It was two years ago that Biogen's (BIIB 3.18%) stock soared to more than $400 on news that its Alzheimer's treatment, Aduhelm (aducanumab), had obtained accelerated approval from the Food and Drug Administration (FDA).
Today, however, the company has given up on Aduhelm and is instead focusing on a potentially more promising Alzheimer's drug, Leqembi. It has already obtained accelerated approval and next month it could hit a much more important milestone: full, traditional approval.
Here's why it looks likely to happen and why that's so crucial for Biogen.
Advisory committee unanimously supported Leqembi
In early June, an FDA advisory committee that evaluates central nervous system drugs expressed unanimous support for Leqembi, saying it provides a clinical benefit for Alzheimer's patients and that any risks related to its use are manageable.
With no significant warnings and the drug having obtained the blessing of that key committee, all signs point to a likely approval next month, as Leqembi has a PDFUA date of July 6.
Support from the FDA advisory committee is important because while the FDA doesn't have to follow the advice of its committees, it would be a surprise for it to go against a unanimous opinion from one.
When the FDA granted accelerated approval for Aduhelm, there was much more controversy surrounding the question of its effectiveness, with members of the panel of advisors expressing doubts about the drug's usefulness. Aduhelm also only showed that it reduced amyloid plaques in the brain, which are often associated with Alzheimer's.
In Leqembi's case, it has actually demonstrated that it slowed the cognitive decline in Alzheimer's patients by an average of 27%.
Why approval could send the stock soaring
After Aduhelm obtained accelerated approval -- and after the controversy that followed -- the Centers for Medicare & Medicaid Services announced that Medicare would only cover the drug for patients involved in a clinical trial of it. That effectively put Aduhelm, which Biogen priced at $28,200 a year, out of reach for the vast majority of patients. And Medicare would follow the same approach for any other Alzheimer's treatment that only obtained accelerated approval.
If, however, Leqembi obtains full approval, it would likely not face those same restrictions. Biogen is pricing Leqembi at $26,500 per year, and Medicare coverage is necessary for a drug that expensive to generate significant revenue and be available to a wide group of patients. Eisai, which is working with Biogen on developing Leqembi, projects that by 2030, the drug could be generating peak annual sales of more than $7 billion.
Does this make Biogen's stock a buy?
Shares of Biogen are trading at just under $300. That puts the stock at a valuation of roughly 20 times its estimated future earnings. The average healthcare stock, by comparison, trades at a forward earnings multiple of just under 18. And with Biogen's sales slowing down in recent years, the business as it stands today doesn't warrant much of a premium, if any. The consensus analyst price target of $330 implies a modest upside for Biogen of about 11% from where the stock trades right now.
What this suggests to me is that there is already a fair bit of bullishness priced into this healthcare stock, perhaps with the expectation that Leqembi will obtain approval next month. But analysts have been raising their price targets recently, and more upgrades could come once the FDA's official decision comes in -- assuming it is a favorable one for Biogen.
Given the cash cow that Leqembi could be for Eisai and Biogen, this could make for an attractive stock to buy now. Biogen does also have other treatments that could accelerate its growth even further, including zuranolone, a depression treatment that may obtain approval later this year.
There is some risk with Biogen -- but for long-term investors, this can be a great stock to buy right now.
