Will Biogen investors be let down again, or is this the real deal?

Shares of Biogen ( BIIB -0.28%) soared late last month after the company again received positive results around one of its Alzheimer’s treatments. It wasn’t Aduhelm this time, but a new promising treatment called lecanemab, which the company is hoping can slow down the disease.

On the news, the stock surged to heights it hasn’t been at since November of last year. Does the price jump signal a turnaround for Biogen, and is now the time to buy shares of the healthcare company before its value rises even further? What investors are excited about

On Sept. 27, Biogen released results from a phase 3 trial involving nearly 1,800 people who tested lecanemab’s effectiveness in treating Alzheimer’s. Lecanemab met the primary endpoint of the trial, slowing the disease’s progression by 27% when compared to a placebo.

If the Food and Drug Administration (FDA) approves the drug, it could lead to a huge windfall of cash for the business and its partner, Japanese drugmaker Eisai ( ESALY 0.30%). Eisai submitted a Biologics License Application to the FDA for lecanemab earlier this year (under an accelerated approval pathway), and a Prescription Drug User Fee Act ( PDUFA ) date has been set for Jan. 6, 2023. However, it also plans to file for traditional approval by the end of March 2023.

Analysts from JPMorgan Chase project the drug could hit peak annual sales between $6 billion and $10 billion. Last year, none of Biogen’s drugs even generated half that amount; its top-selling drug, fumarate (this includes Tecfidera and Vumerity), which treats multiple sclerosis, brought in $2.4 billion in annual revenue. Is this a game changer for the business?

The trial results are encouraging for investors, but it’s important not to read too much into them just yet. Many experts await the full analysis to get a clearer picture of the data. Some are also not convinced that amyloids, which this treatment aims to clear from the brain, are what lead to dementia.

A more concerning problem is that in April, the Centers for Medicare & Medicaid Services limited the coverage of Biogen’s drug Aduhelm (aducanumab) to individuals who were involved in clinical trials. And the decision was part of a broader policy that meant this guidance would apply to other amyloid-targeting treatments for Alzheimer’s that don’t obtain traditional approval from the FDA.

Since lecanemab is similar to Aduhelm in that it may be approved under an accelerated approval pathway and it’s also targeting amyloids, it is likely to face similar challenges. And if patients do not obtain coverage for the treatment from the government, any approval from the FDA may not lead to significant revenue for the business in the long run.

In addition, Biogen may face competition from other companies, including Eli Lilly , which also has a promising Alzheimer’s treatment in donanemab that could obtain approval early next year.

Overall, it’s still far too early to label this a game-changer for Biogen. Even if lecanemab gets approval from the FDA, obtaining coverage from Medicare is going to be crucial, especially since one of the problems with Aduhelm was its high price — initially pegged at $56,000 per year and eventually slashed to half of that. Unless lecanemab obtains full approval from the FDA through the traditional route and there’s confirmation that Medicare will cover it, I wouldn’t rush out and buy the stock on this latest news.

Biogen’s business is still risky as sales could continue to decline, and they are in desperate need of a growth catalyst. In 2021, the company’s top line came in at just under $11 billion, falling 18% from the previous year, as Tecfidera’s sales have been declining due to rising competition from generics. Should you buy Biogen’s stock?

Shares of Biogen are up 6% this year thanks to the spike in the stock over the last few weeks. At a price-to-earnings (P/E) multiple of 18. However, it’s not trading much cheaper than the average healthcare stock, which has a P/E ratio of 20.

Given the risks that Biogen poses with its sales declining and lecanemab still facing question marks, the stock should be trading at more of a discount than it is. And with the stock being as volatile as it has been over the past few years (including hitting a high of more than $400 on Aduhelm’s approval in 2021), this isn’t an investment risk-averse investors should feel comfortable with.

The safer option would be to wait for full FDA […]

source Does Biogen’s Recent Win Make It a Must-Buy Stock?

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