Shares of Biogen and Eisai exploded higher last week after announcing success in a late-stage clinical trial for Alzheimer drug Lecanemab. Could recent successes put large biotech companies back on investors’ radars?
Alzheimer disease is believed to affect over 55 million people worldwide. The progressive disease destroys memory and can cause dementia. It’s also the fifth leading cause of death in adults over 65 years old. Providing drugs to slow the disease’s progression would mean more time for people to participate in daily life and sustain independence.
New discovery brings hope
Biogen (ticker: BIIB) and Eisai (adr ticker: ESALY) saw their shares surge 50% last week after the two biotech firms said they will seek regulatory approval for Lecanemab; their experimental Alzheimer drug, which showed to slow the rate of progression of the memory-robbing disease by 27%.
The drug targets a toxic protein responsible for the disease. The duo will apply for regulatory approval in the US, Europe, and Japan. Analysts are hopeful that the trial data are strong enough for Lecanemab to be approved and qualify as reimbursable by government-funded health schemes (Medicare).
If approved, analysts believe Lecanemab could be brought to market by the end of 2023, and that at its peak sales it could potentially reach USD13.3 billion per year. The two biotech firms will co-promote the treatment and Biogen will get a 45% slice of the profits.
It is also important to point out that the Biogen-Eisai duo is already leading in the race to help Alzheimer patients. It has already developed the first FDA-approved therapy for Alzheimer’s disease, called Aducanumab, and sold under the brand name Aduhelm, launched in June 2021. While the Aducanumab treatment is promising, the high price tag of roughly USD56’000 for the average patient has limited its success given Aduhelm has not convinced all doctors to prescribe it and the drug does not qualify as reimbursable by government-funded health schemes. Investors are hopeful the stronger discovery Lecanemab will obtain the title of being reimbursable, which would make it much more likely for the treatment to achieve massive sales.
Biotech companies developing Alzheimer treatments
Pharmaceutical companies spent around 25% of sales on average on R&D prior to the pandemic, and R&D budgets could be on the rise again. Approvals of new drugs from the US’s FDA have increased over the last few years, therefore encouraging US and multinational companies to boost their R&D budgets.
While there are 143 drugs in the development pipeline for the neurological disorder, just a handful of biotech companies are in the advanced stage: Biogen and Eisai, Eli Lilly, and Roche. Eli Lilly's Donanemab is expected by mid-2023, and Roche is expected to report results on Gantenerumab later this year.
- Biogen is an American biotech company specialising in neurological disorders.
- Eli Lilly (ticker: LLY) is an American pharma company most known for its clinical depression drug Prozac (1986) and its biggest revenue drivers are diabetes drugs Trulicity (2014) and Humalog (1996). In 2019 it purchases Loxo Oncology for USD8 billion.
- Roche (ticker: ROG.SWX) is a Swiss multinational healthcare company known for developing diagnostics and biotech treatments in oncology, immunology, infectious diseases, ophthalmology, and diseases of the central nervous system.
Other large players such as Novartis and Amgen spent years developing drugs to slow down Alzheimer’s disease but were unsuccessful.
Biotech: a turnaround in sight?
Biotech companies are developing treatments for a range of diseases, with many affecting the fast-growing elderly population. Biotech most likely has a bright future and investors could be looking at the 30% drawdown since September 2021 as a buying opportunity.
Catalysts for a turnaround could be either one of these or a combination of them:
- Increase in M&A deals: Lower valuations make it more attractive for companies with solid balance sheets to pursue acquisitions.
- Winning FDA approvals: A more friendly FDA could help companies with solid clinical trials bring products to market faster.
- Improving market environment: After the market panic of interest rates ‘reset’ investors entering biotech investments now would benefit from the lower valuations that the current market offers.
Below are some of the largest biotech companies listed in the US with market caps ranging from 20 to 120 billion USD. While each one has a unique story, biotech companies do have an element of being unpredictable as the success of billions of dollars in sales depends on the clinical trials. As a result, looking at biotech as a group is a source of less uncertainty and in terms of stock prices, less volatility.
- Amgen Inc (ticker: AMGN)
- Vertex Pharmaceuticals (ticker: VRTX)
- Gilead Sciences (ticker: GILD)
- Regeneron Pharmaceuticals (ticker: REGN)
- Moderna (ticker: MRNA)
- Illumina (ticker: ILMN)
- Iqvia (ticker: IQV)
- Argenx (ticker: ARGX)
- Biontech (ticker: BNTX)
Conclusion
The breakthrough for the new Alzheimer’s drug is very encouraging for biotech and could signal the start of a period where more FDA approvals are awarded. The industry has been hit severely by the market turmoil, but some individual biotech stocks have performed well due to the strength of their unique stories. More cautious investors could also wait for stronger signs of M&A appetite and for a turnaround or stabilisation of the overall stock market.
