Shares of Biogen (BIIB) fell after a West Virginia District Court ruled against the firm in a patent suit brought by Mylan Inc. (MYL) related to its blockbuster multiple sclerosis drug Tecfidera, notes Chris Quigley, a value investing specialist and contributing editor to The Prudent Speculator.
The court stated that certain claims of the relevant ‘514 patent are invalid for “lack of written description.” Granted in 2013, the patent offered exclusivity through 2028 and was the last protection remaining since the other Tecfidera patent was set to expire in June 2020.
The MS franchise, with Tecfidera as its star, represented 39% of 2019 product sales, so an earlier-than-expected loss of patent protection would be a big deal. Not surprisingly, Biogen will appeal, even as Mylan is said to be eager to launch its generic alternative later in the year.
No doubt, plenty of legal fees will be racked up before all is said and done, and this is certainly a tough blow for Biogen as the firm’s future seemingly becomes characterized more and more by a pipeline of high risk/high reward neurological therapies. Of these, Alzheimer’s drug aducanumab possibly represents the most potential.
The most recent 10-Q filing offered this update: "In April 2020 we announced that we currently expect to complete the U.S. filing for aducanumab in the third quarter of 2020.”
Certainly, aducanumab would be a home run if it passes muster, but we note that Biogen’s balance sheet is strong, while the revenue stream apart from Tecfidera remains diversified and generates significant free cash flow.
Although we remain vigilant and aware of the risks, we continue to be patient, given a BIIB valuation well below that of peers.
Our target price has been trimmed to $448, but the stock presently trades for just 7.6 times earnings and it is hard to imagine the company not being snapped up by an acquirer if the shares continue to reside in the discount bin.
