A regulatory failure for one drugmaker often represents a key win for another company. That might be the case in the Alzheimer's disease market after a recent U.S. Food and Drug Administration (FDA) decision.
Last week, the FDA issued a complete response letter for Eli Lilly's (LLY -1.00%) accelerated approval submission of experimental Alzheimer's disease drug donanemab. Less than two weeks earlier, the agency approved accelerated approval for Eisai's (ESALY -1.38%) and Biogen's (BIIB 0.23%) Alzheimer's disease drug Leqembi.
It's not surprising that Biogen and Eli Lilly stocks have gone in different directions so far in 2023. But is Biogen stock a no-brainer buy after Eli Lilly's Alzheimer's disease setback?
The clear early leaders
The FDA's thumbs-down doesn't mean that Lilly doesn't have a path to regulatory approval for donanemab. Actually, the agency didn't find any safety or efficacy problems with the experimental drug. It simply felt that Lilly's phase 2 study, on which its submission was based, didn't have enough data for patients with at least 12 months of drug exposure.
Lilly isn't too far off from having the data that the FDA wants. The big drugmaker already has a larger confirmatory phase 3 study of donanemab underway. It expects to report top-line data from this study in the second quarter of 2023 and file for traditional FDA approval of the drug soon afterward.
However, Lilly's setback appears to make Eisai and Biogen the clear early leaders in the race to treat Alzheimer's disease. And this isn't solely because the FDA granted accelerated approval to Leqembi but didn't do so for donanemab.
Eisai filed for traditional FDA approval of Leqembi on Jan. 6, 2023 -- the same day the accelerated approval was announced. This submission was based on data from a larger confirmatory phase 3 study of the drug.
Billions of dollars on the line
More than 6 million Americans have Alzheimer's disease. It's one of the top causes of death in the U.S. And for decades, there hasn't been an effective therapy available.
With such a huge opportunity, the head start for Leqembi is certainly good news for Eisai and Biogen. BMO analyst Evan Seigerman predicts that peak annual sales for the drug will top $15 billion.
However, don't look for the big bucks to start pouring in overnight. Last year, the Centers for Medicare and Medicaid Services (CMS) decided against providing reimbursement for Biogen's Alzheimer's disease drug Aduhelm, which was also developed with Eisai. CMS' decision also means that Medicare won't pay for Leqembi just yet, either. A full traditional FDA approval will be needed for Medicare reimbursement of the drug to kick in.
Still, Biogen should enjoy a significant revenue boost, assuming that Leqembi secures traditional FDA approval. Even with the company splitting profits from the drug with Eisai 50/50, billions of dollars are on the line.
Brains required
With a share of the lead in the massive potential Alzheimer's disease market, it might indeed seem that Biogen is a no-brainer stock to buy after Lilly's FDA stumble. However, even good news for a biotech stock should be put into context. There's more to consider with Biogen.
For one thing, the company's flagship multiple sclerosis franchise is struggling. Total sales for Biogen's MS drugs fell year over year in the third quarter of 2022. It's a similar story for spinal muscular atrophy drug Spinraza and the company's biosimilar lineup.
I think it's possible that Leqembi and other late-stage programs potentially on the way to approval could change the trajectory for Biogen. However, the company has an awful lot riding on full approval for its new Alzheimer's disease drug. My personal view is that there are other stocks that offer better risk-reward propositions than Biogen does.
