Biogen (BIIB) might need to revisit pipeline after Alzheimer’s drug setback

The controversy surrounding biotechnology firm Biogen’s (NASDAQ: BIIB) Alzheimer’s drug Aducanumab took a positive turn last week after the FDA issued a favorable statement on the experimental formulation that is awaiting approval. The report set off a rally and the company’s stock gained a whopping 44% in a single day, before withdrawing and paring most of those gains in the following days.

The stock rally, which came about two weeks after the company’s not-so-impressive third-quarter results, proved to be short-lived. Though the long-term prospects of the stock look positive, market watchers recommend holding it. For prospective investors, the best strategy would be to stay patient until the trend changes for the better.

Unexpected Setback

A few days after its positive response, an FDA panel took a skeptical stance on the efficacy of the drug, indicating it might not be approved for Alzheimer’s treatment. In the stock sell-off that followed, Biogen lost several billion dollars in market value. Aducanumab, which is considered a unique therapy for its ability to cure the disease unlike the existing treatments that only reduce symptoms, has been a top priority for the company for quite some time.

Had the FDA granted approval, Aducanumab would have unlocked a huge sales opportunity spanning many years, thereby strengthening Biogen’s position in the industry. In the current scenario, the management might consider strategic acquisitions to enhance the portfolio and build new revenue streams.

Road Ahead

The company is on track to make a regulatory submission in Japan for Aducanumab, after submitting a marketing authorization application in Europe. The US setback came at a time when Biogen is facing stiff generic competition to its blockbuster multiple sclerosis drug Tecfidera, which forced the company to cut its full-year guidance. The business loss from generic competition might prompt the management to take steps to cut costs and save margins.

Meanwhile, the company sees immense potential for its biosimilar business and is planning a major expansion in the U.S. and China, where it is set to launch two new ophthalmology biosimilars. Biogen continues to benefit from the success of its biosimilar portfolio, including the top-selling Benepali,

Weak Q3

The products segment, which accounts for about 80% of Biogen’s revenues, witnessed weakness in the third quarter compared to last year, resulting in a 6% fall in total revenues to $3.4 billion. Consequently, earnings decreased to $8.84 per share during the three-month period, the results for which were published on October 21.

Biogen’s CEO Michel Vounatsos during his post-earnings interaction with analysts said, “With a deep pipeline, aducanumab now under review and our recent collaboration with Denali, we believe we are well-positioned to lead in the fight against both Alzheimer’s disease and Parkinson’s disease, the number one and number two most common neurodegenerative diseases with an urgent need for novel treatments.”

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Read management/analysts’ comments on Biogen’s Q3 2020 earnings

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The past few years have been a period of high volatility for Biogen’s stock that went through several ups and downs. After falling 16% in the past 10 months, the stock traded higher during Wednesday’s regular session, hovering near the $245 mark.