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Warren Buffett's Berkshire Hathaway Dives Into Biotechnology

The legendary holding company run by Warren Buffett, Charlie Munger, and a growing team of younger tech-savvy asset managers recently unveiled its first biotechnology investment. The latest holdings disclosure form filed by Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) revealed a new nine-figure investment into one of the best-performing biotech stocks of all time, Biogen (NASDAQ: BIIB).

A small boat in well-charted water

Berkshire Hathaway is new to biotech investing, but Biogen's been delivering market-beating returns for decades. A successful line of multiple sclerosis (MS) drugs has pushed the stock 1,360% higher over the past 20 years.

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Berkshire isn't risking a great deal on its foray into the biotech investing, at least relative to the rest of its portfolio. At the end of 2019, Berkshire held shares of Biogen worth $192 million, which works out to around 0.8% of the holding company's overall portfolio.

Hoping for the best

At the moment, Biogen leans heavily on a line of MS products that have stagnated lately in response to fierce competition. In addition to MS pressure, the company's lead growth driver at the moment, Spinraza, is no longer the only treatment option available to a limited population of patients born with a rare neurodegenerative disorder.

Biogen's attempting to develop an experimental Alzheimer's disease treatment that appears to have a slim chance of approval from an increasingly lenient FDA later this year. If Biogen's Alzheimer's gamble doesn't work out, though, strong cash flows in the present will make it hard to lose money on this biotech bet. The stock has been trading at just 9.8 times this year's earnings expectations.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Biogen and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.


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