Shares of biotech giant Biogen (BIIB -0.70%) have dropped by 40% in the past year, easily underperforming the broader market over this period. The drugmaker has encountered many headwinds related to its controversial Alzheimer's disease drug, Aduhelm.
But even though Biogen's stock is on sale, that doesn't necessarily make its shares a buy. Right now, the company's prospects still look dim. Let's look into what's going on with this biotech giant.
Is Aduhelm a flop?
Recapping the entire Aduhelm saga would take far more space than we have here. Here are some of the most important recent facts regarding this controversial Alzheimer's disease (AD) drug.
- In June 2021, the U.S. Food and Drug Administration (FDA) approved Aduhelm for the treatment of AD. The nod came as a shock since a committee of experts convened by the FDA had strongly voted against approving the medicine, and the agency generally follows the lead of these expert committees.
- However, the FDA required Biogen to conduct a post-approval trial to confirm the clinical benefits of Aduhelm. If the medicine fails to perform in this trial, it could be taken off the market.
- Although Aduhelm became commercially available in the U.S. in the second quarter of 2021, it racked up an unimpressive $3 million in revenue last year.
- In April, the U.S. Centers for Medicare & Medicaid Services (CMS) released its coverage plan for Aduhelm. According to this plan, the CMS will only cover Aduhelm for AD patients with mild cognitive impairment who are enrolled in CMS-approved clinical trials.
- In May, Biogen announced it would substantially decrease its commercial infrastructure supporting Aduhelm, partly due to the CMS' decision. The move came as part of a $1 billion cost-saving initiative.
It seems as though Biogen no longer has much faith that Aduhelm will perform well in the U.S. That's what the company's decision to reduce its commercial structure for the medicine signals. And it's not surprising. The CMS' decision will make Aduhelm inaccessible for many potential patients, and many physicians may be reluctant to recommend the medicine.
While the approval of Aduhelm was a significant milestone -- it was the first FDA-approved AD therapy since 2003 -- it has not lived up to its potential. Not even close.
Looking elsewhere for growth
Biogen is still looking to develop therapies for AD. In May, the company and its partner -- Japan-based drugmaker Esai -- completed a rolling submission to the FDA for lecanemab as a treatment for cognitive impairment due to AD. Both lecanemab and Aduhelm are intended to work by removing beta-amyloid plaques in the brain, which are thought to be linked to the cognitive decline associated with AD.
Biogen does have other programs; it is currently running nine phase 3 clinical trials, and many more early-stage studies. Biogen has a long history of innovations, and it seems likely to earn at least one major approval in the next couple of years.
However, the company needs it as its lineup is currently not performing well. The company's revenue declined by 6% year-over-year to $2.5 billion in the first quarter. The drop was partly due to generic competition for multiple sclerosis medicine Tecfidera. Biogen's net income for the quarter came in at $303.8 million, down from the $410.2 million in the first quarter of 2021.
Biogen has a lot riding on its leading pipeline programs as it cannot afford another Aduhelm-style debacle. But that makes the stock a bit uncertain in my view. Further, with a forward price-to-earnings ratio of 13.6 -- compared to the biotech industry's average of 11.2 -- Biogen does not look attractively valued, especially considering the headwinds it is facing.
Perhaps the market had already baked Aduhelm's success into the company's stock price. Whatever the case, investors would do well to hold off on purchasing shares of Biogen right now. Declining revenue and earnings coupled with a struggling new medicine don't make the company very attractive. There are plenty of other exciting biotech stocks on the market.
