Biogen’s Alzheimer’s Drug Opens Up a New Market. These Stocks Could Benefit if More Approvals Come.
An enormous market that has eluded drug companies for decades has now been unlocked.
When the U.S. Food and Drug Administration approved Aduhelm, Biogen’s (ticker: BIIB) Alzheimer’s disease therapy, this past Monday, it did so on the basis of the drug’s ability to reduce the level of junk proteins in patients’ brains. The agency believes that clearing those proteins, called amyloid plaques, reduces cognitive decline.
Before the approval, few had thought that clearing amyloids was enough to get an Alzheimer’s therapy the green light from the FDA. The move now opens the possibility of approvals for other drugs that, like Aduhelm, can clear amyloid plaque, but haven’t been proven definitively to slow cognitive decline. Eli Lilly’s (LLY) donanemab is one. Gantenerumab, from Roche Holding (RHHBY), is another. Biogen and its partner, Eisai (ESALY), have a third, known as BAN2401.
The scientific consensus is still out on whether plaque clearance has clinical benefits for Alzheimer’s patients. Indeed, three scientists resigned in protest from an FDA advisory panel after the approval. But the agency’s decision could lead to a rush to market for similar drugs, and opens opportunities for tremendous growth for Lilly and Roche, as well as Biogen.
The total market could be $40 billion by the end of the 2020s, Bernstein analyst Ronny Gal says.
Shares of Biogen have soared on the news, climbing 38% on Monday alone. The stock was trading at $420 by late in the week. In a note out early in the week, Jefferies analyst Michael Yee increased his price target on the stock to $500, from $450. Lilly is up, too, jumping about 15% this past week, while Roche has climbed 7%. How the Aduhelm decision will affect those companies depends on the FDA, which after this week, seems more inscrutable than ever.
Mizuho analyst Vamil Divan wrote that if the Aduhelm precedent allowed Lilly to introduce donanemab a year early, the stock could be worth nearly $270, up from a recent $233, based on a discounted cash flow analysis.
Donanemab’s effect on cognitive scores was mixed in a large-scale trial, but its ability to clear plaque may be even better than Aduhelm’s. Three months ago, Lilly said it would need to run a second large trial before filing for approval. Now, the company is likely reconsidering. Investors will learn more on the company’s next earnings call, Divan says.
Lilly won’t be the only one considering changes to their submission plans. “You’re going to see all kinds of people saying, ‘If you did it for them, you have to do it for us,’ ” says Christopher Raymond at Piper Sandler.
Still, the FDA could take a more conservative approach next time, now that it has offered Alzheimer’s patients one option. Or not. “Now that this pathway is opened, I don’t know how you close it,” Divan says.
The Alzheimer’s market is vast. Biogen says there could be between one million and two million Alzheimer’s patients in the category most likely to benefit from Aduhelm. The company has priced the drug at a startling $56,000 a year, which means that only a fraction of that population needs to take Aduhelm to make it a megablockbuster.
Analyst estimates for Aduhelm range from $5 billion to $10 billion in annual sales of the drug within just a few years. The FDA, meanwhile, put no limits on which Alzheimer’s patients can take the drug. Private insurers, and even Medicare, could limit it to certain patients. But that isn’t necessarily a given—and there are six million Alzheimer’s patients in the U.S.
Biogen executives tell Barron’s that they expect the drug’s sales to grow slowly, and that doctors will probably give the drug only to the patients it will most likely help. The company’s chief medical officer, Dr. Maha Radhakrishnan, says the large data set that Biogen submitted “is essentially giving the FDA the confidence that physicians will make the right call, in conjunction with discussions with the patients and their families.”
Biogen says that it can make enough of the drug to treat one million patients a year, and that it could grow its capacity to make enough to treat more than four million annually.
It’s unclear what happens when Lilly enters the market. SVB Leerink analyst Marc Goodman thinks that if Lilly’s second trial of donanemab returns positive data, it may eat into Biogen’s market share.
Others say the market is big enough that the drugs will build on each other. “If people believe that these drugs are doing something good, the Alzheimer’s market isn’t going to be a $7 billion market, it’s going to be much, much larger,” Cowen analyst Phil Nadeau says.
Bernstein’s Gal projects that by 2028, Lilly’s donanemab could generate revenue of $16.4 billion, while Aduhelm could bring $10.9 billion, and Roche’s drug could sell $9.2 billion. “Biogen is in a position to outperform in the near term and, if it executes effectively, to translate its approval for broader leadership” in Alzheimer’s, Gal writes.