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Biogen stock a big risk worth taking?

August 26, 2020

Biogen will find out in early 2021 whether it will have the largest sales opportunity for the pharmaceuticals industry in at least a decade. Meanwhile, the drug company’s stock is a worthy risk for investors who can stomach a roller-coaster ride.

At first look, Biogen seems more like a plodding drugmaker than a pending highflier: The neurology specialist boasts a market cap of about $46 billion. Second-quarter sales of $3.7 billion grew by just 2% from a year earlier. The shares trade at just 8 times this year’s adjusted earnings forecasts due to growth concerns. Generic-drugs giant Mylan launched a version of Biogen’s blockbuster multiple sclerosis drug Tecfidera earlier this month, and competition is heating up for Biogen’s spinal muscular atrophy treatment Spinraza.

Instead, the action rests entirely on the prospects for Biogen’s experimental Alzheimer’s disease treatment, aducanumab. The Food and Drug Administration will decide whether to approve the drug by March 7, though an earlier ruling is possible. The stakes for investors couldn’t be higher. A green light means years of blockbuster sales ahead, while a setback will mean a lengthy product delay and, in all likelihood, a sharp selloff.

Bears point to flaws in the aducanumab clinical data and there is evidence from the drug’s recent history to back that view: Biogen and its partner Eisai Co. terminated two late-stage studies in March 2019 after an analysis determined there was less than a 20% chance the drug would succeed in slowing study patients’ cognitive decline. Later that year, the company announced that subsequent analyses showed that one of the studies was successful and that the other had likely failed because of changes the company made to the study design halfway through the trial.

But regulators in recent years have shown more flexibility in granting approval to drugs that address previously unmet medical needs. And until Covid-19 emerged, it was hard to imagine a larger unmet need than Alzheimer’s disease.

Existing treatments don’t slow the progression of Alzheimer’s, which is eventually fatal. There are 5 million Americans currently living with the disease, according to the Alzheimer’s Association. That number is projected to increase rapidly in the years to come as the population ages. What’s more, caring for patients is dearly expensive, which assures high demand for even marginal therapeutic options.

Biogen stock, currently trading at around $275 a share, reached $500 back in 2015, when the company unveiled earlier stage aducanumab data. Back then, shares traded as high as 26 times forward earnings. In an ebullient market, shares may well drift higher before the FDA’s decision, though a return to that lofty multiple seems unrealistic.

Real growth prospects at a sane valuation are exceedingly hard to find in 2020. Opportunities like Biogen are worth stomaching some risk.

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