2023-06-27 05:14:31 ET
Summary
- Biogen will find out in July if the FDA has granted its Alzheimer's drug Leqembi full approval.
- After the Aduhelm fiasco, Biogen has much to prove in the AD space.
- Partner Eisai has been handling the approval push and launch - more successfully so far.
- Major hurdles need to be overcome - reimbursement, safety issues, acceptance of the amyloid reduction thesis, and a major rival in Eli Lilly.
- Biogen needs a win as older MS drugs lose patent protection - revenues are shrinking but the Pharma remains profitable. Expect a (mild) spike if Leqembi is approved. Bear in mind Biogen does not pay a dividend.
Investment Thesis - Alzheimer's Quest - Biogen's Long And Winding Road To The Cusp Of Full Approval
Biogen ( BIIB ) is a central nervous system ("CNS") focused Pharma whose fortunes and valuation over the past 5 years, if not longer, has been primarily affected by its twin Alzheimer's drugs, Aduhelm, and Leqembi. In June 2021 the Food and Drug Agency ("FDA") controversially approved Biogen's and its partner Eisai, the Japanese Pharma's aducanumab, which the company branded Aduhelm.
Despite 2 Phase 3 studies of aducanumab being discontinued after a futility analysis, and against the advice of its own Advisory Committee - who voted 10-0 against approval - the FDA concluded that Aduhelm "reduced the level of amyloid plaques in the brain in a dose and time-dependent fashion", and that this surrogate endpoint was sufficient for an accelerated approval of the drug.
Analysts quickly concluded that Aduhelm would become a >$10bn per annum peak-selling drug, based on 5.8m Americans with Alzheimer's, and a list price >$40k, and my own analysis shared with Seeking Alpha readers in 2026 suggested Biogen's 55% share of revenues from the drug could result in its earning >$10bn per annum as early as 2026.
Of course, things did not work out that way. The backlash against Aduhelm, and a risk-reward profile that pitted the mildest of improvements in patient's conditions vs placebo against the dangers of brain swelling, or amyloid-related imaging abnormalities ("ARIA"), was so strong that hospitals began to ban Biogen sales executives from entering the building, and the Centers for Medicaid and Medicare refused to provide any reimbursement policies for the drug outside of clinical trials.
In summary, a drug the market believed could break the healthcare system as a result of its overwhelming sales - witness Biogen stock's surge from $267 per share prior to approval to $396 per share post-approval - earned less than $0.3m before it was more or less permanently shelved by Biogen.
Biogen and its management team are nothing if not determined, however - and resourceful, it should be added - since their next shot at an approval for an Alzheimer's drug arrived just as its stock price hit a >5-year low of $196 per share. In September last year, Biogen and Eisai once again claimed to have proved the amyloid reduction thesis , this time with its lecanemab candidate.
In September last year Biogen / Eisai announced that lecanemab had met its primary endpoint, showing a statistically significant reduction in clinical decline in patients, based on Clinical Dementia Rating-Sum of Boxes ("CDR-SB") scoring, versus placebo of 27%. This time the evidence was more conclusive, and the safety data superior to aducanumab (although lecanemab is by no means a risk-free drug, nor is it capable of improving a patient's condition).
Biogen's share price rose in response to this news to >$300 by November. This time, Eisai led the approval process, attempting to learn from Biogen's mistakes with Aduhelm, and in January lecanemab was granted accelerated approval by the FDA, under the brand name Leqembi.
This time Eisai opted for a list price of $26.5k per annum - much less than Aduhelm's original list price - and this time, an FDA advisory committee comprising 6 panel members (a smaller groups due to numerous panel members having conflicts of interest) voted unanimously that Leqembi demonstrated a clinical benefit to patients.
In March, the FDA accepted Eisai's filing of a supplementary Biologics Licence Application ("BLA") requesting a full, rather than conditional, approval of Leqembi. The FDA set a Prescription Drug User Fee Act ("PDUFA") action date of July 6, 2023, when it will announce whether it has granted the drug a full approval.
Can Leqembi Succeed Where Aduhelm Flopped?
Long after Biogen had all but given up on its attempts to make a success of Aduhelm, which included substantially dropping the list price, an investigation into the approval suggested that Biogen and the FDA had worked far too closely together to get the drug approved, and concluded the entire process was "rife with irregularities", according to the New York Times .
As mentioned Leqembi - with a similar mechanism of action to Aduhelm - has a similar - if less severe - safety profile. 13% of patients of patients receiving the drug in clinical studies developed brain swelling, and 14% developed brain bleeds - although most cases were mild, 3 patient deaths in studies may have been caused by these adverse side-effects.
Nevertheless, after the AdComm vote it is hard to see Leqembi not receiving a full approval in July when the PDUFA date arrives, taking it one step further than Aduhelm reached - Aduhelm has not been awarded full approval status.
EISAI has previously stated its expectation that Leqembi will reach >$7bn of annual revenues generated in 2030, which, given Biogen earns a 50% share of US sales, likely to be the drug's largest market, implies something in the region of ~$2bn - 3bn of revenues per annum. It should be noted however that some forecasts are more cautious - ~$3bn per annum by 2028, and others more expansive - a $70bn market opportunity may be in play, with nearly $13bn per annum of revenues on the table.
Biogen appointed a new CEO in November, Christopher Viehbacher, formerly CEO of French Pharma giant Sanofi ( SNY ), to replace the controversial Michel Vounatsos. Viehbacher was upfront, but also optimistic, about the challenges faced with any potential Leqembi launch on the company's Q1'23 earnings call .
Now, LEQEMBI is going to be the first anti-amyloid antibody to receive traditional approval globally hopefully in July. As we said, this is not a straightforward launch, it's a complex diagnosis involving PET scans, lumbar puncture for amyloid confirmation, specialists who are already busy, MRI imaging, bi-weekly infusion. And we know that capacity could be an issue initially. CMS reimbursement will be the next major milestone, which we expect to have an answer on once the product has received full approval as expected following the PDUFA date in July.
Interestingly, the CMS has so far given Leqembi the thumbs down, rejecting a petition to provide wider coverage of the drug in February, and doubling down on its policy of only supporting reimbursement for clinical trial use. With a full approval, however, the pressure on CMS to change its policy will intensify.
Leqembi is administered via twice monthly infusion, meaning the number of patients that could be treated at infusion centres will initially be quite small. I did some research into this shortly after Aduhelm was approved in a note for Seeking Alpha, which I will reproduce here.
I assume - based on Biogen's guidance - that ~1,000 infusion centers will be able to administer Aduhelm once monthly in FY21, and make an assumption that this figure will increase to ~2,500 centers by FY26 - CAGR of ~20%.
Some online research suggests that an infusion facility with 10 nurses can adequately serve 40 patients per day, or presumably 200 patients per working week, or ~800 patients per month.
Given patients using Aduhelm require monthly infusions, then one center could theoretically treat 800 Alzheimer's patients each year, but I have slashed that figure to 300, to account for the fact that other patients with different chronic conditions also require infusions.
Still, if 2,500 infusion centers are treating 300 patients on Aduhelm by FY26, then the capacity would be sufficient to support 750k patients, which is more than my forecast 10% of the US Alzheimer's population, or ~650k patients.
At these rates, Leqembi would theoretically be able to drive >$17bn per annum in revenues by 2026. Biogen is also confident that Leqembi will be approved in Japan this year. In Europe, however, doctors are reportedly not sold on the idea of paying such a high price for a drug whose effect on patients is, in truth, quite minor.
Biogen's Head of Development, Interim Head of Research and Global Safety and Regulatory Sciences Priya Singhal discussed some more encouraging data from the pivotal CLARITY AD study on the Q1'23 earnings call:
First, regarding activities of daily living. New analysis of ADCS-MCI-ADL presented at AD/PD last month, showed that all individual items of this scale favoured LEQEMBI at 18 months as compared to placebo. This includes items like ability to make a meal or keeping appointment. This result also measures Clarity AD study outcome on the CDR sum of boxes where LEQEMBI treatment slowed decline across all six individual domains at 18 months versus placebo.
Additionally, results from Clarity AD showed that at 18 months, LEQEMBI treatment resulted in a 50% less decline from baseline on scales designed to assess quality-of-life and reduced care partner burden as compared to placebo. In addition was also presented an updated analysis of ARIA from the CLARITY AD study to evaluate ARIA incidents in LEQEMBI-treated participants on antiplatelet or anticoagulant drugs as compared to LEQEMBI-treated participants that were not on either. The results were encouraging and showed that ARIA incidents were similar in the two groups.
The analysis of the Phase III data, consistent with the analysis of the prior Phase IIb study results, showed that LEQEMBI resulted in a delay of approximately two to three years in meantime to progression to mild, moderate and severe AD dementia versus standard of care alone.
There appear to be a lot of positives here, although it should be noted that Leqembi seemingly works much better in patients with mild to moderate forms of the disease. Out of the nearly 6m Americans with AD in the US, how many have such an early stage form of the disease? And will Biogen and Eisai have to ask physicians to rethink how they diagnose AD versus early signs of dementia in order to match patients to the drug - and will physicians agree to do this?
Concluding Thoughts - Does The Likely Leqembi Full Approval Give Biogen Further Stock Price Momentum?
A quick glance at Biogen's breakdown of its Q1'23 revenues by division illustrated the size of the task facing the Pharma in AD. Revenue from this source were negative during the quarter!
It is a nice illustration of the lack of success Biogen has had to date targeting Alzheimer's - whilst it should also be noted that due to patent expiries of key multiple sclerosis drugs, that division's revenues are shrinking, as is the SMA sector - thanks to falling sales of Spinraza, which costs ~$625k - $750k for a year's worth of treatment - while the biosimilars sector revenue growth is negligible.
Biogen's revenues have been falling - from $10.7bn in 2020, to $8.8bn in 2021, and $8bn in 2022, and the company - which remains very profitable, driving net income of $4bn, $1.55bn, and $3bn in 2020, 2021, and 2022 - needs some fresh momentum. Clearly, Leqembi has the potential to be a runaway success for the company if a full approval is granted, the amyloid reduction thesis becomes more widely accepted, and the positive effects of the drug are shown to outweigh the safety - and expensive safety monitoring procedures - concerns in a real world setting.
As shown above, it's worth noting that Biogen has other opportunities - Tofersen is now approved, for example, although it is unlikely to become a "blockbuster" drug, while a nod for Zuranolone in Major Depressive Disorder could drive billions in annual revenues.
Biogen's problem has always been that its products target very difficult to treat diseases where signs of success are difficult to establish, and often fail to impress the wider community. Based on my analysis above, I would say that this problem is not going to disappear if Leqembi is approved - not least because Eli Lilly's donanemab - another anti-amyloid drug likely to be approved this year or next - is emerging as a major challenger for market share.
Biogen today trades at 5x 2022 revenues - a fair valuation for this company, in my opinion. A full approval for Leqembi may well push the share price above $300, and some (optimistic) discounted cash flow analysis I have completed puts the target share price near $400. Given the risks in play however, and the long road ahead to gain wider acceptance for leqembi, as promising as the market opportunity may be, I am not sure I see Biogen stock breaking $325 even on good news in July.
For further details see:
Biogen: Highs, Lows, And Mounting Expectations Ahead Of Leqembi Decision