Shares in Biogen (NASDAQ:BIIB) were up 44% on Wednesday, Nov. 4, to a high of $359.95 after a U.S. Food and Drug Administration (FDA) clinical review signaled that the biotech's phase 3 study on aducanumab showed the drug's effectiveness in slowing the progression of Alzheimer's disease.

This was in advance of the FDA's actual hearing with Biogen regarding the drug, which took place Friday, Nov. 6. On that day, a panel of outside advisors spoke out against approving the drug, saying the proof that it slows the progression of Alzheimer's was lacking. However, the FDA may have tipped its hand as to how it will decide with its earlier positive statements, and it is expected to issue a ruling by March 7.

Trading on the stock was paused Nov. 6 because of the hearing, but in after-hours trading over the weekend, it was down more than 7%.

If the FDA approves the drug, that will certainly have an impact on two clinical-stage pharmaceutical companies also working on prospective Alzheimer's drugs: Denali Therapeutics (NASDAQ:DNLI) and Alector (NASDAQ:ALEC). The question is: Will hurt them or help them?

Money and pills on a scale.

Image source: Getty Images.

Just getting this far marks a huge turnaround for Biogen, a Cambridge, Mass., biopharmaceutical company that partnered with Japanese pharma Esai to work on aducanumab. The companies ended two studies early in March 2019 when the drug didn't seem to work, then reversed that decision in October 2019, saying that later results showed aducanumab was effective in high doses.

The FDA was more impressed by the second study, in which it said it found that high doses of the drug slowed the progression of cognitive, functional, and behavioral decline in Alzheimer's patients.

This is a huge deal for several reasons

Alzheimer's is a degenerative brain disease and the most common form of dementia. It slowly and progressively destroys memory and thinking skills. According to Alzheimers.net, it is the is sixth leading cause of death in the United States and the only disease among the top 10 causes of death that has no cure. The FDA has not approved a new drug to treat Alzheimer's since Namenda was approved in 2003, with a trail of failed attempts by numerous companies since.

The Alzheimer's Association estimates that 1 in 3 seniors die with Alzheimer's or another form of dementia, and more than 5.7 million Americans have Alzheimer's disease. The group expects the number of people over 65 with Alzheimer's to increase to 13.8 million by 2050.

Biogen could use a blockbuster drug these days. In its third-quarter report, the company said sales for its lead drug Tecfidera, which treats multiple sclerosis, were down 15%, with price pressure from generic drugs cited as the reason for the drop. Sales for its muscular atrophy drug Spinraza, facing competition from Roche's (OTC:RHHBY) Evrysdi, were down a reported 10% in the quarter. The company's overall revenue was down 6% year over year.

Biogen says aducanumab is a monoclonal antibody that binds to aggregates of amyloid plaques in the brain; by reducing the size and number of these "tangles," it could slow the progression of Alzheimer's disease. And while no one is saying aducanumab can cure Alzheimer's, any drug that slows the disease would be a blockbuster -- worth a potential $5 billion a year, according to research by Evaluate Pharma, with some reports putting the number at nearly twice that.

ALEC Chart

ALEC data by YCharts

The news is certainly positive for Denali Therapeutics

Shares of Denali, which is in the process of developing its own Alzheimer's medication, were up last week. Part of that has nothing to do with aducanumab and more to do with a collaboration between Biogen and Denali in which the two companies are working on developing Denali's treatment for Parkinson's disease. Biogen is paying Denali nearly $1 billion toward that effort, so good news for Biogen could possibly mean more research and development money for Denali.

However, Denali, whose headquarters are in south San Francisco, has its own Alzheimer's drug, DNL788, which it is developing with Sanofi (NASDAQ:SNY). The two companies halted studies on an earlier Alzheimer's drug candidate, DNL747, this summer, believing DNL788 to be a better candidate with lower toxicity.

In this case, I don't see why any success Biogen has with aducanumab would hurt Denali. If anything, one company's success with an Alzheimer's drug might make the FDA more inclined to carefully look at other candidates as well, particularly if competition could bring down the price of aducanumab.

Alector's shares also rose last week

Alector, which is also headquartered in south San Francisco, has a trio of potential Alzheimer's therapies and its own deep-pocketed collaborator in AbbVie (NYSE:ABBV). The furthest along of the three candidates is AL002, with a phase 2 study beginning later this month. 

Like aducanumab, AL002 is a monoclonal antibody. However, instead of binding to amyloid plaques, AL002 works by assisting the triggering receptor expressed on myeloid cells 2 (TREM-2) proteins in the brain. One of the indications of Alzheimer's is the decline of TREM-2 proteins. 

Like Denali, Alector's shares rose last week. That may have more to do with the overall positive market sentiment than any deep-dive thought about how it will be impacted by a potential aducanumab approval. However, if aducanumab is approved, I see this as a positive for Alector, as it opens the door for other, similar drugs. 

Competition is a good thing

Denali and Alector, like any clinical-stage pharmaceutical companies, are risky bets. However, both businesses have strong support from larger players and would likely benefit if the first Alzheimer's drug in nearly 17 years is approved. The sheer potential for profit in a growth area such as Alzheimer's would spur additional research.

Of course, the flip side would be if Biogen's aducanumab is shot down, which could definitely happen if the FDA heeds the advisory panel's advice. While that wouldn't preclude the success of Denali and Alector's Alzheimer's candidates, it might sour the market on investing in the companies and hurt their chances for additional funding.

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.