With shares of Biogen (BIIB 3.18%) falling by 11% in the last 30 days, and by 20% in the last five years, could there be an opportunity for enterprising investors to buy the dip on this struggling biotech stock?
On the positive side, the company's new Alzheimer's drug Leqembi secured full approval from the Food and Drug Administration (FDA) on July 6. But the company's track record with commercializing Alzheimer's medicines is poor, and there are a few indications that Leqembi isn't as safe or effective as hoped.
Furthermore, while the stock might look slightly undervalued, there are a few reasons to believe it might struggle to grow. Let's dive in.
Leqembi may not be the saving grace that was hoped
For people with early-stage Alzheimer's disease, Leqembi slows the rate of progression by around 27%, such that their cognitive capabilities remain relatively more intact for longer than they would otherwise. It needs to be administered as an infusion from a skilled provider once every two weeks, and it seems to work to stave off decline for around five months, per clinicians.
Furthermore, it carries a price tag of $26,500 annually, making it quite an expensive therapy. Patients will be able to get Medicare to cover some of the costs of their treatment, provided that their prescriber is willing to gather performance data and report back to the Centers for Medicare and Medicaid Services (CMS).
The drug's potentially serious side effects are another problematic wrinkle. Approximately 17% of patients who were given Leqembi in its phase 3 clinical trials experienced brain bleeding, whereas only 9% of those in the study's placebo group did. Therefore, the FDA's prescribing guidelines require patients to receive an MRI scan before starting treatment, as well as more scans before the fifth, seventh, and 14th infusions to check for brain bleeds. That's a significant monitoring burden, and it's certain to add to the treatment's total costs.
So between its short period of effectiveness, modest slowing of disease progression, high price tag, and risky side effects that require extensive surveillance, not to mention the additional administrative burdens on prescribers, there are a fair number of headwinds that may price out patients, slow down its adoption, or discourage doctors from prescribing it entirely.
Nonetheless, an estimate by GlobalData Healthcare suggests that Leqembi could bring in $12.9 billion in sales for Biogen from now through 2028. Given that the company had trailing-12-month revenue of $10.1 billion, the impact to the top line could be enormous once sales start ramping up over the next few quarters.
Plus, there are a few other programs in the pipeline that might stimulate Biogen's growth over the next few years if they get commercialized too.
Still a sizable chance of recovery
The market didn't respond with great positivity to the FDA's full approval of Leqembi, and its shares are flat this year so far. That suggests many investors are sitting on the fence, uncertain about whether to buy in -- a conclusion supported by the stock's low valuation. Its price-to-earnings (P/E) ratio is 13, far lower than its peers in biopharma, which have an average P/E near 23.
Generally, a company that just got a full approval for what's expected to be a mega-blockbuster medicine would be seeing its valuation soar. But analysts and Wall Street are also rather sanguine about Biogen's near-term growth potential. On average, they're calling for $9.6 billion in sales for 2023, and around $9.4 billion in 2024.
In other words, the analysts are agreeing that Leqembi isn't about to reverse the pharma's declining fortunes anytime soon. However, the medicine could get approved in the E.U. and China, which management suggests could happen in early 2024. And besides Leqembi, Biogen could also get approvals for three of its other non-Alzheimer's medicines within the next 12 months.
So should you buy the dip with the idea that by this time next year, the stock will have several catalysts for recovery? I won't be buying it as I'm still skeptical of Leqembi's ability to gain traction in the market.
But if you're willing to make a risky bet that's somewhat mitigated by the inexpensiveness of Biogen's stock right now, buying the dip could potentially lead to a decent return over time. Just be aware that you'll need to keep up with any headlines about problems with Leqembi -- and act decisively to avoid losing your shirt if there's a major issue.
