Biogen (BIIB 0.94%) built itself into a multiple sclerosis (MS) treatment giant over the years -- but as older blockbusters lost exclusivity, growth stalled. And last year, annual revenue dropped more than 45% to $9.8 billion from its peak back in 2019. Though Biogen launched a new MS drug back in 2019, called Vumerity, it's failed to replicate the growth and revenue levels of its predecessor.
To boost growth, Biogen turned to other areas, and has placed a particular focus on the treatment of Alzheimer's disease. The company and partner Eisai won approval of Leqembi in the U.S. last year and have progressively launched the treatment there and in China and Japan. But just this week, the companies received some bad news: European drug regulators turned down Leqembi, saying the risks outweigh the potential benefits.
As a result, Biogen shares slipped 7% in one trading session, leaving the stock with a decline of more than 18% so far this year. Considering this latest news and the stock's performance, is Biogen a player to avoid right now... or a bad news buy? Let's find out.
Image source: Getty Images.
The Leqembi story
First, let's dive into the Leqembi story. This treatment is a monoclonal antibody infusion designed to clear amyloid-beta plaques from the brain. These plaques upset cell function and are thought to contribute to the progression of Alzheimer's disease.
Biogen and Eisai won accelerated U.S. approval based on clinical studies showing Leqembi reduced amyloid-beta plaques in the brains of patients with early stage disease. The companies then won traditional approval after a phase 3 study showed a slowing of cognitive and functional decline in patients treated with Leqembi. It became the first-ever approved treatment that's demonstrated the ability to slow disease progression.
So, why has Europe put the brakes on such a treatment? Leqembi also comes with a risk. The treatment is associated with amyloid-related imaging abnormalities (ARIA), particularly swelling and potential bleeding of the brain. Europe's drug regulator cited these possible side effects as the reason behind the negative decision.
"The observed effect of Leqembi on delaying cognitive decline does not counterbalance the risk of serious side events associated with the medicine," the committee wrote.
Another possible review?
The companies plan to seek a re-examination of Leqembi, but these requests don't turn out favorable most of the time. About 39% of cases generally result in a positive turnaround, BioSpace reported, citing Jefferies analysts. And the process involves about two months of review, the analysts added.
Now let's consider the impact on Biogen using the worst-case scenario: Regulators stick with their decision. It may not represent a significant roadblock because the U.S. market is considered to be the biggest for the treatment. The U.S. market is expected to account for $7.7 billion of the 2023 through 2028 sales forecast, according to GlobalData. The U.S. should make up about 60% of the drug's revenue share, the report showed.
So even though the European rejection is bad news, it may not stop the drug from becoming a major revenue driver for Biogen. That said, it's important to keep in mind that the rollout of Leqembi is time-consuming and complicated. Patients first must have their disease confirmed through lumbar punctures or a PET brain scan, then they must have a brain MRI -- and once treatment begins, these MRIs are repeated between certain infusions.
"Challenges" and progress
In the recent earnings call, Chief Executive Officer Chris Viehbacher said there are "challenges to getting that -- even that first patient on treatment." The company says it's on the right track, though, with first-quarter sales of $19 million, almost triple the fourth quarter of last year. And patients increased more than 2.5 times from the end of the year.
So, now let's get back to our question. Is Biogen a biotech stock to avoid or a bad news buy? A look at valuation shows us Biogen is pretty cheap, trading at only 13 times forward earnings estimates. Of course, Biogen still is reporting product revenue decreases, and Leqembi isn't likely to generate soaring revenue in the near term. So the stock may not take off any time soon -- and it still isn't clear whether Leqembi will meet the company's long-term expectations.
If you're a cautious investor, you might hold off on buying and wait to see how the Leqembi story unfolds over the next couple of quarters. But, if you can handle some risk, like bargain buys and recovery stories, and aim to hold the stock for five to 10 years, Biogen -- in spite of the recent bad news -- could make a good buy. The company became a market leader in MS and should have what it takes to once again excel, possibly thanks to Leqembi and other new products, over the long haul.
