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Warren Buffett Sold Off This Biotech Stock. Should You?

By Prosper Junior Bakiny – Aug 25, 2021 at 6:39AM

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A recent regulatory approval could make this company worth serious consideration.

For those accustomed to following stock market news, Warren Buffett needs no introduction. The legendary CEO and chairman of Berkshire Hathaway is widely regarded as one of the greatest investors of all time. This title does come with its share of responsibilities: Nearly every investment decision the company he chairs makes is looked at under a microscope. 

Berkshire Hathaway's latest 13-F filing (a quarterly report some institutional investment managers are required to file) revealed that the conglomerate closed its stake in biotech Biogen (BIIB -0.98%). Buffett and the rest of his investing team have spoken, but should the rest of us follow their lead and stay far away from Biogen's stock? 

Why Biogen might be a buy

Perhaps the biggest reason to consider purchasing shares of Biogen is the recent approval of Aduhelm, the company's drug for Alzheimer's disease. Aduhelm is the first Alzheimer's drug approved by the U.S. Food and Drug Administration that goes to the heart of one of the rumored causes of the disease: the accumulation of the beta-amyloid protein in the brain. Aduhelm works by reducing the amount of amyloid plaques. 

Doctor with an elderly patient.

Image source: Getty Images.

This drug will almost certainly reach blockbuster status. There are 6 million Alzheimer's patients in the U.S., and that number is only growing, although Aduhelm is currently only indicated to treat those with mild cognitive impairment or mild dementia. Aduhelm is supposed to be administered intravenously once every few weeks, with a one-year course of treatment costing $56,000.

This new addition to Biogen's lineup will help the company's sales start growing again. The company's revenue has been declining recently because of biosimilar competition faced by multiple sclerosis drug Tecfidera. During the second quarter ended June 30, Biogen's revenue came in at $2.8 billion, a 25% year-over-year drop. Tecfidera's sales were $487.6 million, compared to the $1.2 billion in sales recorded during the year-ago period.

Once revenue from Aduhelm starts coming in, it will help Biogen's top line reverse course.

Reasons to worry

While the approval of Aduhelm was a major milestone for Biogen, it also came with its share of controversy. In November 2020, a panel convened by the FDA strongly voted against the approval of the drug. The members of this panel believed that the data did not support the claim that Aduhelm helps Alzheimer's patients.

The FDA went ahead with its approval anyway, much to the dismay of these experts, at least three of whom decided to step down from their roles with the regulatory agency as a result. The worry here is that some doctors could be hesitant to prescribe Aduhelm. Others fear that there will be some regulatory backlash directed toward Biogen given Aduhelm's steep price tag.

Moreover, Biogen's stock has gained 39.6% since the beginning of the year, which is more than double the performance of the S&P 500. The bears might argue that Aduhelm's success is already baked into the company's stock price, which may be another reason to avoid this biotech. 

The verdict 

Despite the controversy surrounding Aduhelm, Biogen thinks it will be a hit on the market. During the company's second-quarter earnings conference call, CEO Michel Vounatsos said, "We have seen strong indications of very high initial patient interest in Aduhelm as well as increased referrals from PCPs [primary care physicians] to specialists."

Meanwhile, the company is working toward mitigating the other risks related to Aduhelm. Biogen is exploring options to make the medicine more accessible to those who may not be able to afford it, and it plans to publish the data from its phase 3 studies for Aduhelm in peer-reviewed journals. Doing so could increase patients' and physicians' confidence in the drug. A phase 4 clinical trial for Aduhelm is also in the works.

It's too early to say whether these efforts will pay off, but in my view, they are very likely to help the company. And while Biogen's stock has significantly outperformed the broader market this year, zooming out helps give more context. In the past 12 months, the company's stock is up by 23.1%, compared to gains of 30.8% for the S&P 500. I think the controversy surrounding Aduhelm is still weighing on the company, and there remains significant upside given the medicine's potential. 

In other words, for those looking for biotech stocks to buy, I think Biogen is a good choice right now. 

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Biogen and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

Stocks Mentioned

Biogen Stock Quote
Biogen
BIIB
$298.90 (-0.98%) $-2.95
Berkshire Hathaway Stock Quote
Berkshire Hathaway
BRK.A
$477,402.98 (0.07%) $317.98
Berkshire Hathaway Stock Quote
Berkshire Hathaway
BRK.B
$316.15 (0.10%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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