The field of Alzheimer's disease (AD) has been where experimental drugs come to die in the past couple of decades. Many companies have tried and largely failed to develop new and effective therapies for this disease. However, one biotech has managed to earn approval for not just one but two AD medicines in the past two or so years. And that's Biogen (BIIB 0.94%).
Given this impressive feat, one would expect Biogen's shares to have delivered excellent returns recently, but that's not the case. The company's stock performance has been below average. What's going on with Biogen? And is it worth it to purchase its shares today?
Biogen's prospects in the AD market
Biogen's first approved AD therapy, Aduhelm, got the nod in mid-2021. Unfortunately, Aduhelm has been a major flop so far, and that won't change anytime soon. Aduhelm was approved under controversial circumstances, as the data supporting its effectiveness was far from conclusive. As a result, many physicians refused to prescribe it.
However, that problem shouldn't plague Biogen's Leqembi, which made it to the market this year. Biogen shares the rights to Leqembi with its longtime partner, Japan-based Esai. They will split the profits and losses associated with the AD medicine equally. What do Leqembi's sales prospects look like? While estimates vary, some analysts expect it to deliver $3 billion in revenue by 2028. Last year, the biotech reported $10.2 billion in revenue, representing a 7% year-over-year decline.
The company's sales have decreased recently due to biosimilar competition for some of its products. That should continue this year. Biogen's revenue for the first six months of 2023 dropped by almost 4% year over year to $4.9 billion. Leqembi's additional $1.5 billion in revenue in 2028 will represent roughly 15% of the company's total sales for the current fiscal year. That's meaningful.
Looking elsewhere for growth
Biogen is making other moves to improve its lineup. In August, the U.S. Food and Drug Administration (FDA) approved Zurzuvae, a medicine that Biogen developed with Sage Therapeutics for postpartum depression (PPD). Unfortunately, the FDA declined to approve Zurzuvae for the treatment of major depressive disorder (MDD). While MDD affects millions of patients, PPD's market opportunity is much smaller -- in the hundreds of thousands.
The FDA gave Zurzuvae the thumbs down in targeting depression for one of the worst possible reasons: The data did not support its efficacy. The best-case scenario at this point would be for Biogen and Sage Therapeutics to run additional clinical trials to provide further evidence. In the worst-case scenario, they will give up on earning approval for Zurzuvae in treating MDD. Thankfully, Biogen has other tricks up its sleeve.
The company is in the process of acquiring Reata Pharmaceuticals (NASDAQ: RETA) -- a biotech company focused on developing neurologic diseases -- for $7.3 billion. Reata's sole product on the market is Skyclarys, a treatment for Friedreich's ataxia (FA). This is a rare degenerative neurological condition that causes various symptoms, including muscle weakness. In February, Skyclarys became the first FDA-approved FA therapy.
Even with a target market of just 4,500 patients in the U.S., Skyclarys could generate as much as $1.5 billion in annual sales in 2030. Another meaningful addition to Biogen's lineup.
Is Biogen worth the trouble?
In addition to Leqembi, Zurzuvae, and Skyclarys, which should help plug the gaping hole left by some of its former growth drivers, the biotech has made it a point to cut expenses and costs to improve its bottom line. These initiatives are great, but there is still substantial uncertainty regarding Biogen's financial results in the midterm.
Can the company's sales return to the meaningful growth it needs to make it an attractive stock again? Could the biotech launch newer medicines to further improve its lineup? This uncertainty is precisely why investors, especially risk-averse ones, should look to other biotech stocks. However, it might be worth considering initiating a position in Biogen for patient investors.
