Biogen's (NASDAQ:BIIB) drug pipeline took a massive hit earlier this year when the company stopped development of its Alzheimer's disease drug, aducanumab, for a lack of efficacy. Recently, the big biotech reported that it has new data showing aducanumab may work after all. Biogen's shares rallied significantly on the news, but will aducanumab pass muster with regulators? In this episode of Industry Focus: Healthcare, host Shannon Jones and contributor Todd Campbell explain why aducanumab was shelved in the first place and whether Biogen's data is good enough to secure an FDA approval.

Also, the pair dig into Walgreens(NASDAQ:WBA) curious decision to close more than half of its retail healthcare clinics. Does this mean the pharmacy giant is giving up on plans to expand more broadly into healthcare?

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This video was recorded on Oct. 30, 2019.

Shannon Jones: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every single day. Today is Wednesday, October the 30th, and we're talking Healthcare. Todd Campbell, healthcare guru, joining us via Skype. Todd, how's it going on this day before Halloween?

Todd Campbell: Oh, it's ghoulishly great, Shannon! How are you?

Jones: I am doing well! I know that you in the Campbell household go all-out for Halloween. We must know, what's happening 2019 for you all?

Campbell: We do! The funny thing is, I set the stakes really high last year. So this year, I did something just really bizarre. My mailman came to our Halloween party. He came as the mailman, and I was the mailbox. [laughs] So he would come walking around, giving me beverages inside my -- 

Jones: Wow, Todd, you always outdo yourself! I must say, I'm always so impressed by the creativity I see. 

I'm excited for today's show because, well, we're going to take this Halloween theme on through. We've got this special Halloween edition of Industry Focus: Healthcare. First off, we've got a drug that's been resurrected from the dead, if you will. We've also got one of the largest pharmacy retail chains that's basically attempting to put the nails in the coffin into one of its key strategies. 

But first, Todd, let's dive into the biotech world. Just like a zombie, biotech behemoth Biogen, ticker BIIB, is now resurrecting a program back from the grave. That's right, Aducanumab, their high-risk, high-reward Alzheimer's drug has been miraculously raised to new life, Todd. With some Frankenstein-esque data, Biogen is saying, "Well, this drug is still alive, and it may actually work in some patients and with a particular dose." We did see Biogen's stock basically come back to life, jolting up almost 40% on the news. Todd, what a stunner across the biotech world. Even more so a stunner for patients, especially those that were enrolled in these trials. Now, all of a sudden, lots of question marks. 

Campbell: Yeah. You're right, this was buried for dead. This was left for dead. What we're talking about is Biogen's -- I can't pronounce this. Aducanumab. We'll call it Adu, maybe. [laughs] It's an Alzheimer's disease drug, and it's just truly a massive and completely frustrating market and target for drug developers and people and families who are trying to care and hope for new treatment options. It's a devastating disease. 

One of the things that would be really helpful to our listeners is to put some numbers behind this so we understand just how big of a deal Alzheimer's is, and why it's so frustrating and why developments, both good and bad, can move stocks that are as big as Biogen -- a huge, huge biotech company with a $50 billion-plus market cap -- 30% down, and then 30% up again, in a single day. Alzheimer's affects millions of people. I think we've got between five million and seven million people in America with Alzheimer's disease. That's expected to more than double. We could have 14 million people by 2050 because of aging and longer-living baby boomers. Because there is no cure for it, it's a degenerative disease, so it slowly but surely eats away at the ability for independent living, you have family members and other caregivers donating over 18 billion hours per year to caring for loved ones who have Alzheimer's disease. If you just paid them $12 an hour, Shannon, that would be over $200 billion a year that Alzheimer's is zapping out of the economy, if you will. And then, if you look at direct costs, things like long-term care, hospice, and the drugs that are available that they can use, you're talking about another $200 billion spent every year. And despite all of that money and the fact that it affects so many people, there's been very little progress in developing new drugs. 

There was a lot of excitement and hope that Biogen would be able to change that with Adu. Unfortunately, in March, they reported that, "Geez, this drug is going to come up shy at an interim of view of meeting the mark." That sent shares absolutely sliding. Now, we find out that once more data was collected, maybe there is some benefit to this drug after all. What an interesting story!

Jones: Such an interesting story to watch! Todd, it's not just Biogen, as you alluded to, that has gone to what's been affectionately called the Phase III graveyard for Alzheimer's drugs. You're about Eli Lilly, you're talking about Merck. In March, they did decide -- based on an independent data monitoring board, by the way -- that they would halt studies because they weren't seeing the efficacy. But now, basically, from a high level, new data is showing, they were able to go back and look, and for patients who were exposed to higher doses for an extended period of time, did seem -- and I use that term loosely -- to significantly slow down cognitive decline and reduce some of the plaque buildup that's thought to cause Alzheimer's. 

One key point here is, of course, Biogen was looking at patients with milder forms of the disease, and really going at it at the angle not so much of reversing, but more at the angle of prevention. Todd, we've talked about on the show before, neither one of us are big fans of going back and data mining to try to find subsets of patients. In some cases, it's worked, but that's usually the exception rather than what we typically see in terms of good, quality data that we can fully put our confidence and trust behind.

Campbell: Yeah, and the FDA usually isn't overly receptive to these retrospective lookbacks. But this might be a slightly different scenario. They based the futility study on a cutoff date of the end of December. Granted, it was still a lot of people. I think was maybe 2,000 had basically reached the mark at the point where they did the futility study. A lot of those people had been dosed at the lower doses of this drug. And sure enough, once all of the people could be evaluated, that allowed a lot of the higher-dose people to be included in the dataset. That's what, according to Biogen, caused the swing in one of two studies towards efficacy. Efficacy was being measured on basically the ability to, we'll call it reduce the pace of the advance of this disease. It's still far from a cure. We're not talking about a cure. What we're talking about is slowing Alzheimer's disease progression and measuring that on a test of your cognitive ability. 

What they found is that, when they went back and they looked at the entire data set, you could see, I think it was up to a 20% improvement vs. placebo, in one of two studies. Now, you could argue, the second study that didn't show that same sort of efficacy had more low-dose patients in it. Maybe that was why. That's what they're going to argue to the FDA. But what's really interesting about this, I think a lot of people probably looked back at the stock -- at one point during the day, it was up more than 40%, I believe, which is just amazing for a $50 billion stock. It's crazy to think how big of a swing that is. I think one of the things investors are trying to figure out now is, is this data good enough to get approval? That's where we sit today. We know now it's resurrected from the dead. We know now that it may help some people with very mild forms -- there's a whole theory out there. Initially, the theory was, if we get rid of all of these buildups of the plaque on these neurons, we improve brain signaling, that's going to help. Now, they're starting to think, maybe when you get that advanced, it's not going to do much; but maybe if you use it in mild and very, very early patients, maybe that's a benefit. 

But I think there are enough question marks here for investors going forward to stay on the sidelines until at least December, Shannon, when we're going to get the full data set, probably at a conference.

Jones: Exactly. That'll be the clinical trials on Alzheimer's disease or CTAD meeting in December. You really can't understate from a patient perspective just how big of a deal this is. But also, for Biogen's perspective, you're looking at potentially $3 billion to $4 billion in peak annual sales. Of course, there's been a lot of question marks about where Biogen's next growth lever is going to come from. So, naturally, all eyes will be on that December meeting to take a look at the data. But basically, Biogen is saying, "We met with some external advisors," they even said they talked with the FDA, and they think that they've got the basis of a BLA, a biologics license application, to go ahead and file for approval in early 2020, and also talk with regulators in Japan and Europe. That'll be including that Phase I and Phase IB trial, plus data from that Phase III trial that you mentioned. But, yeah, the question marks are going to be, let's talk about both Phase III trials. 

I've also seen some comparisons with this Hail Mary pass that Biogen is throwing right now to Sarepta, who was attempting to get their DMD drug approved also on some very controversial data. They, of course, were able to successfully get approved after a very contentious advisory committee meeting. I expect this to be the same for Biogen, although I don't necessarily hear or see a lot of the same patient support that went into Sarepta's decision. No less, it's going to be a very, very contentious FDA and eventual advisory committee meeting. 

I think, if you're a Biogen shareholder right now, you're betting that the FDA will be lenient more than anything else right now; and, because this is a huge unmet need, they're going to sway toward, "You know what? We really don't have anything. There's some signal here. This is at least approvable." But to me, that's a huge risk and a huge bet that I don't know that most shareholders would want to take. Or, if you're just sitting on the sidelines, wondering if you should get into Biogen, to your point, Todd, I think it's worth sitting on the sidelines waiting for more data to come, at least until December.

Campbell: Yeah. It's not like Biogen is the cheapest stock in biotech. I think I'd probably give that to Gilead

Jones: Oh, fair enough! [laughs] 

Campbell: They pay a dividend and Biogen doesn't. But you're talking about a company who's been heavily reliant for a long time on multiple sclerosis, a very competitive field. As a result of how competitive that is sales are growing, but they're not growing very quickly. We saw 4.7% year over year sales growth last quarter. EPS is growing a little bit faster because they're buying back shares and stuff. I think the shares outstanding have fallen fairly significantly over the course of the last few years. Theoretically, that's good and supports prices. But when you're talking about a company that is trying to pivot the way Biogen is to diversify into these really hard-to-address targets, be it something like Parkinson's or ALS or Alzheimer's, where the failure rates are really high, and not having the same kind of growth, maybe, you had 10 years ago for multiple sclerosis -- I think some caution is a little bit warranted here, especially after that big move. Let's see how this plays out. Let's see how the data goes. Let's see how the adcom meeting goes, and see whether or not people are as willing and receptive to this as possible. We shouldn't downplay it too much. If it does help people, and it does help delay it in people, that's a huge quality life advantage, and certainly could make this a blockbuster drug. I just feel like we need to see a little bit more information before we can say, "Yeah, this stock is going to go up another 30% from where it already is today."

Jones: Exactly. A lot to watch in 2020. I can guarantee you, this will be the No. 1 story heading into next year. 

Alright, in other news, one of the two major pharmacy retailers is laying to rest some of its retail Healthcare clinic plans. That's news coming out of Walgreens, ticker WBA. Todd, taking a step back here, we've talked a lot on Industry Focus about how healthcare and affordable access to healthcare is just such a huge tailwind for so many companies. If anything, having your friendly neighborhood retail clinic was supposed to help offset some of the healthcare costs too. Todd, can you help us make sense of Walgreens' decision to basically step back away from this healthcare clinic model?

Campbell: This is a very, on the surface, surprising decision by Walgreens. For the last 10 years, pharmacies have been telling us, "No we want to become more of a one-stop shop for your healthcare needs, not just providing you with pharmacy and over the counter drugs, but also being able to have you come in and get your flu shots, and evaluate you if you've got a cold, or if you have something very minor you'd like to talk to us about," so that you're driving more foot traffic and theoretically more sales to the store. 

I think what we saw with Walgreens is two things. We saw that Walgreens put a bunch of money in, they opened up about 400 or so of these retail clinics within their stores to be able to help people in a pinch so they didn't have to wait in their primary care offices. I think what they found is, we need to have X number of patients walking in the door every day to really justify the costs associated with setting this up. But, there's also a tremendous amount of administrative burden that falls on these clinics. You need each patient to have these medical records. These medical records have to be kept very organized, and kept within these systems. We've talked in the past about, there's a few different systems out there, but they're all very pricey, one of them being Epic. Walgreens had their own system in place. CVS, a competitor, actually went with, I believe, Epic, and is doing it that way. 

But I think, again, all those administrative burdens. Not just, "OK, I'm going to carve out part of my store and set up a clinic that isn't going to have product on shelves necessarily, but just basically the product is that service, and the costs that are associated with that," but also these other costs behind the scenes. 

One of the things that's interesting about this is, OK, yes, they have 350 to 400 of these clinics out there. They're closing 200. The ones they're not closing are the ones that they're doing in partnership with healthcare systems. There are some healthcare provider networks out there that have gone to Walgreens and said, "We will lease a little bit of space within your stores and we will handle all the administrative stuff that you don't want to. You will still get the benefit of that foot traffic." It seems like that's the model, when you dig in a little bit deeper, that Walgreens may focus on more from here, rather than, "OK, we're going to be the soup to nuts provider of these services." Instead, they're going to facilitate them through these lease arrangements, or these partnerships, if you will, and they'll still get the best of both worlds as far as the foot traffic in the store.

Jones: Yeah. Just watching Walgreens and CVS, these are two companies who have been really trying to find their place and just gain secure footing with so many headwinds coming their way. Of course, for Walgreens, they've been going through this really global transformation, cost management program. To your point, Todd, I think when you do start to peel back the layers, you can see where it starts to make sense for them to cut back on cost. But both of these companies, Walgreens with its more pure play, convenience distribution strategy, vs. CVS, who really is trying to become a vertically integrated one-stop healthcare shop, with being a retailer, a pharmacy benefit manager, and insurer with its Aetna acquisition, you see the divergence of strategies here. I really can't blame Walgreens for doing this, especially right now, when you've got competition concerns from other players like Amazon. Of course, they acquired PillPack. So you've got some headwinds for the pharmacy, which has been driving a lot of the growth for these companies. You've also got concerns about generic drugs, you've got reimbursement cost concerns, and even, for Walgreens, international operations has had some question marks. So, it does not surprise me.

But Todd, it also sounds like you've got the healthcare clinics for Walgreens, but they've also got other things that they're doing in the healthcare space. They're not completely abandoning it by any means. They're also trying out some other things too, right?

Campbell: Yeah. Matter of fact, in 100 stores, they're going to open up these Jenny Craig weight centers. They'll be offering personal health and weight loss management services within those stores, to see whether or not that has some stickiness and build some traction with their customers. They've also got other things going on too. You're reading about this all throughout retail. I read a good story about Walmart, how they're putting in dentistry. Some of these retail pharmacy companies are starting to do that as well. So you're having all sorts of other things. They have a relationship with a lab service. You're seeing some of these retailers and their pharmacies doing basic things for chronic disease management, even doing blood draws. 

I don't think they're giving up on the idea of being able to provide more services to customers. I think they're just trying to figure out what the right balance is as far as what services are people most desiring, would most use, that make sense for us to take away this other square footage that could be used for something. So, it'll be interesting to see how that plays out. 

You mentioned CVS. You mentioned that relationship with Aetna. That's a difference, too. We can't deny that. With the combination of CVS and Aetna, you've got all of these Aetna patients. Theoretically, CVS could take these clinics and help prevent readmissions for these people who have chronic diseases that are insured, and save money on that side of the business. So, it's not just about their actual physical retail location for CVS anymore. It's also about these other parts of its business, where there could be nice overlap and -- we hate the word -- “synergies.”

Jones: That's right. I'm going to give a quick shout out to Jason Moser here at The Fool. I also have to say this. I think some of what you're seeing happening with Walgreens moving away from these very basic clinics also has to do with the rise in telemedicine. We've talked a lot about Teladoc, ticker TDOC. That's one of Jason's favorite stocks and one he talks about quite a bit. When you think about it from a consumer perspective, you're looking for your basic services to come, of course, at a much lower cost, but also a convenience factor. It's not just Amazon, as I've read a lot of headlines allude to, it's also telemedicine. You've got to see companies like Walgreens and CVS really adapt and fit their strategies to where consumer behavior is going, and then also still try to grow at the same time. I think this move does make sense once you start to really peel back the layers.

Campbell: Yeah. Telemedicine is a threat but it's, it's not as much of a threat yet. Let's say I have the flu. I don't want to drag my kid to a clinic any more than I do to the primary care. The ideal situation is, I just call on my smartphone, and I talk to somebody who says, "Yes, you have the flu." But if they're going to prescribe something, you would still then need to go to the Walgreens or the CVS and get that filled -- unless, of course, they get to a point where, yes, a drone from Walgreens drops off the prescription in front of your house. I think, absolutely, we could see that in our lifetimes. Right, Shannon?

The other competitive thing to consider there is, when they started doing these retail clinics way back in 2007, 2008, there really weren't that many urgent cares and outpatient centers, at least not around me. Now, every block I turn, there's an option. You've got hospital systems now that have realized that they can put in urgent care centers and emergency care centers. You have doctors’ groups banding together to create their own in certain areas. 

So, yeah, you have multiple things there. The number of these other outpatient options has increased substantially, and looking forward, you see this big threat from telemedicine also coming down the pike, so let's do things like blood draws and lab work, where it's not likely to be served by telemedicine, at least anytime soon.

Jones: Exactly. A lot to watch in the retail pharmacy space. Of course, we'll keep all of our listeners and viewers up-to-date. But as for Todd and I, that'll do it for today's Halloween edition of Industry Focus: Healthcare! We want to thank you so much for tuning in!

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass! For Todd Campbell, I'm Shannon Jones. Thanks for listening and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.