Biogen Inc (NASDAQ:BIIB) reminds me of a company making big computers in 1977.
The industry is about to be transformed completely, but most people are focused only on short-term opportunities. Those opportunities look huge, and big new markets are about to emerge, but most companies built on older technologies will not survive.
Biogen is what I call a first-generation biotech firm. Its focus is on finding specific, often expensive, cures for dread diseases. The recent news about it focuses on Spinraza, approved late last year for spinal muscular atrophy, a rare and deadly disease.
Bulls, like our Richard Saintvilus, note that the drug seems to work. Bears, like our James Brumley, note that it’s priced at $125,000 per dose and that could prove a real problem.
Analysts are also looking at Biogen’s patent litigation and the pending spin-off of its hemophilia unit as Bioverativ Inc (NASDAQ:BIVVV).
I think the analysts are looking in the wrong direction.
Gushes, Global Markets and BIIB Stock
New CEO Michel Vounatsos wants to get Biogen active in East Asia, in places like China and Korea where it does not yet do business. That could mean lower prices and hard negotiations with governments, but the volume increases would push the stock much higher.
He also wants to find a cure for Alzheimer’s Disease. His candidate drug is called aducanumab, a monoclonal antibody that seems to slow cognitive decline in early tests.
This is in line with the industry’s history. BIIB is like the early oil business. Big bets are made on plays that could become gushers but could also become dry holes. Biotech analysts constantly talk about drug “pipelines,” parsing the results of studies to see if a specific compound will hit or miss its efficacy and safety targets.
It is this process that may be about to change.
Synthetic Biology: A New PC?
Something called synthetic biology could do to this business model what the PC did to “big iron” computer companies a generation ago.
Synthetic biology applies an engineering approach to DNA, treating DNA fragments as chemical additives, re-engineering organisms (including people) from the inside out and creating new forms of living matter through accelerated evolution.
Synthetic biology companies like Intrexon Corp (NYSE:XON) take a systems approach to DNA, creating platforms for the design of DNA fragments and libraries of what they do. These companies are highly speculative — all but one of the early PC companies eventually failed — and Intrexon itself currently sells for roughly one-third of its 2015 high, which was over $60 per share.
Synthetic biology represents an entirely new approach to DNA and drug discovery, in which specific cures for specific diseases are less important to investors than processes, platforms and libraries. It’s a horizontal approach rather than the vertical one of traditional biotech.
How Far Away?
Right now, no one in the mainstream of biotech is focused on the threats posed by synthetic biology, which could quickly lead to the development of multiple, different drugs for the same condition, increasing competition and cutting prices. They are focused, instead, on its promise for building on existing business models.
But a few years from now, that is due to change. The pace of drug discovery is going to accelerate, and the ability of existing business, legal and regulatory systems to handle that acceleration is open to question.
It is good for investors that Vounatsos has a global perspective and understands the need to bargain so BIIB stock can open new markets and bring drugs to market. Whether he, or anyone else in the industry, is ready for the wave that is building beneath them is the bigger question.
The computer makers of the 1970s were not ready for it, but the PC revolution happened anyway, and it was the companies that embraced that revolution that survived it best.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
