BIIB - Will Watershed Moment For Alzheimer's Propel Biogen Stock Higher?

2023-07-07 10:20:40 ET

Summary

• Esai and Biogen's Alzheimer's Disease therapeutic, Leqembi, received full FDA approval on July 6th.
• Full approval likely means at least $100s millions/annual revenue since Medicare will reimbursement most of the patient cost for Leqembi.
• With the full approval, Leqembi sales should help BIIB's topline for years to come.

Today, July 6, 2023, the FDA granted full approval to Esai and Biogen's (Esai/[[BIIB]]) Alzheimer's Disease ((AD)) therapeutic, Leqembi (lecanemab) (FIG. 1). Leqembi received accelerated approval back in January 2023. But today's full approval marks a watershed moment as Leqembi is the 1st approved AD drug that slows cognitive decline.

FIG. 1

The Promise of anti-beta amyloids finalized realized

Leqembi is the first beta amyloid antibody to receive full FDA approval for the treatment of AD and was the second beta amyloid to receive accelerated conditional approval by the FDA. The first beta amyloid antibody to receive accelerated approval by the FDA was Esai/BIIB's Aduhelm. Aduhelm turned out to be a commercial and public relations disaster for BIIB and the FDA, and to a certain extent, beta amyloid antibodies generally for the treatment of AD. However, Leqembi's recent Phase 3 data readouts, as well as the Phase 3 data released by Eli Lilly on its competing amyloid beta antibody therapeutic, donanemab, appear to establish that at least some beta amyloid antibodies can slow the progression of AD in patients with mild to moderate disease (See FIG. 2 below (from Esai FDA AdComm Briefing doc June 2023).

The Risk of Anti-Beta Amyloids

Amyloid beta therapeutics come with an increased risk of brain swelling (ARIA-E) and bleeding (ARIA-H), which can be serious, and occasionally is fatal. The prescribing information for Leqambi includes a Black Box warning (see below) related to the risk of ARIA and provides recommendations for monitoring and dose management guidelines.

It also describes the increased risk of ARIA in ApoE ?4 homozygotes compared to heterozygotes and noncarriers (See FIG. 10 below from the Esai AdComm presentation), and the need to exercise additional caution when considering the administration of antithrombotics or a thrombolytic agent with lecanemab.

Leqembi and Anti-Beta Amyloids Should Generate Significant Revenue

The full approval of Leqembi today means that the FDA appears convinced that at least for Leqembi, the benefits outweigh the risks.

Above quote from the FDA press release accompanying full approval.

And the full approval of Leqembi by the FDA today for Alzheimer's patients with mild disease, and the possible approval of donanemab over the next year or so if things go as planned for LLY with their FDA review, are game changers for the use of these drugs by AD patients ( Lecanemab estimated spending & Leqembi cost ). This is because CMS (Medicare) has acknowledged that unlike conditionally approved beta amyloid drugs, they will cover most of the cost of beta amyloid drugs that receive full approval by the FDA. For a Medicare patient to be eligible for this benefit, a prescribing physician must take part in the CMS patient registry program so that the FDA and CMS can track the real-world performance of these controversial new drugs.

With FDA's full blessing and CMS covering most costs, it is expected that 1,000s and possibly 10,000s of U.S. AD patients will likely be taking lecanamab or donanemab in the coming years, generating $100s millions and possibly billions of dollars of revenue for these drugs. This will be the start of a new and exciting era in the treatment of AD with the first widely used drugs that slow the progression of this debilitating disease. But will it propel BIIB, which has been an underperforming stock in the past 10 years?

BIIB 10 yr stock chart

Will Laqembi Propel BIIB Higher?

BIIB's revenue has been declining in recent years due to patent expiries and increased competition. For 2023 they have guided to another declining year, in mid-single digit percentage range. However, the company is still profitable, generating $15-$16 per share non-GAAP earnings and $389 million in free cash flow. Plus, they have over $6 billion in cash and securities. Thus, despite relatively poor revenue and stock growth performance in recent years, BIIB has the cash and cash flow to weather the storm as Leqembi revenue builds.

And Biogen has another major FDA approval date in early August for the depression drug candidate, Zuranolone. Zuranolone's clinical data, although not totally clean, has been impressive overall. It's speed of action is especially noteworthy. Thus, Biogen has at least 2 new drug approval growth drivers in the coming years, assuming Zuranolone is approved by its PDUFA date.

However, BIIB derives revenue from over a dozen approved drugs, and we have not modeled future revenue for all these drugs, given the complex competitive and patent landscapes. Therefore, although we own the stock in one of our accounts currently (see below), we will remain neutral on the stock for this article, and to help satisfy the Seeking Alpha review process. It is noteworthy that upon the positive Phase 3 Leqembi data last September, BIIB has trading around $275/share vs. the $200/share before the readout. Thus, the market values Leqembi significantly with respect to BIIB's overall value.

The major risk in holding BIIB with respect to Leqembi is that surprisingly few physicians prescribe it due to its ARIA side effect profile and/or because many patients refuse the complex testing required to confirm the necessary diagnosis to receive a prescription. Another risk is that ARIA side effects occur more frequently in the real-world setting and that this information, which should be widely available through the patient registry, dissuades physicians from writing Leqembi prescriptions. More generally for BIIB, there is a near-term risk that Zuranolone does not get approved by the FDA.

For our Amp/BPIQ portfolios, which all focus on biopharma stocks, there is only one account that has a trading strategy that accepts large-cap biotech companies, our Hedge Fund Favorites account. This account holds positions in the top holdings of the 36 biopharma hedge funds that we follow. It turns out that BIIB is a top holding of these hedge funds. As of the end of Q1 it was held in 9 out of 36 funds (See screen shot below) and BIIB was a top 20 holding for 7 of these funds. Only 17 of over 500 companies in our database are held this widely by biotech hedge funds. Thus, we have a position in BIIB in our Hedge Fund Favorites account, which we plan to hold until at least the end of the quarter.

Biopharma Hedge funds owning BIIB at the end of Q1 of the 36 we track at BPIQ.com

In summary, a new and exciting era in the treatment of AD has begun with the full approval of Leqembi. We feel that the Leqembi data and price/reimbursement situation are favorable for BIIB and should generate at least $100s millions in annual revenue at least in the coming years. However, there are too many variables that are outside the scope of our analysis and this article, to be able to provide a bullish rating at this time. However, BIIB appears to be company that has several major new catalysts that make it worthy of further diligence, if not an at-risk investment.

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