Biogen Idec’s (BIIB) stock took a dive Friday after the pharmaceutical company notified regulators of two new cases of a potentially deadly brain disease present in multiple sclerosis patients using its Tysabri drug. The brain disease - known as progressive multifocal leukoencephalopathy [PML] - was already known to regulators after concerns first hit the market in 2005. The Food & Drug Administration decided to allow Tysabri to return to market in 2006 with a warning to potential consumers.
Biogen and its partner Elan (ELN) said that more than 31,800 patients were taking Tysabri as of the end of June and second quarter sales alone reached a total of $200 million. Some analysts believe that more cases are likely and physicians may reduce the number of patients they start on the drug as they see more cases in the news. However, others are quick to point out how quickly the stock price jumped back after the first concerns were voiced in 2006.
The real question on the minds of investors is whether or not these cases are isolated. A growing issue would put pressure on sales and potentially hurt Biogen and Elan. The key factor is going to be what happens when you see patients being treated two, two and a half years out. Unfortunately, there is no data on this length of time, since the drug is still relatively new to the market. If cases rise during this time, that could obviously present problems.
However, other analysts point out that most of the value of Tysabri is already written off at these levels, which means that any positive news could equate to substantial upside. The reduced valuation could also help the rumored-buyout attract more interest from potential suitors. Biogen may represent a kind of acquisition risk, but if there are no problems with patients two years out then there could be a substantial recovery or even buyout at a hefty premium.
Many options traders have taken this into account and positioned themselves. Some 49,304 options traded hands on Friday, which is 10x the average one-month volume of 5,109 contracts, according to Schaeffer’s Research. The options seemed to be split between calls and puts, which suggests either undecided investors or several large straddle trades. The heaviest trading was seen on the 60 January ‘09 calls, which are relatively long-term bets.
Ultimately, these options traders are betting on a substantial move in Biogen over the next 166 days as a result of the uncertainty surrounding Tysabri. Meanwhile, analysts and investors remain divided on the long-term prospects of Biogen given this increased risk over its head. Will it recover to reach new highs like the last time concerns mounted? Learn more about using LEAPS options in to take advantage of unusual situations at LEAPSInvestor.com.
My Biogen option is to shatter Big Oil stocks to pieces. i am busy writing comments everywhere telling people to dump Big Oil stocks as oil prices is heading nowhere but down.... Thousands are trading in SUVs and PickUps for Cobalts and Focuses everyday. The days of switching between gas guzzlers and fuel sippers according to Jim' Oil Stop prices are practically over. We are simply tired of being wagged by Big Oil . We are out to bury Big Oil in wells where they belong. Wall Street think they can simply lop Biogen off by 25% in a hearbeat just because we are buying less gasoline. It is a zero sum game. the connection between Big Oil and Biogen is clear yet everyone is so blind. I am fed up with mischief making or back stabbings at Wall Street. You hear me?