interest rate decision. Apple (AAPL) and Facebook (FB) report.

On Thursday, October 31 at 8:30 AM, Weekly Jobless Claims are out. US Steel (X) reports.

On Friday, November 1 at 8:30 AM, the October Nonfarm Payroll Report is released. AbbVie (ABBV) and ExxonMobile (XOM) report.

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, I’ll be driving back home from Lake Tahoe. I wonder if I’ll make it.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 23, 2019

Diary, Newsletter, Summary

Global Market Comments
October 23, 2019
Fiat Lux

Featured Trade:

(BIOGEN’S HUGE DISCOVERY),
(BIIB), (IBB), (NOVN), (ROG),
(PLEASE USE MY FREE DATABASE SEARCH)

Biogen’s Huge Discovery

Diary, Newsletter, Research

It is the sort of development that most Biotech investors only dream about. It also shows what’s possible in biotech investing, which is occurring with increasing frequency.

Biogen shares (BIIB) have exploded to the upside on its FDA application for its new Alzheimer’s drug. Written off for dead six months ago, the company secretly kept working on Aducanumab until today’s blockbuster announcement.

The drug reverses amyloid plaques thought responsible for Alzheimer’s. This could eventually cure tens of millions of Alzheimer’s sufferers and maybe even myself someday. The stock is up an incredible 40% today and has even dragged up the biotech ETF (IBB) an impressive 3%.

Way back in March, we saw a huge flop for Biogen (BIIB) as the biotech company supposedly shut down research for Alzheimer's treatment: aducanumab (BIIB037) on the failure of a stage 3 trial. This announcement was a curveball for its shareholders as the drug was touted as a potential groundbreaking miracle treatment with sales pegged at the tens of billions.

Biogen has for some time made Alzheimer's experiments the epicenter of their new drug pipeline. It also offers a multiple sclerosis treatment called Tecfidera.

Generic competition has been hot on its heels and shareholders can expect a number of patent challenges in the next few years. This would undoubtedly lead to a fall in sales soon especially with the recent crackdown on the skyrocketing prices of meds.

To combat these looming challenges, Biogen has shifted its focus on Spinraza which has been beating expectations since its release three years ago. Set to exceed the $2 billion in sales mark, this spinal muscular atrophy drug has been dominating the rare disease market for quite some time.

This reign might not last long though as Novartis AG (NOVN) and Roche Holding AG (ROG) are gunning to release their own version of the drug by 2020 or 2021. This means Biogen would once again see another blockbuster drug go flat.

How does Biogen plan to deal with the backlash?

If history is any indication, then investors can expect Biogen to start looking into acquiring medium-size biopharma firms as soon as possible. Since the company closed 2018 with $3.5 billion in cash along with $5.3 billion in its free cash flow, a buyout is a viable solution at the moment. However, the biotech giant can only afford one.

The medium-sized biopharma firms speculated to be under consideration include ACADIA Pharmaceuticals, Biohaven Pharmaceutical Holding Company, and Alder Biopharmaceuticals. However, Neurocrania Biosciences and Sage Therapeutics are said to be potential frontrunners for a Biogen takeover.

While a lot of investors would understandably be wary of another risk from Biogen, Neurocrania and Sage could be promising targets for the biopharma giant.

Neurocrania has been raking in huge profits from their blockbuster tardive dyskinesia drug Ingrezza since gaining FDA approval in 2017. In fact, annual sales of this product has reached $410 million in 2018.

Aside from their success with Ingrezza, Neurocrine has taken the first step towards gene therapy via their collaboration with Voyager Therapeutics. Just this month, Neurocrine has invested $165 million to commence the process of coming up with a treatment drug for Parkinson's disease.

Another good option is Sage as the company also focuses on neurology, which means their goals could align with Biogen's. The recent approval of Zulresso makes Sage the first company to provide treatment for severe postpartum depression.

While the Alzheimer's debacle can be overwhelming, Biogen's fundamentals remain attractive. In terms of revenue estimates, the company is anticipated to report a 2.2% increase this year or up to $13.75 billion. Meanwhile, growth for earnings per share is projected to be at 9.4% or up to $28.67 from its current EPS of $21.58.

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