Over the past few years, Biogen (BIIB 3.18%) has been engaged in a much-talked-about journey to develop an effective Alzheimer's disease (AD) medicine. On July 6, the company announced that along with its longtime partner, Japan-based Esai, it had earned traditional approval for Leqembi, a therapy that targets patients with early AD.
It's an important achievement for Biogen, but oddly enough, the market responded with a shrug. Still, Leqembi could prove instrumental in turning Biogen's fortunes around. The company's stock has been highly volatile in recent years. But is it enough to make the company's stock a buy?
Leqembi should succeed where Aduhelm failed
Leqembi had previously earned accelerated approval in January. When considering accelerated approval, regulators base their decisions on surrogate endpoints, or substitute measures of clinical benefits observed in clinical trials instead of direct measures.
Therapies that earn accelerated approval are typically required to conduct confirmatory studies to prove that they do, in fact, work and eventually earn full, traditional approval. In June 2021, the U.S. Food and Drug Administration (FDA) granted Aduhelm, another AD therapy, the green light under the accelerated approval pathway. Unfortunately, Aduhelm found no success on the market for at least two reasons.
First, many physicians declined to prescribe it to patients because there were questions surrounding its efficacy. Second, the U.S. Centers for Medicare and Medicaid Services (CMS) said it would only cover AD medicines that earned accelerated approval for those patients enrolled in CMS-approved clinical studies, which is a minuscule fraction of the total patients.
Leqembi should avoid both of these pitfalls. First, there aren't questions surrounding its efficacy. A panel of experts convened by the FDA to discuss whether it should grant full approval to Leqembi unanimously recommended that the agency do so. The FDA had also asked experts if it should approve Aduhelm, and those specialists had recommended against it.
Second, the CMS's coverage restrictions do not apply to Leqembi now that it has earned full approval, so there is a good chance Medicare patients will get reimbursed.
Is there enough upside left for Biogen?
There are more than 6 million AD patients (and growing) in the U.S. alone, and there aren't many treatment options. This means Leqembi should see some success on the market. According to some analysts, it could generate $12.9 billion in sales between 2023 and 2028. Biogen and Esai will share the profits and losses associated with Leqembi equally.
So in total, Biogen could generate roughly $6.5 billion from the medicine by 2028, or about $1.3 billion annually on average. Biogen's revenue has been inconsistent over the past few years, as it has run into stiff competition, generic or otherwise.
BIIB Revenue (Quarterly) data by YCharts
In 2022, Biogen's total revenue came in at $10.2 billion, a decrease of 7% year over year, or a 5% decline in constant currency. In the first quarter, Biogen's revenue of $2.5 billion remained flat year over year in constant currency. With Leqembi, the company's top line could start growing by single-digit percentages on a year-over-year basis.
Biogen has also been looking to reduce expenses. Last year, it resorted to layoffs. More recently, the company discontinued several pipeline programs in anticipation of Leqembi's full approval. Even so, Biogen said earlier this year that it expects commercialization expenses related to Leqembi to exceed revenue for 2023.
In other words, Leqembi will be a dead weight on the company's bottom line this year -- perhaps even longer. That's before we add that other companies like Eli Lilly are nearing AD approvals. That could eat into Leqembi's potential. Maybe these reasons explain why the stock didn't soar after Leqembi's approval.
While Biogen looks like a more attractive stock thanks to Leqembi, there is still much uncertainty here, even with a pipeline with several programs that could eventually earn approval and expand the biotech's revenue base. Investors should refrain from investing in Biogen for now, as there are much more exciting biotech stocks to consider.
