Wednesday's third-quarter earnings "beat and raise" was achieved through price hikes, inventory tailwinds and cost-cutting. Demand for Biogen's core multiple sclerosis drugs was flat. The company is firing 11% of its workforce.
Biotech is supposed to be a high-growth industry fueled by scientific innovation and the development of new, exciting drugs. The snapshot of Biogen presented Wednesday lacks the biotech buzz for which investors are willing to pay a premium.
Biogen's rut is not irreversible but a rebound will require the company to deliver some big winners from its research pipeline. Start with the biggest, riskiest bet of them all: Biogen's Alzheimer's drug candidate aducanumab. The historical success rate for disease-modifying Alzheimer's drug is zero. All have failed. Can Biogen do better with aducanumab? If it can, the drug might be one of the most successful biotech products of all time. If not, it's worthless.
The same can be said for anti-LINGO, Biogen's attempt at designing a drug to repair damaged nerves. Nothing like it has been done before. Biogen believes the biological data supporting anti-LINGO is sound but whether this translates into a clinically meaningful benefit for patients remains a high-risk question. An anti-LINGO study in multiple sclerosis, ongoing, will provide some answers.
"Our mid- to late-stage pipeline is larger and higher quality than it has ever been," said Biogen CEO George Scangos on Wednesday morning's conference call. Next year, the company will have four drugs in phase III studies, with the possibility of moving a fifth into the late-stage testing bucket as well, he added.
It's a lot easier for investors to feel optimistic about a biotech company's research pipeline when the operating drug business is humming. Biogen does not have that luxury. Its global multiple sclerosis drug business has been delivering flat sales for the past four quarters. On Wednesday, Biogen said Tecfidera (its most important multiple sclerosis drug) volume remains flat in the U.S. but that it "aspires" for better performance through a new television advertising campaign.
And then there's the escalating controversy focused on drug prices. On Wednesday, Scangos dismissed criticism of drug-pricing practices as political "rhetoric" stemming from the presidential campaign. "If we bring forward innovative drugs that make a difference in the lives of patients, they will continue to get attractive pricing," said Scangos.
But Scangos and his Chief Financial Officer Paul Clancy ducked the opportunity to make any comment or defense of Biogen's practice of raising the prices on legacy drugs like Avonex once or twice each year. Biogen should explain why its older, less innovative drugs cost as much as newer drugs.
Biogen is holding an investor meeting on Nov. 3 to discuss its drug research pipeline. The meeting will be led by Al Sandrock, Biogen's chief medical officer. His challenge, and it's a big one, is to make investors feel more confident in Biogen's future because there isn't much in the present to get excited about.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.