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Alzheimer's Drug May Resurrect Biogen's Growth

This past Tuesday, Biogen Inc. (NASDAQ:BIIB) announced it has changed its outlook regarding its trial-phase Alzheimer's drug aducanumab in light of new test results.

Biogen is a pharmaceutical company that develops treatments for neurological and neurodegenerative diseases. In March, Biogen and Eisai Co. Ltd.(TSE:4523), which it is collaborating with for the aducanumab project, decided to abandon the drug during phase 3 testing. The decision came after a futility analysis conducted on previous phase 1/1b trials from before Dec. 26, 2018, which concluded that, based on the 1,748 patients who had completed the 18-month trial period at the time, later trials were not likely to meet the primary endpoint.


Data has now become available for discarded phase 3 trials EMERGE and ENGAGE, which tested a total of 3,285 patients (2,066 of whom were able to complete the trial period) and which had been continuing to the end despite the company's low expectations for results.

Biogen's stock price, which plummeted after the March announcement of the drug's expected failure, has shot up again at the prospect of it hitting the market in the next few years.

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The future of aducanumab

According to analysis of the results from the recently completed phase 3 trials, patients who received a high dose of aducanumab showed an average reduction of 23% in clinical decline from the control set by the placebo group, as measured by CDR-SB scores at 78 weeks. Unlike the phase 1/1b trials, these results did meet the primary endpoint for the study, showing statistically significant memory improvement among the trial group.

"This large dataset represents the first time a Phase 3 study has demonstrated that clearance of aggregated amyloid beta can reduce the clinical decline of Alzheimer's disease, providing new hope for the medical community, the patients, and their families," said Dr. Anton Porsteinsson, William B. and Sheila Konar (principal investigator).

After discussion with the Food and Drug Administration, Biogen plans to file a Biologics License Application (BLA) in early 2020 based on the new results from the phase 3 study. The initial negative results based on the phase 1/1b studies will also be included in the filing.

Company outlook

Aducanumab is the first drug to attempt to treat the specific types of cognitive decline associated with Alzheimer's through reducing levels of aggregated amyloid beta. This new approach to treatment of the disease brings hope to patients, as other drugs that are currently on the market for Alzheimer's have shown long-term declines in overall cognitive function, despite reducing the rate of memory deterioration.

In terms of profitability, it can be seen from the jump in stock price at the announcement of aducanumab's resurrection that actual clearance of the drug from the FDA will send the stock price soaring. Additionally, as with any promising new drug, aducanumab production will bring in huge profits for Biogen. An estimated 5.8 million U.S. residents are currently living with Alzheimer's, and Biogen is also looking into getting the drug approved in Japan and Europe.

As a company, Biogen has a strong balance sheet and good fundamentals. It has a price-earnings ratio of 10.3, a price-sales ratio of 3.93 and an operating margin of 47.92%. Although its cash-debt ratio is 0.7, it has an interest coverage ratio of 35.75, so it is financially stable. GuruFocus has assigned the company a financial strength score of 6 out of 10 and a profitability score of 10 out of 10.

Biogen has a market cap of $52.16 billion and an enterprise value of $54.08 billion. Below is a chart showing its revenue and net income in recent years.

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A potentially less costly drug

So far throughout its history, Biogen has mostly made its money off highly expensive, highly effective drugs for diseases such as multiple sclerosis, leukemia and hemophilia. These drugs aren't mass-marketed because mass-marketing wouldn't do any good; the patients that need treatments for these diseases are motivated enough to find these drugs with the help of their doctors, though due to the prohibitive expenses, many cannot afford them anyway.

Take Biogen's drugs for multiple sclerosis as an example. According to Biogen, 38% of diagnosed multiple sclerosis patients worldwide use its drugs. Due to the difficulty of diagnosing the disease, researchers already estimate that this disease is extremely underdiagnosed, as people from disadvantaged economic backgrounds are unable to afford the tests necessary to get a diagnosis. Add that to the fact that Biogen's Tecfidera, the best-selling oral MS drug in the U.S., costs $128 for each daily dose and you can see why little marketing is needed. Those who have the disease and the money to pay will buy the drugs.

However, there are 947,000 diagnosed MS patients in the U.S. compared to 5.8 million diagnosed Alzheimer's patients. The number of patients that would benefit from a new Alzheimer's drug is high enough that it will likely drive down the production cost, making the purchase price more widely affordable. This accessibility would likely push increased sales of the drug.

Potential for growth

With a potential mass profit-earner on the horizon, Biogen's outlook for future growth is good. The company has a three-year revenue growth rate of 12.1% and a three-year earnings per share without non-recurring items growth rate of 12%. According to the Peter Lynch chart, the stock is currently undervalued.

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High enough profits from the sale of aducanumab might also have the potential to decrease the costs of Biogen's other drugs to a level where they could turn more of an overall profit from increased sales. However, this is still just speculation; it all depends on FDA approval and drug sales that haven't happened yet. There is no doubt that approval and sales of the drug would be profitable for Biogen, but in the meantime, the stock is still undervalued in terms of the company's current offerings and strong financials.

If your only goal is to catch the aducanumab wave, though, you might want to wait to buy until the drug's future is more certain.

Disclosure: Author owns no shares in any of the stocks mentioned.

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This article first appeared on GuruFocus.