Biogen Inc (NASDAQ:BIIB) handily beat fourth-quarter earnings expectations on Thursday, pushing the stock up more than 4% in early trading on the day. In the bigger picture, however, the fate of BIIB is largely tied to the performance in biotech stocks.
Lately, that hasn’t been a good thing.
BIIB at the Mercy of Biotech Stocks
Biotechs have been in sharp decline for nearly two full years, and BIIB stock has been dragged down as a result. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) exchange-traded fund, which is a good proxy for the biotech sector, is down more than 12% in the last two years. Biogen stock is down 29%. And just look at how closely the two mimic each other.
In essence, when biotechs fall, BIIB falls even further. The opposite is also true, but there haven’t been a whole lot of upmoves in either the stock or the sector over the last two years.
Last summer, it looked like both were about to make a big move; BIIB jumped more than 100 points from late June to early August, gaining more than 47% in a mere five weeks. Then, the stock hit a wall, and after a brief retest of $330 resistance in November, BIIB is now threatening to break below six-month support in the low $270s.
For the first time since June, the stock is now trading (as of this writing at least) below its 50- and 200-day moving averages.
Slipping sales have been part of the problem, as the company has failed to top double-digit gains in four of the last five quarters. Prior to that, the company had posted double-digit revenue growth every year from 2013 through 2015.
But I don’t think slowing sales are what’s ailing BIIB. If they were, the stock would have tumbled in 2011, when revenues declined by 14%; instead, the stock soared that year, as biotech stocks gained more than 24%.
Perhaps the latest earnings beat will be the beginning of a long-term bounceback in BIIB stock. But the above chart shows pretty clearly that Biogen stock is at the mercy of biotechs as a whole. And right now, biotech stocks are at the mercy of Donald Trump.
Trump Moving BIIB Stock
That big dip you see in the IBB (and BIIB) since the beginning of January coincided with the new President’s harsh words about drug makers earlier this month.
“We have to get our drug industry coming back. Our drug industry has been disastrous, they’re leaving left and right. They supply our drugs but they don’t make them here, to a large extent,” Trump ranted at a Jan. 11 press conference prior to his inauguration. “And the other thing we have to do is create new bidding procedures for the drug industry, because they’re getting away with murder.”
The response of the biotech sector to Trump is a reversal of what happened when he was elected.
Because Hillary Clinton had been so outspoken against high drug prices, Trump was perceived as the more biotech-friendly candidate, with some industry analysts speculating that new drugs might make it to market faster due to fewer regulations. But as the words “disastrous” and “murder” make clear, Trump might not be as biotech friendly as some thought.
That doesn’t mean drug makers, or the biotech industry as a whole, can’t thrive in the Trump administration. But right now, his harsh words about the drug industry are undoubtedly scaring investors out of biotech stocks.
Chances are, that fear will eventually subside, and investors will focus more on the actual fundamentals in biotechs. Until it happens, though, the upside in BIIB might be limited.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
