Believe it or not, Warren Buffett has bought shares of a biotech. On Friday, Buffett's Berkshire Hathaway (BRK.A -0.37%) (BRK.B -0.55%) submitted a regulatory filing listing the huge company's stock holdings from the previous quarter. And a big biotech, Biogen (BIIB 1.94%), was one of the new additions.
Granted, we don't know whether or not Buffett selected Biogen himself. It's more likely that either Ted Weschler or Todd Combs, Berkshire's investment managers, actually chose to buy shares of the biotech. But even if one of those men picked Biogen, the investment almost certainly received Buffett's blessing.
One thing is for sure, though: Buying Biogen is one of Buffett's riskiest wagers ever.
Biogen achieved tremendous success with its multiple sclerosis franchise; MS drugs such as Avonex, Plegridy, Tysabri, and Tecfidera racked up huge sales. But the biotech's leadership in MS has come under attack. Total revenue for its MS franchise slipped a little year over year in 2019.
The picture could improve somewhat. Biogen received good news earlier this month when the U.S. Patent and Trademark Office's Patent Trial and Appeal Board upheld a key patent for Tecfidera. However, Berkshire bought shares of the biotech before this patent victory occurred.
In 2019, Biogen's revenue increased by only 4.5% year over year. That growth, which is unspectacular for a biotech, stemmed largely from the company's spinal muscular atrophy (SMA) drug Spinraza. But momentum is slowing for Spinraza. And an approval decision by the U.S. Food and Drug Administration for a potential new rival, Roche Holdings' risdiplam, is expected by May 24, 2020.
Biogen's future hinges significantly on winning FDA approval for aducanumab, a drug for Alzheimer's disease. The drug flopped in a late-stage study last year, with the company seemingly throwing in the towel. However, Biogen stunned the biopharmaceutical industry in October with its announcement that it would file for FDA approval after all, based on a new analysis of a larger data set from the two late-stage clinical studies that were discontinued earlier in 2019.
We don't know the exact timing of Berkshire's investment in Biogen. It seems highly likely, though, that the purchase came after the biotech's bombshell news about submitting for approval of aducanumab. Berkshire (and, by extension, Buffett) are betting on a stock that could be a big winner if it wins FDA approval, but would almost certainly plunge if it doesn't.
Buffett and Berkshire have taken risks in the past. I don't think there's been a greater gamble, however, than the one that's been made on Biogen.
Buffett's healthcare hex
You might be surprised to learn that Warren Buffett's track record with investing in healthcare stocks isn't very good. He's had double-digit-percentage losses on UnitedHealth Group and on Wellpoint, which later became Anthem.
Even when Buffett's instincts have been right about some healthcare stocks, his timing hasn't. For example, he sold shares of CVS in 2012 after holding the stock for less than a year, forgoing a much greater gain had Berkshire held onto its shares.
Aside from the new position in Biogen, Berkshire currently owns only three other healthcare stocks. Teva Pharmaceutical Industries' shares have declined significantly since Buffett bought the pharmaceutical stock in the fourth quarter of 2017. DaVita and Johnson & Johnson have outperformed Teva, but they also have lagged well behind the S&P 500 index over the last three years and five years.
Berkshire's stake in Biogen is a sizable one -- close to $200 million. However, that's only a drop in the bucket for the company, so Berkshire isn't betting the farm on the biotech. But there's a real chance that Biogen could be another disappointing healthcare investment for Berkshire. If aducanumab doesn't win FDA approval, it's going to be extremely hard for Biogen to recover.
Warren Buffett hasn't been much of a gambler throughout his career. With the Biogen investment, though, the billionaire investor has given approval to what appears to be one of the riskiest bets in Berkshire's history. The Oracle of Omaha is now the Gambler of Omaha.