A gambling ticket for Biogen at the moment

Biogen (BIIB), one of the most successful biotech companies, has been struggling for over a year. Since reaching its all time high around $475 early 2015, it has lost almost 40% of its market cap and is trading around $290 as I’m writing. The most recent hit was related to the total failure of the Eli Lily’s Alzheimer drug, solanezumab, as it did not beat the placebo in a key study just reported. Biogen also has an AD drug under testing and people are scared that it may face a similar death blow.  But people may not understand the key difference between the 2 drugs. For Eli Lily, its drug is targeting to soluble beta-amyloid, trying to prevent formation of amyloid plagues in the brain. So it is an indirect way for AD. On the contrary, Biogen’s drug (aducanumab) is directly targeting the formed amyloid plagues in the brain, trying to reduce them. Earlier studies have shown that aducanumab is efficacious with a dose effect. A dose effect is often a sign that the drug is working but the question is at what dose with what safety profile. With the study is still ongoing, there is no way to know for sure about its result. A drug can be very effective but if too toxic, it can also be killed. That’s the risk for betting on biotech stocks. So the question is how to play with it at the moment. Short BIIB? Or long? I’d advise you to wait till next week to decide how to play with it.

Fundamentally BIIB is an enormously profitable company and is actually quite cheap at this price. I actually like BIIB for long term. But technically it is sitting at a multiyear support around $290. Shorting a stock on a strong support is risky by itself. But if it breaks, it may go down straight to its next strong support around $250. I don’t think it will easily break the current strong support easily but it may change in just a few days. A huge catalyst is set to move BIIB one way or the other. Biogen is scheduled to announce the early reading of its ongoing study for aducanumab on the coming Friday at  the 9^th Clinical Trials on Alzheimer's Disease (CTAD) meeting in San Diego. If good, it will shoot up easily over $300. If bad, it may tank as well. So it is a gambling ticket at the moment if you want to play now.

As alluded to above, personally I like BIIB very much for long term and actually I have already established my positions several months ago. Again, biotech stocks are risky and I don’t play with it naked. With hedged call options and selling puts half year ago, I have already taken enough profits to cover my cost for long calls and a bit more. So it’s a free and already profitable play for me and right now my positions are gearing towards long side than short side as I do feel Biogen’s AD drug has a better chance to win. But we have to see what will come out Friday. Stay tuned!