So much promise

While Aduhelm doesn’t cure Alzheimer’s, it claims to halt it, which promises a better quality of life for millions of sufferers. But its fast-tracked approval is a controversial decision, and many health professionals are unimpressed.

In fact, three FDA members have gone so far as to resign in response to the decision. That’s because it’s not completed all phases of trial that drugs usually have to go through. Accelerated approval appears to be triggered because those in need are desperately clinging to the hope it can bring.

Biogen will continue to pursue efficacy trials, but the results are likely to take years, and in the meantime, it’s free to sell and profit from the drug.

Unfortunately, like many new drugs, Aduhelm is expensive. But, at $56k a year, it’s eye-wateringly so. In fact, this is a new extreme for drug pricing and likely to receive extreme pushback from authorities in the future.

Nevertheless, approval is set to mean at least some sales. And these are predicted to reach between a potential $7.5bn and $50bn a year.

A boost to the Biogen share price

The Biogen share price has already soared in response. At almost $385, it’s up 33% in a week, but down 18% since its peak on 10 June. A year ago it was $260.

If the drug meets positive expectations, it could be a game-changer for Biogen and its stock price. But it remains under scrutiny, and if it doesn’t meet expectations, I think the share price is likely to take a hit.

With the Aduhelm news cushioning the share price, other bad news seems to be flying under the radar. In the past week, Biogen reported failed trial results in three pipeline drugs; another potential Alzheimer’s drug, an eye treatment, and a drug for depression. While the share price seems buoyant for now, these failures remind us of biotech shares’ risk.

It’s also a highly competitive industry, and other major players are lining up their versions of Alzheimer’s drugs for FDA approval.

When investing in biotech/pharma stocks, I prefer big established companies over growth stocks. For that reason, I’d potentially allocate a small number of Biogen shares to my portfolio. But I also like AstraZeneca (LSE: AZN) as a significant pharma player.

AstraZeneca has a lot to offer

AstraZeneca has seen its share price fluctuate in recent months. Today it’s trading around £83 a share, which is down 17% from its 52-week-high and up 24% from its 52-week-low.

Its collaboration with Oxford University to bring a Covid-19 vaccine to market has not gone as smoothly as hoped, which has affected the AZN share price along the way. Nevertheless, the FTSE 100 company has more to offer.

AstraZeneca has a highly revered division focused on developing cancer therapies. It also has a diabetes treatment, heart failure therapy, and respiratory drugs. Additionally, it’s in the process of acquiring Alexion, a company specialising in rare diseases.

Q1 results showed signs of growth and rising revenues. I think both companies have potential. But I’d choose AstraZeneca over Biogen as it feels like a steadier long-term investment.

The surging Biogen share price

Earlier this month, the FDA approved Biogen’s new Alzheimer’s drug called Aducanumab. This is actually the first medicine that targets the neurodegenerative disease to receive approval in nearly 20 years.

There are already several products on the market that help reduce the symptoms of the disease. However, trial data from Aducanumab showed that it successfully breaks down clumps of amyloid plaques in the brain. These are what scientists believe cause the illness. In other words, it appears to be able to substantially slow down the progress of the disease — the first drug ever to do so.

Given that an estimated 5.5 million people in the US suffer from Alzheimer’s, this represents an enormous potential market for Biogen with little competition to fend off. The treatment is expected to cost $56,000 per year. So it opens up a possible $300bn annual opportunity for the firm in the US alone. Therefore, I’m not surprised to see the Biogen share price rise by double-digits on the news.

Taking a closer look at the fine print

As promising as this progress is, there remains a long road ahead for this business. It is worth being aware that the FDA approval was provided as part of the accelerated pathway. This pathway is reserved for rare cases where there are very few alternative treatments available. It enables companies like Biogen to get their unique treatments on the market faster while trials are still ongoing.

Moving forward, Biogen will need to begin new monitored confirmatory trials to conclusively determine whether Aducanumab works as well as believed. While the company can market and sell the drug in the meantime, this trial process will be long and expensive. What’s more, should it fail to achieve the desired results, Aducanumab may promptly have its approval status revoked.

The Biogen share price has been significantly elevated due to investor expectations of income from this new treatment. Therefore, should any signs of trouble start to emerge, I think it’s likely to mean a significant level of volatility in the stock.

Time to buy?

Several city analysts have labelled this latest achievement by Biogen as “game-changing”. And I’d have to agree. There remains a long road ahead to receiving full approval. But the company seems to have all the resources it needs to see the next set of trials to the end. And so, while the risks are high, I would consider adding Biogen to my portfolio even after the recent jump in its share price.

I’m not surprised that Biogen shares soared on this news. But should I buy now? No, but I’ll be monitoring the stock. There’s a lot of hype now surrounding this biotech firm. Firstly, I’m waiting for this euphoria to subside. Secondly, I’ve analysed the FDA’s statement, and the company still has a lot of work to do. Unfortunately, the approval isn’t straightforward.

The approval

Let me start by saying that it’s always a big deal for a biotech company when a regulator, like the FDA, gives an approval. And this certainly applies for Biogen. 

Biogen has developed an Alzheimer’s drug called aducanumab, which is sold under the brand name Aduhelm. On Monday, the FDA gave this drug an accelerated approval. But what does this mean?

Well, the FDA has indicated that the drug could provide a clinical benefit to Alzheimer’s patients. But I think the key thing to note is that the FDA now requires Biogen to conduct new randomised and controlled clinical trials to verify this.

I reckon the hard work for the company has just started. If the additional trials fail to confirm clinical benefit, then the FDA may have to withdraw the approval of the drug. There’s no guarantee the drug will be successful. Now that Biogen shares have rallied and are trading close to all-time highs, the stock is likely to be sensitive to any negative news.

The opportunity

If the biotech firm can get this right, then the upside is huge. According to the FDA’s website, Alzheimer’s is a debilitating disease that affects 6.2m Americans. It’s a progressive brain disorder that slowly attacks the memory and thinking skills. Eventually, it can impair the ability to carry out simple tasks.

Now here’s where Aduhelm comes in. So far the drug is the first of its kind approved for this devastating illness. In fact, scientists have been trying for years to treat the disease. This approval is the first new treatment approved for Alzheimer’s since 2003. In my opinion, this is a crucial inflection point for the battle against the illness.

But as I mentioned, Biogen has to conduct further trials. This will come at an additional cost to the firm, which could place pressure on profitability.

Market consensus

Just as Biogen shares rallied, institutional investors have also become bullish on the stock. Several investment banks have increased their price targets.

For example, Barclays has hiked its price target for Biogen to $395 from $265, but still maintains an ‘equal weight’ rating on the stock. Citigroup has upgraded the shares from a ‘sell’ to a ‘neutral’ and lifted its target from $200 to $440.

My view

I think Biogen has made a huge amount of progress to develop a treatment to tackle Alzheimer’s. And for this I commend the biotech company.

But there’s still a lot of risk involved and no guarantee the drug will be successful in future trials. So for now, I’ll be watching the stock closely.