You can't blame Biogen (BIIB -0.56%) investors if they feel a sense of déjà vu. The company, along with its partner, Japanese drugmaker Eisai (ESALY 0.51%), received U.S. Food and Drug Administration (FDA) approval for Alzheimer's disease drug Leqembi (lecanemab-irmb) last week.
Biogen has been in this position before. It won FDA approval for Aduhelm in treating Alzheimer's disease in 2021. However, that story didn't end well. The approval was controversial. Ultimately, the Centers for Medicare and Medicaid Services (CMS) decided against covering the drug.
However, there are reasons to be more optimistic about Leqembi's prospects. Should you buy Biogen stock after its latest Alzheimer's disease drug approval?
Will history repeat itself?
The first question we have to address is whether history will repeat itself, with Leqembi fizzling out as Aduhelm did. There is some bad news on this front.
Both Aduhelm and Leqembi are monoclonal antibodies that target amyloid-beta plaque reduction. Both drugs also received FDA accelerated approval, which requires a confirmatory study before full approval is granted.
CMS was clear in its decision about Aduhelm that it won't pay for the use of monoclonal antibodies that are directed against amyloid for the treatment of Alzheimer's disease. This means that Medicare recipients (who make up the majority of Alzheimer's patients in the U.S.) won't receive any financial assistance in paying for Leqembi.
However, CMS released a statement last week about the FDA approval of Leqembi. The agency said that it's "examining available information and may reconsider its current coverage based on this review." That at least opens the door for potential Medicare reimbursement of Biogen's and Eisai's new Alzheimer's disease drug.
There's also a chance that the companies could win full FDA approval relatively quickly. CMS said that if this traditional approval is secured, it would provide broad coverage for Leqembi "on the same day" the FDA approval is announced.
Biogen's opportunity
Assuming Leqembi does ultimately secure Medicare reimbursement, Biogen will have a huge opportunity. Eisai priced the drug at a price of $26,500 per year. The company says that this amount is well below its calculated per-patient societal value of Leqembi of $37,600.
Eisai projects that Leqembi could be used by around 100,000 patients in the U.S. within the next three years. That would translate to $2.65 billion in sales based on the current price tag for the drug.
But there are many more Americans and individuals in other countries with mild Alzheimer's disease who could eventually benefit from Leqembi. Analysts at Bank of Montreal and Goldman Sachs think that the drug could generate peak global sales of well over $15 billion per year.
Biogen stands to pocket half of all the profits for Leqembi. This means the company could rake in a boatload of money over the next decade and beyond.
More to the story
So should you buy shares of Biogen? Not so fast. There's more to the story.
For one thing, much of the impact of the Leqembi FDA approval has already been priced into the biotech stock. Actually, it was baked into the price even before the announcement. That's evidenced by the fact that Biogen's shares are only slightly higher now than they were before the FDA approval.
There's also a red flag for Biogen that investors should consider: Sales for the company's existing products are sinking. Biogen's flagship multiple sclerosis franchise saw total revenue decline by 11% year over year in the third quarter of 2022. Sales for spinal muscular atrophy drug Spinraza slipped by 3%. Biosimilar revenue fell 7%. And the company's profits from sales of monoclonal antibody Rituxan/Gazyva dropped 10%.
The bottom line is that Biogen has a lot riding on full FDA approval and reimbursement of Leqembi. And there's considerable uncertainty about how things might play out. My view is that it's too difficult to value Biogen right now. As a result, I don't think the stock is a buy, even after its latest Alzheimer's disease drug approval.
