Millions of Alzheimer's disease patients, their families, and their friends felt their hearts sink when Biogen (NASDAQ:BIIB) broke the bad news that an experimental Alzheimer's therapy, aducanumab, had failed a pivotal study. Overnight, the biotech giant's market value was cut in half, but a recent announcement has helped the stock recover most of those losses.

Biogen told us that aducanumab failed an interim futility analysis seven months ago, but now the company's arguing that it was wrong and the Alzheimer's candidate actually succeeded. According to the company, another look at a larger set of data actually proves there was a significant benefit.

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Biogen shares popped 42% higher when the market opened on Tuesday, Oct. 22, 2019, but the mega-rally didn't last long and the stock finished the session just 26% higher. Trying to predict short-term stock movements is a losing game, but there are several good reasons to expect these gains to dissolve.

What happened

This March, Biogen told investors that aducanumab failed a preplanned futility analysis based on data available as of Dec. 26, 2018. The data monitors that performed the interim analysis had only 18-month results from 1,748 patients, but efficacy measurements were poor enough to assume the big study had no chance to succeed.

Biogen actually ran twin studies called Engage and Emerge, both of which tested the same two doses of aducanumab. By the time the trials were halted for futility, there were 2,066 patients with 18 months under their belts and 1,219 with less than 18 months of treatment.

After analyzing all 3,215 patients, Biogen realized that patients treated with placebo saw their cognitive abilities decline at a significantly faster rate than the group of patients treated with the higher dosage of aducanumab.

Biogen's new analysis will support an application the company expects to submit to the Food and Drug Administration in the first quarter. Here are some reasons that the application will have nearly zero chance of approval.

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Reproducibility's important

According to Biogen, Clinical Dementia Rating-Sum of Boxes (CDR-SB) scores for early stage Alzheimer's disease patients treated with the higher dose in the Emerge study showed 23% less cognitive decline from baseline after 78 weeks. The observed benefit was statistically significant with a p-value equal to 0.01, but it probably won't hold up.

One out of 100 odds that the observed benefit was just luck probably isn't going to make it past regulators. That's because patients treated with the same dose of aducanumab in the identical Engage study didn't show any benefit. In fact, patients treated with the same dose had CDR-SB scores at 78 weeks that were 2% worse than the placebo group.

The FDA's priorities

There aren't any available treatments now that can even claim to slow cognitive decline for any Alzheimer's disease patients, which means the FDA could feel pressured to approve aducanumab. While under pressure from patient groups without treatment options, the FDA has approved drugs based on questionable efficacy data.

Unfortunately for Biogen, the Engage and Emerge trials enrolled only people in the earliest stages of the disease. Pumping monoclonal antibodies into relatively healthy people that could prove more harmful than helpful in the long run is not something the FDA takes lightly.

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Likely scenario

In the first quarter of 2020, Biogen will submit an application to treat Alzheimer's disease with aducanumab to the FDA and two months later we'll know if the agency will review it. Instead of approval, though, Biogen will most likely receive a complete response letter requesting further proof of efficacy.

Biogen said it made the decision to move forward with aducanumab after meeting with the FDA, but we have no idea what the agency said because these communications are considered private. Before the FDA sends Biogen back to the drawing board, though, the agency will probably hold an independent advisory committee meeting for the public. You can bet that the physicians on the committee have a better grasp of statistics than the stock market that recently sent this biotech stock soaring.

So disappointing

Biogen's multiple sclerosis franchises that used to drive growth for the company have been losing ground to new competition. That said, the company is still extremely profitable and trading at just 8.8 times trailing free cash flow.

Perhaps Biogen could use the extended data set to convince investors the new results warrant further investigation, but that's all. Although the stock looks like a bargain, the company should know better than to push for approval based on results from only the Emerge trial.

It's upsetting to see an industry giant ruin its reputation this way. Sadly, it's going to be a long time before we can take Biogen seriously again.