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Investment Thesis
I covered Biogen (NASDAQ:BIIB) and its portfolio of Multiple Sclerosis, Neuromuscular and Biosimilar drugs in detail at the end of August, forecasting sales growth in detail to 2030, and concluding that, if fortune smiled on the company, there was a 50% upside opportunity for investors in play.
Less than one month later, Biogen stock already is up 39%, and the gains have everything to with a familiar target for the pharma – Alzheimer’s.
Data from Biogen’s confirmatory Phase 3 study of its latest Alzheimer’s candidate, Lecanemab, was released yesterday evening, and the headline news is that Lecanemab met its primary endpoint of CDR-SB (Clinical Dementia Rating-Sum of Boxes), and all key secondary endpoints, with statistically significant results.
In June last year, the FDA controversially approved Biogen’s original Alzheimer’s candidate Aduhelm, which sent the pharma’s share price soaring to $400, amid forecasts for peak sales in the double-digit billions.
Doubts about the drug’s efficacy – Aduhelm’s Phase 3 pivotal trials were initially halted after failing a futility test, and an FDA Advisory Committee voted 10-0 against approving the drug – and safety – the drug was associated with instances of brain swelling (“oedema”) – and price – Biogen’s proposed list price was $56k – turned the Aduhelm approval into a farce.
The Centers for Medicaid and Medicare (“CMS”) refused to provide reimbursement for Aduhelm for anything other than clinical trials of the drug, and although Biogen continues to evaluate Aduhelm in a Phase 4 post-marketing study requested by the FDA, the drug has been all but shelved.
Biogen’s share price fell <$200, before yesterday’s news sent it soaring again. Will things be different this time around?
If Biogen’s development partner – the Japanese Pharma Eisai (OTCPK:ESALF) – is able to submit its biologics license application (“BLA’) to the FDA before the end of this year, as management has promised, as well as in Europe and Japan, Lecanemab could be approved ahead of Eli Lilly’s (LLY) Donanemab – another Alzheimer’s drug candidate that is subject to a rolling approval process with the FDA.
That may constitute a major win for Biogen, and if Lecanemab can show a superior safety profile to Aduhelm, reimbursement may be granted, and Biogen’s share price will accelerate again, quite possibly recapturing the highs of June 2021.
Let’s take a closer look at the data and try to establish what Lecanemab’s path to approval looks like, what the market opportunity may be, and whether Biogen and Eisai have learned the lessons of the Aduhelm saga.
With Lecanemab’s Data, Biogen and Eisai Celebrate An Unexpected Win
After its experience with Aduhelm, investors in Biogen and Eisai could be forgiven for exercising extreme caution over results from the Lecanemab trial, but the data seems to suggest that they, and more importantly, ~6m Alzheimer’s patients in the US, and more than 55m people living with dementia worldwide, have cause to celebrate.
The headline figure was that patients in the Lecanemab arm of the clinical study – which enrolled 1,795 people with early onset Alzheimer’s – saw a 27% greater reduction in CDR-SB scoring – which assesses cognitive and functional performance in six areas: memory, orientation, judgment and problem solving, community affairs, home and hobbies, and personal care – vs. placebo after 18 months. That represents a statistically significant treatment difference in the score change of -0.45 (p=0.00005) in the analysis of Intent-to-treat (“ITT”) population.
Eisai CEO Haruo Naito made the following comment:
Additionally, the Lecanemab Clarity AD study results prove the amyloid hypothesis, in which the abnormal accumulation of Aβ in the brain is one of the main causes of Alzheimer’s disease, when targeted with a protofibril-binding therapy.
That may be considered a controversial comment by the CEO by many, considering the controversial nature of the amyloid hypothesis – and what may be a statistically significant, but also is a relatively marginal – improvement over placebo.
Many people have argued that the amyloid thesis is holding back other approaches to treating Alzheimer’s, and these people will not necessarily find too much to cheer in this data set.
Nevertheless, the 0.45 point improvement over placebo is superior to the 0.39 improvement observed in a small subset of patients in the Phase 3 Aduhelm trial that allowed Biogen to gain approval from the FDA back in 2021. Importantly, the safety profile of Lecanemab appears to be superior to Aduhelm.
The total incidence of amyloid-related imaging abnormalities-edema/effusion (“ARIA-E”) was 12.5% in the Lecanemab arm, vs. 1.7% in the placebo group, but the incidence of symptomatic ARIA-E was 2.8% vs. 0% in the placebo group. In the Phase 3, ~1,500 patient Aduhelm studies, the incidence of ARIA was 35% in the treatment arm, and one quarter of these were symptomatic.
Eisai also pointed to the improved diversity of the Lecanemab study – ~25% of the total U.S. enrollment were Hispanic and African American persons, according to Eisai, which is far more representative of the US Medicare population than the Aduhelm studies were.
How Does Lecanemab Compare With Lilly’s Donanemab?
Eli Lilly’s share price also rose today in response to the positive data – by ~7%, to $333, although neither Biogen/Eisai nor Lilly would likely claim that their drugs have the same mechanism of action. Both do target amyloid build-up, however, and are trying to prove that reducing levels of amyloid beta results in a slowing of cognitive decline.
In its Phase 3 TRAILBLAZER study, which met its primary endpoint, Lilly used its own unique endpoint of Integrated Alzheimer’s Disease Rating Scale (iADRS). In fact, Donanemab failed to outperform placebo based on CDR-SB scoring, which is more widely known, potentially giving a slight edge to Lecanemab’s data. Donanemab’s Phase 2 study additionally enrolled only 257 people, while Lecanemab’s latest study enrolled 1,795.
Lilly initially planned to use CDR-SB in its Phase 3 pivotal trial which it’s now running, although this has now apparently been switched back to iARDS, meaning there may be no direct comparison between Lecanemab/Donanemab study results. Donanemab has also been associated with instances of ARIA, with symptomatic ARIA-E reported in 6.1% of patients in the treatment arm.
If it gets the positive data required from its Phase 3, Donanemab could be approved as early as February next year, meaning it’s likely to be incredibly close between the two drug candidates as to which could be approved first. Both Biogen/Eisai and Lilly believe that only a full approval – rather than an accelerated one – will be sufficient to persuade the CMS to offer reimbursement outside of the clinical trial process.
What’s The Market Opportunity?
Theoretically speaking at least, Biogen’s plan with Aduhelm was to charge $56k per annum and with a patient population of ~5.8m in the US alone, its market opportunity – as the only disease-modifying therapy approved for Alzheimer’s was ~$325bn.
The pricing of Aduhelm was a huge issue for Biogen, however, and by the time the company agreed to drop the price to $28,200, it was too late – the drug has only earned revenues of $300k to date, and it may never make another commercial sale.
Eisai – which has assumed responsibility for negotiations with the FDA and all approval shots, plus pricing and rollout strategy – the two companies have agreed to share commercial profits 50/50 – will need to think very carefully about price, and there are other restrictions, such as patient access to infusion centers to receive the drug.
Nevertheless, the demand for an Alzheimer’s therapy that has delivered solid evidence of efficacy in clinical studies will likely be very strong. If Donanemab and Lecanemab are approved it seems certain they would share a market worth double-digit billions, although which one would go on to dominate is hard to predict.
When modeling for sales of Aduhelm shortly after approval in a post for Seeking Alpha last year, after factoring in pricing discounts, a reduction in list price from $56k to $41k after the first year, royalties paid to Eisai and Neurimmune of >50% of revenues, and infusion sites available, I calculated that by 2026, Biogen could drive net revenue of ~$11.5bn, based on 750k patients treated. I would be tempted to forecast something similar should Lecanemab win approval early next year.
Is There Any Other Competition?
This being a market as lucrative as Alzheimer’s, there is plenty of competition for Biogen besides Eli Lilly, although this being a disease as difficult to treat as Alzheimer’s, most companies have historically failed to deliver a viable product.
The most obvious obstacle to a monopolistic share of the Alzheimer’s treatment market – given there are no disease-modifying therapies currently approved to treat the disease, except Aduhelm – or a hegemony established with Lilly – is Roche’s (OTCQX:RHHBF) Gantenerumab, another therapy targeting amyloid beta clear-up. Roche stock was +4% today on the Swiss stock exchange.
Roche has a >2,000 patient Phase 3 study of Gantenerumab ongoing that will read out data in 2024, and seven other trials ongoing, including GRADUATE 1 and 2, investigating the efficacy and safety compared with placebo in ~1,000 participants per study who have early Alzheimer’s over 27 months, with results due this quarter. Given the therapy’s apparent similarity to Donanemab, a positive readout is a likely outcome.
Elsewhere, Cassava Sciences (SAVA) has arguably delivered the most promising trial data to date, with patients experiencing a mean change from baseline at six months (from ~200 patients enrolled at 16 different investigator sites) of -1.6, at 9 months, -3, and at 12 months, -3.2, in ADAS-Cog 11 scoring – a gold standard measure of cognitive decline.
There’s no placebo arm to compare to in this trial, however, and considerable controversy surrounding the drug’s mechanism of action, with many observers accusing Cassava of manipulating data in the past to prove its thesis that targeting Simufilam, a “scaffolding” protein, was effective. On the positive side Cassava has 2 Phase 3 clinical trials ongoing, which are ~25% enrolled, with a placebo arm.
Other companies worth looking out for include Prothena (PRTA), Anavex Life Sciences (AVXL), and perhaps even Annovis Bio (ANVS), once valued at ~$2.5bn based on early clinical data for an Alzheimer’s/Parkinson’s therapy.
Conclusion – A Big Plus For Biogen After A Torrid Year – Expect Further Volatility
As I discussed in my last note on Biogen, the company’s Multiple Sclerosis franchise faces problems related to expiring patents and generic competition, and the only current support comes from its Neuromuscular and Biosimilars franchises.
Nevertheless, I was able to point to a multitude of approval shots – from Zuranolone in depression to an Eylea – Regeneron’s (REGN) ~$9bn per annum selling eye disease therapy – biosimilar – to Tofersen, which has recently returned some positive data in Amyotrophic Lateral Sclerosis (“ALS”), to potential new opportunities in Stroke, Lupus, and Parkinson’s Disease. The value of these drugs, if commercialized, suggested to me that the pharma could grow revenues beyond $16bn by 2030, despite the difficulties faced.
Biogen is characterized by a large number of clinical trial failures, but that’s to be expected for a central nervous system disease specialist. The Lecanemab data provides some genuine grounds for optimism, however. In my last post I pegged the therapy for peak sales of $1.5bn, but I would not be tempted to raise that to at least $5bn.
Of course, the therapy is not approved yet, and there will be other challenges such as the competition from Donanemab, pricing and reimbursement, etc.
I advised investors to buy Biogen at historical lows last month. Would I advise investor to buy a 12-month high today, after seeing the lecanemab data? It’s a tough question after witnessing the Aduhelm debacle, but I can guarantee investors one thing. Biogen stock will move significantly in one direction of the other in early 2022 when Lecanemab will face critical decisions on approval, and there’s a good chance that the news will be positive, at least at first.
I would expect further upside at this time, but just as with Aduhelm in June 2021, all gains will be lost if the therapy proved to be a dud in a commercial setting, wither due to underlying safety concerns, a better drug, or a lack of reimbursement.
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