Biogen Bet Big on Its Alzheimer’s Drug. The Stock Will Soar or Dive on the FDA’s Decision.
After 18 years without a new treatment for Alzheimer’s disease, an extra three months for the Food and Drug Administration to decide on Biogen’s aducanumab might not seem like long to wait.
Still, the delay, announced on Jan. 29, was unexpected. The agency’s panel of outside experts has already rejected the evidence for aducanumab. Under normal circumstances, that would have been the end of the company’s hopes.
But the FDA didn’t say no to aducanumab. Instead, it asked for more time. Which means there remains a chance for the drug—and for Biogen (ticker: BIIB), which is counting on the approval as its other products face challenges.
The delay adds one more wrinkle to a decision that could determine the fate of the giant biotech, as well as tens of billions of investor dollars and the health of millions of Americans.
If the FDA approves aducanumab, Wall Street expects the company’s shares, which traded recently at $263, to climb as much as 70%. Analysts estimate the drug could bring in $10 billion a year in sales, or more.
The consequences of failure are nearly as stark. Biogen’s core businesses are struggling, with many of its most important drugs facing growing challenges from competitors.
“It is basically a declining business,” says Mohit Bansal, an analyst with Citigroup. “In the case of an aducanumab non-approval, it just becomes a very difficult investment story.”
A drug to treat Alzheimer’s disease is an inherently risky bet. Even as the pharmaceutical industry has made huge advances in cancer and some genetic diseases, progress on neurological disorders in general—and Alzheimer’s in particular—has stagnated. Failed trial has followed failed trial, as one drug after another has disappointed.
If aducanumab fails, the nearest alternative on the horizon is a similar monoclonal antibody from Eli Lilly (LLY) called donanemab, which Lilly says performed well in a trial in early symptomatic Alzheimer’s patients. Lilly doesn’t plan to share details on the trial until mid-March.
Aducanumab’s journey toward approval would ordinarily have ended at least twice by now. Biogen said in March 2019 that it was stopping two late-stage trials because the drug wasn’t helping patients. Seven months later, it said that the drug actually had helped, after all. In November, the FDA convened a panel of experts that rejected Biogen’s analysis, voting overwhelmingly that the company’s data didn’t prove that aducanumab is an effective treatment for Alzheimer’s disease.
The FDA usually takes the advice of its expert panels. But Biogen shares are trading as if aducanumab has a real chance—largely because of an unusual back-and-forth between the drugmaker and the FDA.
Evidence came in the form of a document the FDA presented to its panel of experts in November. Normally, the agency will give the panel a lengthy briefing book independently analyzing the evidence for the drug it is asking the panel to review. This time, FDA submitted a 343-page document that it had prepared with Biogen.
“There was a special relationship,” says Marc Goodman, an analyst with SVB Leerink. “You could crystal-clearly see it. The briefing documents were unprecedented. I’ve been doing this job over 20 years and I’ve talked to people who have been doing it longer, and we’ve never really seen anything like that before, where the FDA is just working that closely with a company. They went to the [advisory committee] basically saying, ‘This drug’s getting approved.’ ”
That’s what’s different about aducanumab, and why investors are holding out hope. Biogen said that the FDA had requested additional data that needed more time for review. The FDA’s deadline has now been pushed to June 7 from March 7.
The delay and the unusual relationships between the drugmaker and the regulator make it difficult for investors to game out a decision. “This outcome remains unanalyzable,” wrote Piper Sandler analyst Christopher Raymond.
On an earnings call this past week, the company offered no further details on the delay, but said it remained confident in aducanumab’s approval. “We continue to stand behind our clinical data,” Biogen CEO Michel Vounatsos said on the call. “We believe our results support approval.”
The company plans to spend $600 million launching aducanumab in 2021, a third of which is reimbursable by its Japanese partner, Eisai (ESALY). Biogen’s chief financial officer, Michael McDonnell, said on the earnings call that the company has allocated a “significant portion of its manufacturing capacity to aducanumab,” a decision that would “impact 2021 results” if the drug doesn’t receive approval.
The full-court press comes as things begin to look grim for many of Biogen’s most important products.
Its best-selling drug, a multiple sclerosis treatment called Tecfidera, is competing with a brand-new generic version after an unexpected court ruling this past spring. Analysts expect its sales to fall to $1.7 billion this year from $4.4 billion in 2019, when it accounted for 31% of Biogen’s total sales.
In addition, Biogen anticipates “significant erosion” in U.S. sales of a cancer drug, Rituxan. Its other multiple sclerosis drugs are also facing growing competition, as is its $2 billion-a-year spinal muscular atrophy drug, Spinraza.
Biogen has another shot at a huge neurology market in the second quarter, when a large study of a depression drug it is developing with Sage Therapeutics (SAGE) returns data. A negative result, however, could hurt the stock even more.
Wall Street expects Biogen’s earnings to drop sharply in 2021, to $20.22 a share from $33.70 a share.
Biogen, meanwhile, has doubled and redoubled its bets on aducanumab, even authorizing two separate $5 billion share repurchases since December 2019. Analysts have seen the buybacks as a bet by the company on aducanumab’s approval; buying its own shares in anticipation of a spike when the FDA gives the nod.
“We are of the view that the more prudent choice would be to save the cash for [business development] in case the decision does not go in company’s favor,” Citigroup’s Bansal wrote in an October note about the second buyback announcement.
Biogen defended the buybacks. “Biogen is committed to allocating capital efficiently, effectively, and appropriately,” the company said in a statement. “While share repurchases are one component of our strategy, last year alone we executed eight business-development deals that have a total value of roughly $3 billion.”
If aducanumab makes it to market, it’s all fine for Biogen.
“The upside is incredible,” says Colin Bristow, an analyst at UBS, who says sales of aducanumab could be as high as $20 billion a year. “They would have unfettered access to the Alzheimer’s market for years.”
But if the FDA disagrees, Biogen could fall hard. The company issued 2021 sales guidance this past week that fell well short of Wall Street expectations, even though it included “modest” aducanumab revenue. In a note that day, Bansal wrote that if aducanumab isn’t approved, the conservative guidance “resets the downside much lower,” and could mean the stock will drop even further.
Aducanumab’s potential comeback began months after Biogen said in March 2019 that an independent data-monitoring committee had determined that two large trials of the drug were failing. (The company still acknowledges that one study failed.) After an analysis of data that wasn’t available when the trial was stopped, it now believes the second study actually found that patients on a high dose of aducanumab experienced 22% less clinical decline than those in the placebo group.
The FDA’s advisory committee disagreed. The votes of advisory panels aren’t binding, but the FDA rarely ignores them. “The chances of this getting approved in this cycle are extremely low,” Bansal says. “The panel was overwhelmingly negative.”
That isn’t reflected in how the stock is trading, however. Investors are taking the FDA’s collaboration with Biogen as a sign that the agency wants to say yes.
In meeting minutes quoted in the joint briefing document, the FDA said that the “wholly unique situation” of the aducanumab program in the summer of 2019, when Biogen was reviewing the data it received after the trials were stopped, required that analyses of the trial data be done “as part of a bilateral effort involving” the FDA and Biogen. The company says that it worked with the FDA “in a collaborative manner to achieve a maximum understanding of the existing data through a working group.”
That collaboration was unusual enough that the advocacy group Public Citizen voiced concerns to the FDA. Asked to comment on the criticism that officials had collaborated inappropriately, an FDA spokesperson said that the agency could not comment on pending applications.
“The reality is it probably deserves to have another study to prove that it really works,” Leerink’s Goodman says of aducanumab. “But it’s Alzheimer’s, and that’s why I think things are different....There’s nothing approved for Alzheimer’s. And I think that the [FDA] division head is frustrated by that.”
There is undoubtedly an urgent need to make new Alzheimer’s drugs available. According to the Alzheimer’s Association, 5.8 million Americans are living with the disease today, including 10% of Americans over 65.
“While the trial data has led to some uncertainty among the scientific community, this must be weighed against the certainty of what this disease will do to millions of Americans absent treatment,” an Alzheimer’s Association executive wrote in a public comment submitted to the FDA advisory committee.
So, it’s easy to understand the pressure on the FDA to say yes. But approving a drug that might work could make it harder to find one that definitely works.
“The reason we have a regulatory agency is because science is difficult, and we know that the only way we get through to correct answers is being rigorous and empirical,” says Dr. Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center.
Once a treatment is approved, it becomes harder to run trials of other, possibly better drugs. And allowing a drug company to reap huge profits from a drug that doesn’t actually work warps the incentive structure intended to push companies to discover useful drugs. “I think it would be a great pity to see the drug approved,” Bach says.
The FDA is caught in the middle, and it couldn’t come at a more delicate time as it seeks to shore up a reputation for rigor and independence that has suffered over the past year.
The Biden administration has yet to name an FDA commissioner; the agency is being led by a longtime senior official, Dr. Janet Woodcock, serving in an acting capacity.
If she is given the top job on a permanent basis, that could be taken as a positive sign for aducanumab. That’s because in 2016, in an eerily parallel situation, Woodcock backed the approval of a Duchenne muscular dystrophy drug, despite the opposition of the FDA’s advisory committee and opponents within the agency. (Despite the approval, insurers balked at paying for the drug.)
Complicating the picture is Eli Lilly’s announcement in January that its drug donanemab slowed decline in early symptomatic Alzheimer’s patients by 32%.
The implications for aducanumab are unclear: Some analysts suggest that Lilly’s apparent success could ease pressure on the FDA, with the possibility of another therapy backed by better data just a few years down the line. But the success of donanemab, which works on the same general principles as aducanumab, could also help shore up doubts around the science behind the Biogen drug and weigh in favor of approval.
If the FDA does approve aducanumab, analysts predict Biogen shares could soar to around $450. If it is rejected, Jefferies analyst Michael Yee expects the stock to drop to between $180 and $220.
Biogen shares, which trade at 13 times forward earnings, in line with that of major competitors, haven’t closed below $200 since 2013.
Even in a best-case scenario for Biogen, uncertainties remain. The megablockbuster sales estimates for aducanumab don’t factor in the possible near-term arrival of Lilly’s alternative. How deeply that could cut into Biogen’s sales depends on how quickly Lilly could get its drug to market.
In a statement, Biogen said it was too early to talk about competition between the drugs. “While we feel that it is premature to speculate on commercial uptake given that neither aducanumab or donanemab are approved products, we welcome innovation in Alzheimer’s disease where new treatments are desperately needed,” the company says.
The FDA’s delay gives investors more time to decide how to play the aducanumab conundrum. Precedent suggests that Biogen will be disappointed, and that the stock will dive. But it’s hard to dismiss the signs that something unexpected is in store.
