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Don’t Buy Biogen Stock on the Promise of an Alzheimer’s Breakthrough

Dana Blankenhorn

Biogen (NASDAQ:BIIB) is the hot stock of the moment thanks to success in a trial of an Alzheimer’s drug. BAN2401, an antibody, seemed to slow the progress of the disease after those in early stages took it for 18 months. It operates by reducing the amount of a protein called beta amyloid. Progress on Alzheimers makes Biogen stock worth at least a look, right?

It’s one of two Alzheimer’s treatments in Biogen’s pipeline, the other being Aducanumab. Both follow the so-called “amyloid hypothesis,” the idea that reducing amyloid plaques using monoclonal antibodies can reverse the disease.

The news reports sent Biogen stock up 14% overnight, a gain of $42 per share or $8.8 billion in market cap. When trading opens July 6, it will be the first time that one-year gains for Biogen stock have been appreciably better than those of the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), which tracks the whole industry.

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Biogen Stock Isn’t Everything It Appears

One analyst immediately reiterated his buy rating on the stock with a $420 per share price target. That is over 20% ahead of its expected opening price of $347 per share. The current price is still below a January peak of over $370 per share.

The statement from Biogen and its Japanese development partner, Eisai, reversed a view delivered in December that the drug did not achieve its primary outcome measure after 12 months. This time it quoted a Cleveland Clinic official as saying the results “provide important support for the amyloid hypothesis.”

This will give hope to other drug-makers that BACE-1 drugs could slow the disease’ progression in its early stage, delaying the inevitable move to a nursing facility. The industry had been despairing on that front.

Merck (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ), may now take another run at the BACE-1 approach, with longer trials. It doesn’t mean billions of dollars flowing into Biogen’s coffers any time soon.

Alzheimer’s is the Moby Dick of dread disease, now affecting 5.7 million Americans. Alzheimer’s takes away memory, eventually requiring constant care. About one-third of those over 90 in a recent study suffered from dementia, and of those 71% had Alzheimer’s. (Full disclosure. My mother died of dementia in 2016, aged 93. It’s a horrible way to die.)

Even if the new study doesn’t mean Alzheimer’s profits, the stock’s pop lets Biogen close more deals like its recent purchase of almost half of Samsung Bioepis Co. Ltd. for $700 million and its recent purchase of an option on a drug being studied for acute stroke.

The more bets a drug company can take, the more likely it will eventually find a hit. Biogen has Biogen has none of the 10 biggest blockbuster drugs for 2018  and none of the top 12 sellers for 2017 either. Its biggest seller is Tecfidera, a drug for psoriasis.

The Bottom Line on Biogen stock

Biogen has been growing its revenues at just 7% per year, but had profits of $1.17 billion during the March quarter, over $5.50 per share, on revenue of $3.13 billion. Analysts expect it to match that performance for the June quarter, to be reported July 24, with earnings of $5.22 per share and revenue of $3.23 billion.

If it can keep up that pace through the year, Biogen might bring in $20 per share in earnings, a forward price to earnings multiple of just 17.7 on its expected $347 per share opening bid.

Most of the 29 analysts following Biogen stock already called it a buy before the latest announcement.

But you might want to see if it can hold today’s gains before jumping in. What today’s press releases give, tomorrow’s can take away. Neither BAN2401, nor the hypothesis behind it, is fully proven.

Dana Blankenhorn http://www.danablankenhorn.com is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.

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