Warren Buffett often talks about how a successful investment is built around the target company’s competitive edge or so-called “moat.” Now, the American tycoon thinks he has spotted a technology fortress in Biogen.
Buffet’s Berkshire Hathaway bought 648,447 shares of the Big Biotech at a combined worth of $192.4 million near the end of 2019, the investment shop disclosed in a recent securities filing.
The equity buildup came as a surprise given that the Oracle of Omaha isn’t often associated with biotech investments. It could be viewed as risky, as Biogen nears a do-or-die FDA filing—and hence decision—for controversial Eisai-partnered Alzheimer’s drug aducanumab.
Last October, Biogen shocked the biopharma world by moving to resurrect aducanumab for U.S. approval. It had previously announced the failure of two pivotal studies at interim analyses.
According to Biogen’s explanation, focusing on study patients who received long-term use of a high dose of aducanumab, the Emerge trial actually hit the primary endpoint. The identical second trial, Engage, was still a flop, but Biogen attributed that discrepancy to the fact that Engage had fewer patients who received the full complement of long-term, high-dose infusions because of a trial protocol change.
Industry watchers were split in their opinions on Biogen’s decision to revive the drug. In an investor’s note last December, Baird’s Brian Skorney questioned the subgroup analysis could play out positively for Biogen before drug regulators, calling it “a hypothesis-generating exercise” at best. “The bottom line is, the FDA standard of approval is substantial evidence of efficacy and the cumulative data for aducanumab falls really far of this standard,” he wrote.
On the bull side, SVB Leerink’s Marc Goodman recently said aducanumab has “a better than 50% chance of getting approved” for early Alzheimer’s disease based on the current data package, and that the stock didn’t fully reflect that positive assumption. Biogen management has said it plans to file aducanumab for FDA approval in 2020. If the drug were eventually approved, investors would “quickly sign off on a $10B peak sales forecast,” he argued.
Biogen has a lot riding on aducanumab’s success. In 2019, its product sales only grew 4.5% year over year mainly thanks to multiple sclerosis drug Tecfidera and spinal muscular atrophy therapy Spinraza. But the MS field’s getting more crowded with multiple new entries, and Spinraza’s facing Novartis’ gene therapy Zolgensma, a potential cure.
After Biogen recently cleared a patent challenge to Tecfidera, Goodman assigned a $410-per-share price target to the company’s stock. That’s significantly higher than the average $296.7-apiece average price Buffett paid for his stake.
Apart from Biogen, Buffett’s Berkshire also has been pumping money into Teva since a major shakeup initiated by CEO Kåre Schultz in late 2017. However, that investment hasn’t exactly paid off, as the generic giant’s newly completed overhaul has yet to translate into any major business improvement.