A “Reasonably Likely” Excuse…
Great Ones, as some of you may remember, I have a bit of a personal beef with drugmaker Biogen (Nasdaq: BIIB).
I know. I know. You’re not supposed to get emotional when trading or investing. It’s the No. 1 rule, after all… Well, it’s No. 2 behind “Don’t Panic!” but the two are kinda one and the same.
But when it comes to Biogen, I have a hard time putting those feelings aside.
You see, my grandfather died of Alzheimer’s roughly 15 years ago. He was one of my best friends growing up. I still remember watching Indiana Jones, Humphrey Bogart and Fred Astaire movies with him on the weekends.
I’m not exaggerating when I say that without my grandfather, there’d be no Great Stuff.
So Biogen’s Alzheimer’s drug Aduhelm had my interest from the moment the company announced it.
My interest is about more than just retribution for my grandfather or relief for the millions of Alzheimer’s patients. It’s about my family.
While Alzheimer’s isn’t technically hereditary, you do have a higher risk of developing it if a first-degree relative has it. It terrifies me that my children might have to go through what I went through with my grandfather.
However, when the FDA gave Aduhelm broad approval back in June 2021, I was watching very, very closely. And I did not like what I saw in the least.
In fact, this statement from FDA Drug Evaluation and Research head, Dr. Patrizia Cavazzoni, was more than disconcerting:
Treatment with Aduhelm was clearly shown in all trials to substantially reduce amyloid beta plaques. This reduction in plaques is reasonably likely to result in clinical benefit.
Reasonably likely. Yup. That’s the phrase.
What’s more, Biogen initially sold a year’s treatment of the drug for $56,000, more than five times what analysts thought the drug should go for.
I’m not ashamed to say that I went on a little unhinged rant on the topic:
$56,000 for a drug that doesn’t directly treat Alzheimer’s.
$56,000 for a drug that doesn’t deal with dementia.
$56,000 for a drug that is “reasonably likely to result in a clinical benefit.”
My grandfather couldn’t have afforded that “reasonable likelihood.” I would argue that most Alzheimer’s sufferers can’t afford it either. That cost will fall on Medicare, where the vast majority of Alzheimer’s sufferers get their health care.
Turns out Medicare agreed with me and only approved Aduhelm for randomized clinical trials. Biogen then halved the price of Aduhelm to try to make more market headway, but it was all for naught.
Today, Great Ones, schadenfreude strikes again! Biogen is ending support for Aduhelm. The drug has officially bombed … commercially, at least. Not only that, but CEO Michel Vounatsos is stepping down over the debacle.
During its quarterly earnings report this morning, Biogen said it is eliminating its commercial infrastructure for Aduhelm in an effort to save $1 billion. The company plans to reinvest that cash in “strategic initiatives,” “near-term operational priorities” and “increasing focus on R&D prioritization.”
Man, that’s a lot of corporate BS-speak. Basically, Biogen is saving money, putting money toward other drugs in its pipeline and researching new opportunities.
I’m betting one of those “strategic initiatives” will be a share buyback program, and you can quote me on that one. I mean, BIIB stock is trading at its lowest point in about nine years, and the quickest way to shore up a stock price is with buybacks.
Personally, I’m a little bit sad and disappointed by this decision. While Aduhelm wasn’t the Alzheimer’s “cure” many wished it would be, it could still be an important part of treatment for a devastating disease with very few approved drugs.
On the other hand, if Biogen hadn’t been so greedy with the price and aggressive with its marketing, Aduhelm might still be part of the Alzheimer’s treatment equation. The company set sky-high expectations and completely failed to live up to them.
For investors, BIIB stock is down about 50% from its June 2021 highs. The stock is hovering near key psychological support near $200.
Today’s earnings report — which saw earnings miss expectations but revenue beat — was enough to provide a spark of hope for investors, especially with CEO Vounatsos stepping down and $1 billion in savings on the table.
Biogen will go on. BIIB stock will likely recover. Despite this debacle, Biogen is still a market leader in the pharmaceuticals industry and is a worthwhile investment for pretty much any portfolio over the long term.
That said, it’s going to be a long while before I invest in BIIB stock personally. And that’s all I’ve got to say about that.
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The Good: Vis Avis
You got a rental car. I want a ticket to anywhere … maybe we can make a deal on Avis (Nasdaq: CAR) stock?
Everyone else is going to Avis for their rental cars this year, apparently. The company just dropped a banger of an earnings report that showed revenue rip-roaring 77% on the quarter.
Sales came in at $2.4 billion and handily topped estimates for $2.16 billion. Per-share earnings, on the other hand, reached a new record of $9.99 and walloped expectations for $3.45.
Avis’ secret? According to CEO Joe Ferraro: “We focused on diligent fleet management and continued cost optimization to generate a new record first-quarter adjusted EBITDA.”
Ah, took the words right out of my mouth.
Short story short, Avis pivoted to meet rising demand. That would be travel demand, for all of you eagerly awaiting other travel-related stocks set to report earnings.
Wall Street drove CAR stock like it stole it, sending the shares up 8% after the report dropped. Thing is, investors forgot to get the extra insurance, and CAR slammed into the dirt today and totaled all its gains.
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The Bad: Guess It Wasn’t That Paramount
I’m burnin’, I’m burnin’, I’m churnin’ for … ad sales. — Paramount+ execs, probably.
Seriously, I gotta know: Do any of you subscribe to Paramount’s (Nasdaq: PARA) namesake streaming service? And I’m not talking about sharing passwords either…
About 6.3 million people signed up for Paramount+ this past quarter, according to the company’s latest report. At a time when Netflix (Nasdaq: NFLX) is only losing subs, this is no small peanuts for Paramount.
That said, let’s not forget that these subscriber adds still bring Paramount+ to “just” 62 million subs. Yet while Paramount’s adds were decent … ads, on the other hand, were not. Weak ad sales left Paramount missing revenue estimates by a whole 1%. The nerve!
So what’s the rub?
It’s this key bit of info right here: “Wall Street has raised concerns over the long-term viability of streaming as the pandemic boom fades.” Sounds awfully familiar to what we said after Netflix’s report, doesn’t it?
It’s not that streaming is dead … but we have entered a new phase. Growth is gone and not just for Netflix.
We’ve hit basically max penetration in the U.S. of everyone who’s going to stream. We’re now in the “churn” phase … just like old cable companies and cell service providers. Paramount got started on streaming way too late and now it’s stuck without a growth phase like Netflix or Disney+ had.
This is what churn looks like. And acquiring subscribers during the churn phase is a lot more expensive. Just ask Verizon and T-Mobile … or the now-dead Sprint.
The Ugly: We Don’t Need No Chegg-ucation
Before we dig into today’s actual Quote of the Week, indulge yourself in what may be the biggest understatement of the year. So far…
I … I think Rosensweig speaks for everyone in saying this. Like … all of humanity.
If you don’t know about education services platform Chegg (NYSE: CHGG), it might be because hardly anyone’s using Chegg’s services anymore, judging by the company’s latest report.
Now, Chegg’s report wasn’t bad bad per se — earnings beat while revenue missed — but Chegg’s forward outlook was enough to ruin any possible positivity.
Instead of the $260 million to $270 million profit Chegg previously predicted for 2022, the company now only expects to make $220 million to $235 million. Oof.
All the usual suspects filled Chegg’s report. Inflation is ruining everything! The economy is in shambles! Nobody’s enrolling in schools or our platform! It’s … umm … all of the above, actually.
But the Chegg CEO also pointed toward another excuse — er, reason — for its lowered profit outlook, and it’s a doozy:
Students continue to take fewer classes and those they do take are often less rigorous, with fewer or more limited assignments. With higher wages and increased cost of living, more people are shifting their priorities towards earning over learning, resulting in a lower course load, or delaying enrollment in school at this time.
You catch that?
Instead of strapping themselves to hundreds of thousands of dollars in debt all while wages stay mostly stagnant, more people are just not feeling that whole education thing right now. “Shifting their priorities” is a much nicer way of saying “I need to work now instead of learn.”
Are you surprised? I’m not.
Remember, I didn’t say it…
If the deal goes through we make some money, and if it doesn’t go through who knows.
Want to know how you can tell the Activision (Nasdaq: ATVI) and Microsoft (Nasdaq: MSFT) deal is gonna go through? Buffett’s betting on it.
Ol’ Warren B. just dropped $5.6 billion for a 9.5% stake in Activision as the world awaits word from antitrust regulators. Considering we haven’t heard anything against the tie-up thus far … Buffett took it upon himself to dive in.
So let’s dive in as well.
While Buffett’s quote might seem like a YOLO bet you’d find on, well, certain Reddit subforums … buying into ATVI right now isn’t as risky as you might think. If anything, it’s the safest YOLO ever.
Consider the following: If Microsoft buys Activision, boom, done deal. Buffett makes money. Plus, there’s not a whole lot of antitrust chatter out there, so I would be surprised to see this blocked.
Now, if Microsoft doesn’t end up buying Activision, Buffett still owns stock in one of the biggest video game makers on the planet … and video games aren’t going anywhere. Gaming might see a dip as people “touch grass” more after the pandemic, but they’ll be back … especially for Activision.
I mean, it could be worse — Buffett could’ve bought Chegg. Ugh.
I guess that’s not what he meant by circumventing inflation by investing in yourself, your skills and your education, is it? Just be a doctor, a lawyer or a professional investor who makes billion-dollar bets on video game companies. It’s simple, really.
So video games stay, Chegg-ucation goes? Sounds about right.
Hey, you said it…
What do you think about Buffett’s big bets, Great Ones? Will Microsoft’s gamemaking deal go through? And what’s the deal with Biogen trying to forget about its Alzheimer’s drug plans?
Let me know in the inbox. Once you’ve shared your thoughts, here’s where else you can find us across the interwebs:
Until next time, stay Great!
Editor, Great Stuff