When Biogen (NASDAQ:BIIB) and Eisai announced their decision to pull the plug on a late-stage trial for aducanumab in treating Alzheimer's disease, it was just the latest in a long string of failures for experimental treatments targeting the neurodegenerative disease. The failure looks like the last nail in the coffin for the amyloid hypothesis, which postulates that the accumulation of beta-amyloid proteins in brain cells is the root cause of the disease. But researchers might not have to travel all the way back to square one in the search for an effective Alzheimer's treatment.

A lesser-known hypothesis about the pathology of Alzheimer's disease hasn't received much attention from investors or biopharmaceutical companies, but it may emerge as the next logical step on the path to developing successful therapies. It could even allow previously abandoned drugs to be brought back to life. To get up to speed on the investing opportunities and potential biopharma partnerships on the horizon, investors have to visit a field that might not be on their radar: sleep science.

A man sleeping

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Is sleep the missing piece of the Alzheimer's puzzle?

The amyloid hypothesis is pretty straightforward: Over time, brain cells can lose their ability to efficiently clear beta-amyloid proteins, forming plaques that disrupt cellular communication (there's a similar hypothesis incorporating tau proteins and other cellular wastes). The thinking goes that a drug aimed at restoring the ability to clear cellular wastes from brain cells could at least stop the progression of Alzheimer's disease. But clinical results in the last decade cast doubt on this simplistic hypothesis, and its accompanying one-and-done drug approach.

Sleep scientists are beginning to understand why. In his recent book Why We Sleep, University of California, Berkeley professor of neuroscience and psychology Dr. Matthew Walker describes the strengthening link between sleep and dementia. Electrical patterns characterizing significant sleep disturbance, especially of non-rapid eye movement (NREM) sleep, "precedes the onset of Alzheimer's disease by several years." After diagnosis, the severity of sleep disturbance correlates with the severity of dementia. It makes sense: NREM sleep is when your brain is most efficient at clearing cellular wastes, including beta-amyloid and tau proteins -- and also at consolidating memories.

The emerging link between Alzheimer's and sleep disturbance provides a more complete picture of disease progression. For instance, beta-amyloid plaques only accumulate in certain regions of the brain (such as those associated with sleep), but not others (such as those associated with memory). This has always stumped scientists. Similarly, the link to sleep might explain why removing plaques from brain cells (the primary mechanism of many experimental Alzheimer's drugs) without improving sleep quality generally fails to improve memory (the endpoints of many Alzheimer's clinical studies). With more than 60% of individuals with dementia also having a co-occurring sleep disorder such as insomnia, it's time to investigate the link more seriously.  

Research is being conducted to cement the link between sleep disturbance, plaque formation, and dementia. Encouragingly, if the link holds up, then diagnosing at-risk individuals early on becomes relatively simple, just by using low-cost and non-invasive equipment that reads electrical signals from the brain. Equipment that works in reverse -- sending electrical signals to the brain -- is being studied for its potential to artificially improve sleep quality and memory. In other words, perhaps the future of Alzheimer's treatments resides in devices, not drugs.

It might even make sense to develop combination therapies comprising electrical stimulation of the brain and plaque-clearing drugs to bolster the potential therapeutic effect. That could allow companies such as Biogen to resurrect drugs that failed previous clinical trials, with new trial designs and endpoints.

Check out the latest earnings call transcript for Biogen.

A woman getting an EEG.

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Which companies can diagnose sleep disorders?

Biopharmaceutical companies, as well as greater society, tend to neglect the importance of sleep to health. That means investors will need to get familiar with some new players in sleep analysis, called polysomnography, that could become important partners as the healthcare industry begins to recognize the value in studying sleep.

Koninklijke Philips N.V. (NYSE:PHG), commonly called Phillips in the U.S. might be the biggest catch for biopharmaceutical companies eager to develop a successful Alzheimer's treatment that includes improving sleep quality. The company's sleep and respiratory business segment was established through its 2007 acquisition of Respironics for $5 billion.

The medical equipment titan plans to move 1,250 employees into a new 200,000-square-foot office in a Pittsburgh innovation corridor, enjoying access to an educated workforce, as well as proximity to the University of Pittsburgh Medical Center, a biopharma clinical study hotspot. The growth potential could take on a new trajectory if more doctors and companies start exploring sleep as a factor in Alzheimer's disease, beyond the better-understood sleep disorders like sleep apnea, chronic obstructive pulmonary disease, and insomnia. 

Phillips isn't the only company with high hopes for its sleep and neurodiagnostics portfolio. Natus Medical (NASDAQ:NTUS) provides sleep analysis hardware in its neuro business segment, which generated 53%, or $281 million, of the company's total revenue in 2018. It's in the process of shoring up operational deficiencies in 2019, but the neuro segment was its top growth driver last year. If more doctors and biopharmaceutical companies begin exploring the role of sleep in dementia, then the company's portfolio and expertise could be in demand. 

Puzzle in brain indicating Alzheimer's

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Alzheimer's drugs remain elusive, but sleep science holds promise

A long string of failures in the clinic strongly suggests the beta-amyloid hypothesis is insufficient in fully explaining the causes and progression of Alzheimer's disease. Sleep scientists think they're on the path to offering a more complete picture, while simultaneously tying up some perplexing scientific loose ends, such as why plaques aren't observed in brain regions responsible for memory formation, despite memory loss being a hallmark of neurodegenerative diseases falling under the dementia umbrella.

That prompts the question: Would biopharma companies have more success developing Alzheimer's treatments if they focused on both removing plaques and improving sleep quality? Perhaps. The evidence is certainly beginning to lead scientists to prioritize sleep quality as a treatment, but whether drugs would provide a significant clinical benefit (and be worth the assumed high cost) in such a combination therapy remains unknown.

That said, investors shouldn't rush to add Phillips and Natus Medical to their portfolios just yet. While these companies are leaders in the emerging sector of sleep analysis today, they may not move the needle for individual investors interested in supporting the development of an Alzheimer's treatment. It may be best to simply wait and see if an established biopharma company forays into sleep science first. It's starting to look like being first to understanding how sleep factors into the development of dementia will be the next competitive advantage sought by both emerging players and established biopharmas alike.