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Biogen Is Not Valeant

Summary

On October 5 and October 6, biotech stocks fell sharply in response to a Wall Street Journal article on drug pricing.

WSJ picked on the only product in Biogen's portfolio that saw price increases without volume growth.

We should not ignore how the money was spent, i.e. Biogen's recent drug discoveries and current drug research.

WSJ unfair to Biogen

On October 5, the country's preeminent financial newspaper, The Wall Street Journal, dropped a bomb on the Nasdaq Biotech ETF (NASDAQ:IBB). That ETF opened on October 5 at $318 and touched an intraday low of $292 on October 6. A WSJ article pointed out that Biogen (NASDAQ:BIIB), the leader in multiple sclerosis drugs and a heavy spender on R&D, had been raising prices on Avonex by an average of 16% per year despite decreasing demand. But the article did not mention the fact that everything else in Biogen's portfolio saw increasing demand. Avonex price increases were highlighted, without highlighting where the money went.

Biogen discloses the volume growth for each drug in its SEC filings. This made it an easy target, compared to a company like Valeant (NYSE:VRX) that steadfastly refuses to disclose this information on a per-drug basis. Biogen's stock price opened at $291 on the day of the article (October 5) and closed at $276 on October 6. Even though Valeant is used as a contrast to Biogen in this article, there are many drug companies with Valeant's low R&D, price-hike-heavy business model. Valeant is just the most well-known of the bunch, with New York Times articles written about it:

"This year alone," notes the Times, "Valeant raised prices on its brand-name drugs an average of 66 percent, according to a Deutsche Bank analysis, about five times as much as its closest industry peers."

Focusing on price increases on the only drug in Biogen's portfolio with decreasing demand is unfair. This is a partial list of how the money is being used by Biogen:

  • Biogen's ongoing multi-billion dollar effort to find a treatment for Alzheimer's disease
  • Ongoing effort to find the first drug to reverse the neuron damage caused by multiple sclerosis (anti-LINGO)
  • Ongoing effort to find the first treatment for the fatal pediatric disease, spinal muscular atrophy (NYSE:SMA), in partnership with ISIS Pharmaceuticals (NASDAQ:ISIS). SMA is the most common genetic cause of infant mortality.
  • Biogen's licensing of a molecule from Mitsubishi Tanabe for $544 million, aimed at various auto-immune diseases
  • Tecfidera, Biogen's hot new oral pill for multiple sclerosis

Why, even the offending Avonex has been...


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