Is Biogen A Buy After Its 50% Rally On News Of A Controversial Alzheimer's Drug Approval?
The bio-pharma/bio-tech industries just had their best week of the year and the clear catalyst for the positive sentiment surrounding this space was the major news that broke on Monday regarding the FDA’s decision to approve Biogen’s Alzheimer's drug, Aduhelm (aducanumab).
Alzheimer’s has been a very difficult problem for bio-tech to solve. Companies have attempted to do so for decades because of the very large potential market that an approved treatment for the disease would unlock.
As the baby boomer population ages, Alheimers is expected to become a larger and larger problem for the world. Dr. Patrizia Cavazzoni, Director, FDA Center for Drug Evaluation and Research, recently published a blog post highlighting the FDA’s thought process when it came to Aduhelm and the need to solve the Alzheimer’s problem, saying, “The need for treatments is urgent: right now, more than 6 million Americans are living with Alzheimer’s disease and this number is expected to grow as the population ages. Alzheimer's is the sixth leading cause of death in the United States.”
In a recent report published by Accumen Research and Consulting, the firm wrote, “The global Alzheimer's disease treatment market is expected to grow at a compound annual growth rate of 12.8% between 2020 and 2027.” Because Alzheimer’s is one of the largest unmet needs by modern medicine, many companies have dedicated resources towards solving the problem. Yet, until Monday, regulators had not approved a drug that was meant to actually slow the progression of the disease. The last Alzheimer’s drug that was approved was in 2003. Yet, all of that changed when Aduhelm was approved on 6/07/2021.
Regarding the FDA’s decision, Cavazzoni wrote, “We ultimately decided to use the Accelerated Approval pathway—a pathway intended to provide earlier access to potentially valuable therapies for patients with serious diseases where there is an unmet need, and where there is an expectation of clinical benefit despite some residual uncertainty regarding that benefit. In determining that the application met the requirements for Accelerated Approval, the Agency concluded that the benefits of Aduhelm for patients with Alzheimer’s disease outweighed the risks of the therapy.”
Prior to the FDA’s decision, J.P. Morgan analyst Cory Kasimov called the upcoming results, “the mother of all binary events.” In his report, he predicted that a favorable outcome of Aduhelm’s trial could send BIIB shares rallying up to $450 and a rejection could result in BIIB crashing down towards $200. And, it turns out that he was right. On Monday, after the approval of Aduhelm was announced, BIIB shares shot up more than 50% to the $430 area.
Since then, BIIB has cooled off a bit, and currently trades right around $400. However, the fact is, Biogen has experienced a truly breathtaking rally this week and because of this, there has been a lot of commentary amongst the analyst community. Therefore, we wanted to take a look at what the 4 and 5-star rated Nobias analysts had to say to see whether investors should consider BIIB shares for their portfolios after this unique event.
Keith Speights, a Nobias 5-star rated analyst who writes for The Motley Fool, recently covered the news, saying, “Goldman Sachs projects $12 billion in peak sales of Aduhelm. Other analysts aren't quite as optimistic but are still very bullish. Peak sales estimates typically range between $5 billion and $10 billion.”
Speights goes on to say, “The actual level of sales for Aduhelm depends heavily on physicians' acceptance of the drug.” With this in mind, it’s important to note that while the FDA said that the drug trial results were "highly persuasive" and showed "an acceptable safety profile”, Speights says that the “advisory committee voted against recommending approval of Aducanumab.”
Jonathan Block, a news editor at Seeking Alpha who is rated 3-stars by Nobias recently touched upon the contentious approval of the drug recently as well, publishing a report showing that 3 members of the FDA advisory panel have resigned from their posts in protest of this approval.
The backlash here could end up being more than resignation letters, but an unwillingness to prescribe the drug by physicians due to the lack of evidence that it actually works. With all of the ongoing risks in mind, Speights said, “My recommendation is to take the same steps you'd take with any stock. Look at its growth prospects and its valuation to determine if it's a smart stock to buy right now.” He continued, saying, “The biotech's market cap now tops $60 billion after shares exploded higher on Monday. That's roughly six times Biogen's expected sales in 2021 that include only a relatively small contribution from Aduhelm.
Factoring in the potential for the Alzheimer's disease drug, though, Biogen's future price-to-sales multiple is significantly lower -- even with the possibility of sustained sales declines for its other products.” And after acknowledging the commercial uptake risks associated with the controversial drug again, Speights concluded his piece, saying, “My view is that, after all of the anxious waiting, Biogen is once again a good stock to buy.”
Todd Cambell, a 5-star rated Nobias analyst, touched upon the potential commercial success of the drug in his recent Nasdaq.com article, saying, “Biogen announced the drug will cost $56,000 per year.” He also said, “Separately, the company also announced it's collaborating with CVS Health (NYSE: CVS) to make cognitive screenings more readily available in urban markets.” Deals like this with pharmacies could certainly help BIIB to meet the lofty sales projections posted by analysts.
While many investors are enthusiastic about the potential for an Alzheimer treatment it’s important to note that not everyone is jumping for joy about the Aduhelm results. Cory Renauer, a Nobias 4-star rated analyst who writes for The Motley Fool published an article this week highlighting the news, pointing out some of the ongoing issues with the decision. He said, “Unfortunately, aducanumab failed to outperform a placebo in one of two identical clinical trials designed to prove its ability to help preserve patients' cognitive ability. Biogen also failed to convince a panel of independent experts that Aduhelm provided a disease-modifying benefit.”
He continued, noting, “However, the FDA granted Aduhelm an accelerated approval based on its ability to improve amyloid protein fragment concentrations. In theory, this approval will be rescinded if Biogen doesn't provide clinical evidence of a cognitive benefit at some point in the future.” This is a potentially scary thought for investors buying BIIB shares after the Aduhelm rally has occurred. But, Renauer did say, “Don't be surprised if sales of Aduhelm top $10 billion annually long before Biogen provides any further evidence of efficacy.”
Nobias 4-star rated analyst, Shanthi Rexaline, recently published an article in which she highlighted recent Wall Street analyst ratings changes in light of the Aduhelm decision, in which she wrote:
“Morgan Stanley analyst Matthew Harrison maintained an Overweight rating on Biogen shares and increased the price target from $343 to $455.
H.C. Wainwright analyst Andrew Fein maintained a Buy rating and hiked the price target from $305 to $452.
Canaccord Genuity analyst Sumant Kulkarni reiterated a Buy rating and $359 price target.
BofA Securities analyst Geoff Meacham reiterated a Neutral rating and $400 price target.”
This shows that Wall Street is not yet sold on BIIB’s $400+ share prices.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Needless to say, everyone hopes that Aduhelm will succeed because it would mean a triumphant victory by mankind against a debilitating disease that impacts more than 6 million Americans and tens of millions more across the world; yet it will take years, if not decades, to totally confirm the drug’s results.
In the meantime, investors have to weigh the pros and the cons of the positive trial, the sales potential, commercial uptake risks, and ultimately, Aduhelm’s impact on Biogen’s valuation against one another when making decisions.
There are a myriad of variables at play here, yet, when looking at the blue chip Nobias analysts who’ve posted reports since 6/7/2021 (the data of Aduhelm’s approval), even with the controversy swirling around the news, we see a clear bullish lean. There have been 25 reports published with “Buy” ratings attached, two reports with “Neutral” conclusions, and 10 articles with “Sell” ratings.
BIIB shares closed the trading session of Friday with a $396.29 price tag attached to them. Since Monday, Nobias has tracked 6 blue chip caliber Wall Street analysts who’ve updated their price targets for Biogen stock. The average recent price target by the Nobias 4 and 5-star rated analysts is $416.50. This implies a potential upside of approximately 5%.
Disclosure: Nicholas Ward has no BIIB position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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