Biogen (BIIB -0.14%) has been one of the more notable names in the biotech industry in the past four years -- and not always for the best of reasons. U.S. approval of Biogen's Aduhelm for treating Alzheimer's disease (AD) turned out to be a bit of a flop as the medicine isn't generating anywhere near the kinds of sales the drugmaker hoped to see.
However, newer developments are making Biogen look like a better prospect. But does the company's upside now outweigh its risks? Let's consider one reason the answer might be yes, and one reason to be wary of Biogen's future.
Reason to buy: The recent approval of Leqembi
In early January, Biogen and its longtime collaborator in the development of AD therapies, Japan-based Esai, reported that the U.S. Food and Drug Administration (FDA) had granted accelerated approval to Leqembi, which is indicated to treat early AD patients.
Like other medicines Biogen has worked on in this therapeutic area, including Aduhelm, Leqembi seeks to clear up amyloid beta plaques in the brains of AD patients, which some researchers believe can help slow the progression of the disease.
There are more than 6 million (and growing) AD patients in the U.S. alone and many more elsewhere. If Leqembi can, in the long run, succeed where Aduhelm fell short, it will meaningfully contribute to Biogen's revenue and earnings growth moving forward.
Reason to sell: Potential regulatory headwinds ahead
While the commercialization of Leqembi is a major step forward, it's important to note that it earned the green light in the U.S. under the accelerated approval pathway, which is reserved for therapies that target an unmet need. To follow this route, drugmakers can attempt to show medical benefits associated with an investigational medicine based on surrogate endpoints in trials (measures of clinical outcomes) that are thought to predict clinical benefits, but aren't a direct measure of said benefits.
As its name suggests, accelerated approval considerably shortens the time it takes to launch a product on the market. But here's the catch: Therapies that follow the accelerated approval avenue still have to produce evidence in confirmatory studies showing clinical benefits based on direct measures, not just surrogate endpoints. That is another problem for Biogen.
Last year, the Center for Medicare and Medicare Services (CMS) announced that it would only cover AD therapies approved under the accelerated approval pathway for those patients who are enrolled in CMS-approved clinical trials. That's not a lot of patients. And given the price of Leqembi of about $26,500 per year, not many patients will be able to afford it without CMS coverage. That will severely limit Leqembi's potential in the U.S.
There is too much riding on the AD market
Biogen and Esai reported positive results in a phase 3 study for Leqembi last year.
This trial will serve as the basis for full (non-accelerated) approval for the medicine, and the two entities have already filed for it with the FDA. The agency set a PDUFA date (the date by which it should complete the review of the application) of July 3. If everything works according to plan and Leqembi earns full approval, Biogen and Esai will no longer have to deal with the CMS coverage restrictions.
Leqembi could generate solid revenue for Biogen under these conditions. But if anything goes wrong, which isn't a far-fetched scenario considering recent history, expect Biogen's shares to drop like a rock. That's especially the case since Biogen's top line has been declining due to competition for some of its best-selling medicines. In 2022, the company's revenue declined by 7% year over year to $10.2 billion. Biogen's annual sales also dropped in 2021.
That's why the biotech badly needs everything to work well with Leqembi. And while full approval for the medicine would be a significant win for Biogen, it's worth noting that other companies are looking to make waves in the AD market, too. In my view, these factors make Biogen a bit risky, and interested biotech investors should wait until the FDA approves Leqembi (if it does) before initiating a position. The good news is we'll know a lot more before the end of the year.
