Moving new medicines to the market can sometimes make biopharmaceutical companies tons of returns. Biogen (BIIB -0.84%) just scored a major new drug approval for an Alzheimer's disease therapy, so investors are understandably rushing to evaluate whether to buy the stock.
But the savviest investors are likely reluctant to dive in, even if things are looking better for the company than they have in recent history. Here's why.
The bull thesis just got a boost
One key factor that could drive Biogen's outperformance in the next few years is the launch of a new neurology medicine.
Regulators at the Food and Drug Administration (FDA) gave an accelerated approval to Leqembi, the company's newest Alzheimer's disease therapy, on Jan. 6, opening the door for its commercialization. Leqembi is a biologic that's intended to reduce the number of amyloid beta plaques in patients' brains, and it's indicated only for people in the early stages of Alzheimer's disease who are afflicted with mild cognitive impairment.
Biogen's collaborator, Eisai, will be taking the lead in pursuing regulatory submissions in China, the E.U., and Japan, and it'll also be getting 50% of the profits (or losses) generated by sales.
Per a report by the IMARC Group, a research company, the market for Alzheimer's therapies could grow from $6.8 billion annually in 2021 to $9.8 billion by 2027. So if Leqembi gains traction, it could significantly add to Biogen's top line, which totaled $10.3 billion over the last 12 months.
Aside from Leqembi, the company also has a handful of late-stage clinical programs for such indications as Parkinson's disease and amyotrophic lateral sclerosis (ALS). Over the next few years, those projects could yield new sales, too, though there's always the risk of clinical trials yielding sub-optimal data and precluding commercial launches.
The risks are real, but history rarely repeats
Despite the expected benefit of the Leqembi approval, Biogen is hardly a low-risk purchase at the moment -- and that's for several reasons.
First, Wall Street analysts aren't terribly enthusiastic about Biogen's near-term sales prospects, on average, with revenue forecasts calling for only around $9.4 billion in revenue this year, a drop from the just over $10 billion anticipated for 2022. So it's probable that its declining quarterly revenue over the last three years will continue for at least a bit longer.
One cause of the drop is likely the continued stagnation of its portfolio of multiple sclerosis (MS) medicines, which brought in 11% less revenue in Q3 of 2022 than in the prior year. Another cause is a similar decline in sales of its biosimilar therapies. In the long term, it's unlikely that the existing medicines in either segment will recover the market share that they lost, especially if newer drugs made by competitors are what's driving the declines. Of course, Biogen will eventually commercialize other programs to try to replace the lost revenue, but it might take a while.
Finally, there's reason to suspect that Leqembi might not be the game changer investors are hoping it to be. Biogen's other attempt at entering the Alzheimer's market, Aduhelm, has been an unmitigated commercial failure since its launch in 2021, and the circumstances of its approval also attracted significant criticism as have the drug's marginal efficacy, severe side effect profile, and high price tag of $56,000 per year.
Leqembi is priced at $26,500 per year of treatment, which is better, but still quite expensive for what appear to be similarly underwhelming benefits and undesirable side effects. There's no guarantee that Leqembi will meet the same fate as Aduhelm, and few businesses repeat major mistakes twice in a row.
But regulators and clinicians are likely to be on high alert for any sign of weakness in Leqembi's performance or safety characteristics in the post-commercialization period over the next few years, and that's a risk factor even if there's ultimately nothing wrong with the drug.
If in a year or two it seems Leqembi is succeeding where Aduhelm failed, it'll likely be too late to invest to gain exposure to the upside from its sales, and it's unclear whether the other projects in the pipeline will have a big impact. Given that such risks aren't as acute at the moment with the company's competitors, it's hard to say that the stock is worth purchasing.
