Biogen's (BIIB 2.03%) months of waiting on pins and needles are over. On Monday, the U.S. Food and Drug Administration (FDA) granted accelerated approval to aducanumab for treating Alzheimer's disease. Biogen will market the drug under the brand name Aduhelm.
Unsurprisingly, trading in the biotech stock was halted before the FDA's announcement Monday morning. As soon as the trading was reinstated, though, Biogen's shares skyrocketed more than 60% before giving up some of the gains. Should you buy Biogen stock after its stunning FDA win?
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A megablockbuster on the way
Biogen stated in its first-quarter update that only "modest revenue" for aducanumab was expected this year if the FDA approved the drug. It's likely to be a much different story in 2022 and beyond.
Goldman Sachs projects $12 billion in peak sales of Aduhelm. Other analysts aren't quite as optimistic but are still very bullish. Peak sales estimates typically range between $5 billion and $10 billion.
The actual level of sales for Aduhelm depends heavily on physicians' acceptance of the drug. The FDA stated in briefing documents provided to the advisory committee that reviewed the drug that Biogen's clinical results were "highly persuasive" and showed "an acceptable safety profile." However, that advisory committee voted against recommending approval of aducanumab. Some members of the committee even lobbied publicly against FDA approval and called the agency to task for its overly positive take on the drug.
It's possible that many doctors will refuse to prescribe Aduhelm because of concerns about its efficacy. Some doctors stated in advance of the FDA's approval decision that they wouldn't prescribe the drug to patients with Alzheimer's because of their concerns about Biogen's clinical results.
Still, Aduhelm is the first drug for treating Alzheimer's disease to win FDA approval since 2003. And it's the first approved therapy that holds the potential to slow cognitive decline. With few other alternatives, it seems likely that most physicians will prescribe Aduhelm. Biogen will almost certainly have a megablockbuster on its hands within the next few years.
The bigger picture
You might think that scooping up shares of a biotech with a freshly approved drug that could realistically generate peak annual sales of $10 billion is a no-brainer. However, it's important to first look at the bigger picture with Biogen.
Sales for the company's multiple sclerosis (MS) franchise are declining. Even with new MS drug Vumerity picking up some momentum, it's not nearly enough to offset the huge impact of the loss of exclusivity for Tecfidera.
Biogen can no longer count on one-time growth driver Spinraza to boost its total revenue, either. Sales for the spinal muscular atrophy drug fell nearly 8% year over year in the first quarter. It's a similar story with the biotech's biosimilars. Total biosimilar revenue slid 6% year over year in Q1.
To say that Biogen had -- and still has -- a lot riding on the success of Aduhelm is an understatement. But the FDA approval for the drug comes with a catch. Biogen must conduct another study to verify the clinical benefit of Aduhelm. It's possible that the FDA could force the company to withdraw the drug from the market if that study fails to demonstrate clinical benefit.
Buy Biogen?
What should investors do after Biogen's huge FDA win with Aduhelm? My recommendation is to take the same steps you'd take with any stock. Look at its growth prospects and its valuation to determine if it's a smart stock to buy right now.
Biogen clearly has strong growth prospects now that Aduhelm has won FDA approval. Even with considerable skepticism about its clinical results for the drug, I suspect that sales will soar over the next few years.
The biotech's market cap now tops $60 billion after shares exploded higher on Monday. That's roughly six times Biogen's expected sales in 2021 that include only a relatively small contribution from Aduhelm. Factoring in the potential for the Alzheimer's disease drug, though, Biogen's future price-to-sales multiple is significantly lower -- even with the possibility of sustained sales declines for its other products.
I've been leery of Biogen over the past year because I thought the risks of failing to win FDA approval for aducanumab were too high. Now that the agency has given a thumbs-up, though, the risks for this biotech stock are much lower.
Sure, there's a risk that Aduhelm won't be quite as big of a commercial success as some think it will. However, I suspect the chances of the drug reaching somewhere in the project $5 billion to $10 billion peak sales range are pretty good.
There's also a possibility that Aduhelm could flop in Biogen's post-approval study intended to confirm clinical benefit. But I tend to agree with biotech investor Brad Loncar, who tweeted that it won't be easy to yank the drug from the market even if data doesn't support its efficacy.
My view is that, after all of the anxious waiting, Biogen is once again a good stock to buy.
