Biogen (BIIB -1.60%) has been a polarizing stock to own over the past few years. Aduhelm's accelerated approval sent the stock soaring a few years ago, but after controversy surrounding its approval, the stock ultimately gave back much of those gains. Nowadays, it has become a bit of a contrarian investment. There are some sound reasons for buying the stock, and also a big reason to avoid it entirely.
Here's a closer look at the healthcare stock and whether it's an investment that is suitable for your portfolio. Below are three reasons to buy it, and one big reason to walk away.
1. If Leqembi obtains approval, Medicare will cover it
Leqembi is a treatment for Alzheimer's that has been showing progress in clinical trials. In January, the Food and Drug Administration (FDA) granted accelerated approval for the drug, following in the path of Aduhelm, which the agency granted the same approval to back in 2021. Biogen investors will recall that didn't end up going well, and the company even ended up pulling funding for the commercialization of Aduhelm due to doubts about its effectiveness and Medicare saying it wouldn't cover patients unless they were involved in clinical trials.
That was because the drug wasn't approved via the traditional path. Leqembi, however, is potentially on track for full traditional approval because unlike Aduhelm, it is able to do much more than just clear amyloid plaque. In clinical trials, it has been shown to slow cognitive decline by 27%.
A decision on whether to grant full approval will come by July. And if Leqembi obtains approval, that could be a game changer for Biogen as it could pave the way for some significant growth opportunities for the business. Biogen's development partner, Eisai, estimates that at its peak, Leqembi may generate $7.3 billion in sales by 2030.
2. The company obtained accelerated approval for Qalsody to treat ALS
Biogen received positive news in April around another one of its treatments, Qalsody (tofersen). The FDA granted accelerated approval for Qalsody to treat amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease. Specifically, it's for a rare version of the disease that features a mutation of the superoxide dismutase 1 gene. It's the first such approval for a drug that targets a genetic cause of the disease.
Given the narrow scope of the patient base that may benefit from the treatment -- the company says approximately 330 people in the U.S. have this form of the disease -- the peak annual sales could be modest at just $300 million, according to analysts.
3. Biogen's beaten-up valuation gives investors a buffer
Shares of Biogen currently trade at a modest 13 times earnings. By comparison, the average healthcare stock trades at a multiple of 24, putting Biogen stock at a significant discount.
For investors, this is important as it compensates them for the risk they are taking on and it can make Biogen a more tenable investment to hold. Multiple analysts have set price targets of at least $340 for the stock within the past month, suggesting that there could be some modest upside for it in the near term. And if Leqembi obtains approval this summer, there could be some significant upgrades coming, along with much more bullishness.
One big reason it's still a sell
Biogen's business has been struggling in recent years as a loss of exclusivity for top-selling multiple sclerosis treatment Tecfidera has weighed on its results. Revenue of $10.2 billion in 2022 was down 29% from the $14.4 billion the company reported in 2019. Biogen needs a big approval such as Leqembi to help turn things around, otherwise the top line won't improve; this year, the company projects a mid-single-digit-percentage decline in sales.
Until and unless full approval for Leqembi comes in, this remains a risky stock.
Should you buy Biogen's stock?
Biogen is a high-risk, high-reward stock. It could be a suitable option for investors with a high risk tolerance, but there's still the danger that if Leqembi fails to obtain full approval, its shares could go into another tailspin. I wouldn't suggest investing in a stock whose success effectively hinges on a decision from the FDA, which is where Biogen is right now.
You could miss out on potential gains by waiting for the decision, but that's definitely the safer route right now, especially given the stock's volatile history. In the meantime, there are many safer stocks for growth-oriented investors to consider instead of Biogen.
