Biogen's (BIIB 1.58%) stock is taking yet another body blow since the Centers for Medicare and Medicaid Services (CMS) issued a draft ruling on Jan. 12 that the company's troubled new Alzheimer's drug, Aduhelm, wouldn't be covered by the U.S. public insurance plans except in the context of patients enrolled in clinical trials. That development is only the latest in a series of damaging setbacks since Aduhelm's approval in mid-2021, and it might spell doom for Biogen's near-term commercialization efforts.
Still, there's a chance that the market is overreacting to this latest bad news. Investors who correctly bet on a turnaround might well be rewarded handsomely down the line. Let's analyze how realistic it might be for a purchase of the stock today to be worthwhile in the next few years.
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What's the damage?
By the company's own admission in a press release, the latest decision by the CMS "denies nearly all Medicare beneficiaries from accessing Aduhelm." The exception will be patients in the company's phase 4 clinical trials, which are being conducted in the U.S. to confirm the drug's efficacy. As a result, Biogen's stock is now significantly below the level it was at before Aduhelm's approval in 2021, and its underperformance relative to the market is quite pronounced, as the chart below shows.
If Aduhelm had been rolled out successfully, it could have made the company as much as $4 billion in revenue per year, according to Mizuho analyst Salim Syed. But now, Syed estimates that Biogen could make as little as $100 million annually, which is negligible compared to Biogen's trailing revenue of $11.1 billion. Given that the phase 4 clinical trial aims to enroll around 1,300 patients, at Aduhelm's annual sticker price of $28,000, bringing in even $100 million per year from the participants may well be a stretch.
In my view, there isn't much hope for Aduhelm's fortunes to reverse anytime soon. With the drug's unaffordable price tag in the tens of thousands of dollars, a lack of insurance coverage, highly questionable efficacy, and a potentially severe side-effect profile, there just aren't many incentives for patients and their families to seek it out. Furthermore, international regulators haven't signaled that they'll warm to the drug anytime soon, so the U.S. market could be the only one.
There's more to Biogen than Aduhelm
As badly as the Aduhelm rollout is going, Biogen has other programs in the works that could drive returns for shareholders. Its late-stage pipeline includes a slew of projects in neuropsychiatry, immunology, and opthamology. Two of its late-stage programs will report new data in 2022, alongside two of its earlier-stage candidates. In particular, phase 3 data for its other Alzheimer's drug, lecanemab, is on the way, which means that the company may yet have a blockbuster therapy in the space.
Even if lecanemab stumbles like Aduhelm did, Biogen has plenty of other Alzheimer's drugs in development, though most of them are still in the pre-clinical stage. That means the stock is still a leader in the Alzheimer's space, and investors with a long view could have a decisive purchase rewarded eventually.
Nonetheless, the short-term outlook for the company isn't exactly optimistic. In the third quarter, revenue dropped by 17.7% year over year, and earnings fell by 53.1%. And over the last three years, its quarterly net income has fallen by 76.63%.
So, especially in light of its recent stumbles with Aduhelm, I'd steer clear of buying more shares of Biogen for the time being.
Though progress in its pipeline will almost certainly stem some of the losses, there are better healthcare stocks for reliable growth right now. Likewise, for those seeking to speculate on stocks that have the potential for rapid expansion, a smaller company in biotech might be preferable.
