Biogen's Stock Pullback Offers a Second Chance

Key Points

• Biogen's stock jumped after the company announced positive top-line data from a Phase 3 trial for Alzheimer's treatment.
• More than a dozen analysts have called Biogen stock a buy since the big news.
• The company also has another big growth driver in its flagship Tecfidera product, a drug for the treatment of multiple sclerosis.

After slipping to its lowest level since 2013, Biogen Inc. (NASDAQ:BIIB) was all but forgotten by growth investors. That changed in dramatic fashion late last month when the biotech’s pipeline got a major boost. 

Why Did Biogen’s Stock Jump Higher?

On September 27th, Biogen along with co-development partner and Japanese pharmaceutical leader Eisai announced positive top-line data from their Phase 3 trial of lecanemab. The investigational treatment for early-stage Alzheimer’s disease met its primary endpoint in reducing cognitive and functional decline by 27%. It also met the secondary endpoint of changing amyloid levels in the brain in a statistically significant manner.

The news was greeted with intense buying activity for a stock that had plunged 58% from its summer 2021 peak. Biogen shares gapped up 40% on the day of the announcement in 15-times the 90-day average volume. The stunning gapper erased 10 months of losses in a single day, bringing newfound hope to biotech investors.

The FDA has agreed to use the Biogen/Eisai trial as a confirmatory study. This means that it will be used to confirm the clinical benefit of the Alzheimer’s candidate as it reviews the pair’s Biologic License Application (BLA). The regulatory body granted priority review for the BLA and set an action date target of January 6th. 

As the market awaits the pivotal FDA decision, additional data from the lecanemab study is expected to be released at the Clinical Trials on Alzheimer’s Congress (CTAC) conference held in San Francisco from November 29th through December 2nd. 

Is it a Good Time to Invest in Biogen Stock?

Unfortunately for Biogen shareholders, the big rally was short-lived but not by any fault of the company. Selling pressure set in because of the broader market downturn causing the stock to slide back to the mid-$200’s. 

A second burst came on Thursday, however, when Biogen benefitted from a strong day in the market and surged back to the $270 level. Yet it is still trading below where it soared on the Phase 3 lecanemab update, giving investors an opportunity to pounce on a name that has momentum on its side and a potential catalyst to come in January's anticipated FDA decision.

While some sell-side research firms have taken a cautious stance after the big move (and due to FDA uncertainty), others see more gains ahead. More than a dozen analysts have called Biogen stock a buy since the big news, expecting the positive trial outcome to pave the way for FDA approval. Several of the revised price targets run well into the $300’s.

However, there’s reason to be cautious here because Biogen is no stranger to extreme volatility. Less than two years ago, the stock went on a wild up and down ride related to another Alzheimer’s drug (aducanumab). The FDA initially offered a positive review of the drug only to decline endorsement days later. Marketed under the Aduhelm name, the drug was ultimately not covered by Medicare, dealing a devastating blow to the company and its investors.

Many are expecting this time to be different. The data around lecanemab has been particularly strong which, combined with the limited options for Alzheimer’s patients, makes it hard to deny. According to the Alzheimer’s Association, more than 6 million Americans are living with Alzheimer’s disease. Within the next 30 years, the costs associated with Alzhiemer’s and other forms of dementia are expected to approach $1 trillion. 

What are Biogen’s Growth Prospects?

The developments around lecanemab will dictate where Biogen’s stock goes in the near-term. Even if it clears regulatory hurdles, securing approval from the Centers for Medicare and Medicaid Services is another hurdle. Getting FDA approval without the backing of Medicare would be a major setback.

While Biogen has become synonymous with Alzheimer’s treatment over the last few years, the company has a larger growth driver at hand. Led by its flagship Tecfidera product, multiple sclerosis (MS) drugs account for approximately two-thirds of Biogen’s revenue. And with generic competition on the rise in the MS market, the need for a non-MS blockbuster such as lecanemab can’t come soon enough.

Outside of its MS and Alzheimer’s programs, Biogen owns the first approved treatment for spinal muscular atrophy. It has also achieved milestones on new treatments for depression and various neuromuscular disorders. It is ramping up its own biosimilar product launches to combat the growing threat of generics. Looking into the back half of the decade, new programs in neuropsychiatry, Parkinson’s disease, lupus and stroke are expected to progress. 

In the meantime, Biogen’s five different MS products will be leaned on to build off last year’s $7.1 billion revenue total. Whether its latest Alzheimer’s drug turns into a blockbuster or not, the company is positioned to become more diversified over time. This translates to a diminishing risk profile which, combined with the emerging growth prospects, makes the stock attractive here.