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A Turning Point for Biogen?

2 min read.

Caleb Dismuke

It’s been a crazy last two weeks for Biogen ($BIIB) shares.

What’s going on:

  • Last week, the FDA gave a positive assessment of its Alzheimer’s drug, and the stock soared 40%.
  • On November 9th, they suffered a setback. A committee of outside experts voted down the clinical data showing the drug to effectively treat Alzheimer’s. The stock gave back last week’s gains and then some.
  • However,  the WSJ said, “the FDA isn’t bound by the panel’s recommendation but typically follows its advice.” And the agency also said, “regulators have shown a willingness to be flexible in approving new drugs for otherwise unmet medical needs, and the agency itself said in briefing documents for Friday’s meeting that the need for Alzheimer’s treatments is enormous.”

What’s at stake for Biogen:

  • If approved, their Alzheimer’s treatment, called aducanumab, could become one of the best-selling drugs in the world, with U.S. sales projected to reach $7.5 billion by 2025. (Biogen’s 2019 TOTAL revenue was $11.3 billion)
  • If rejected, Biogen is left with a stable of aging multiple-sclerosis drugs with declining revenue.

Here’s what three analysts said after the panel rejected Biogen’s Alzheimer’s drug, aducanumab. Per Bloomberg:

  • BofA, Geoff Meacham-Cut to underperform from neutral with a $240 price target down from $360. There are instances where regulators have approved medicines after a negative panel vote. Still, we think the political fallout here would be significant — and engender major payer pushback and physician uncertainty.
  • Baird, Brian Skorney-Cut to underperform with a $228 price target. The panelists skewered the company. The prospect of approving aducanumab in the face of such an overwhelmingly negative vote and commentary is virtually impossible; doing so would destroy the agency’s reputation.
  • Jefferies, Michael Yee-Has a buy rating with a $450 price target. His reasoning: (i) This was the most opposite of a panel vs. FDA positive briefing book we’ve ever seen. (ii) Approving the drug in the wake of the panel could raise more public skepticism around the FDA when there’s already scrutiny over vaccines, and it is unclear what that would mean for FDA's scientific integrity.

What’s their chart telling us?

Biogen chart
  • The stock has traded in a range since 2016, roughly $200-$360.
  • We’re watching for a break of one of those two levels.
  • If $200 holds the downside, it’s probable the stock rotates back towards $360. That’s a Reward/Risk of 4 to 1 (60% upside vs. 13.33% downside).

The bottom line

The consensus among investors is that the drug will not pass the final FDA vote in March. For us, the Reward/Risk at these prices favors the bulls, as long as $200 holds the downside.