Novel drugs that disrupt the course of a disease require tremendous long-term planning, a great skill set, and shrewd willingness to weigh risks and rewards, suggests Stephen Leeb, editor of The Complete Investor.
As such, biotechnology is an area that requires long-term thinking. Yet investors in Biogen (BIIB) have allowed short-term consequences to completely overwhelm their judgment.
Despite the pressure under which it finds itself, Biogen remains one of our favorite healthcare stocks and our single-favorite drug company.
We don’t discredit anyone who sold on recent quarterly earnings results that reflected a major near-term disappointment from a growth driver, the Tecfidera oral drug for relapsing MS.
Overall earnings increased by 55%, however, only a few pennies short of consensus. And nothing suggests that Tecfidera will not continue to grow rapidly, so the company maintained its overall guidance.
The company also announced plans to spend some $2.5 billion for trial preparation and manufacture of an Alzheimer drug, for which only Phase 1 results had been reported. Investors’ reaction suggested they’d rather that the company hand them the money than take a calculated chance on an early-stage drug.
One opponent of this investor activist approach is Blackrock chief Larry Fink. As head of one of the world’s largest investment companies, Fink knows that the only way to really win is long-term, which requires patience. Invest in what patients really need.
Biogen bet and bet fairly big on first stage results, but what counts is the strength of the results. Statistically speaking, Biogen’s results stood quantum leaps ahead of extant Alzheimer drugs.
In the absence of meaningful results, the probability of such numbers was considerably less than one in several thousand.
One implication: a number of participants in the study actually noticeably improved in the predicted ways, less plaque on their brains and better cognitive performance.
In other words, Biogen’s willingness to invest in advance of larger studies was extremely well measured.
This treatment could prevent suffering and improve the lives of countless individuals, and meanwhile, could potentially save the US—and world—tens, if not hundreds of billions of dollars in healthcare expenditures.
We continue to aggressively recommend Biogen, confident that the company’s long-term planning will turn into short- and long-term results, alike.
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