Mad Hedge Biotech and Healthcare Letter
October 10, 2023
Fiat Lux
Featured Trade:
(FROM MEMORY LAPSES TO MARKET LEAPS)
(BIIB), (ESAIY), (SAGE)
Posts
In the intricate maze of Alzheimer's disease (AD) research, many pharmaceutical pioneers have found themselves at dead ends. Over the past decades, the quest for groundbreaking AD treatments has seen numerous experimental drugs falter. Yet, against this backdrop, Biogen (BIIB) stands out, having secured approvals for two AD drugs within a span of just a few years.
Given this remarkable achievement, one might expect Biogen's shares to be soaring. Surprisingly, the company's stock performance has been underwhelming.
Biogen's first AD therapy, Aduhelm, received approval in mid-2021. Yet, its introduction to the market was not without challenges. The approval of Aduhelm was mired in controversy due to inconclusive data regarding its effectiveness, leading to hesitancy among many physicians. This raised eyebrows among investors, questioning the drug's potential return on investment.
However, the real game-changer lies in Biogen's second AD drug, Leqembi, which entered the market this year. Developed in partnership with Japan-based Eisai (ESAIY), the two companies will equally share the profits and losses.
For investors, this partnership signifies a shared risk and potential for significant returns. Analysts have varying estimates regarding Leqembi's sales potential, with some projecting revenues of $3 billion by 2028. Such projections can translate to substantial earnings per share, making it a focal point for stock market enthusiasts.
Forecasts suggest that the Alzheimer’s disease (AD) sector will witness a significant expansion, with an anticipated compound annual growth rate of 20.0%, escalating from $2.2 billion in 2020 to a staggering $13.7 billion by 2030 in the primary eight markets, namely, eight major markets the United States, France, Germany, Italy, Spain, the United Kingdom, Japan, and urban China.
Considering the cautious approach after the Aduhelm situation, the market might be hesitant about making bold predictions for Leqembi. However, from an investment standpoint, Leqembi's financial trajectory appears promising. With a set annual list price and a growing patient base, the drug's revenue stream is poised for growth. For investors, this means a potential uptick in stock value and dividends in the coming years.
Diving deeper into Biogen's portfolio, the company's pipeline includes specific assets like BIIB080, an antisense oligonucleotide therapy targeting tau, a protein buildup in Alzheimer's patients' brains. There's also BIIB121 for Parkinson's Disease and BIIB124 for Essential Tremor. These assets, if approved, could open up new revenue streams, making Biogen's stock even more attractive.
Beyond its neuro portfolio, Biogen is diversifying its offerings. In August, the U.S. Food and Drug Administration (FDA) approved Zurzuvae, a medicine developed with Sage Therapeutics (SAGE) for postpartum depression (PPD). However, the FDA declined its use for major depressive disorder (MDD), a much larger market. Needless to say, this decision impacts the company’s potential revenue.
Further solidifying its position in the biotech market, Biogen is in the process of acquiring Reata Pharmaceuticals for $7.3 billion.
This acquisition brings Skyclarys, a treatment for Friedreich's ataxia, under Biogen's umbrella. Reports suggest that the market for drugs treating Friedreich's ataxia could surpass $2 billion annually by 2030.
So, what's the bottom line?
Biogen is proactively addressing its challenges, diversifying its portfolio, and showing potential for growth. While there are uncertainties, the company's strategic moves in the biotech space make it a contender for portfolio inclusion. For those with a keen eye on biotech stocks, the company offers both risks and rewards. Its recent approvals and acquisitions signal potential growth, but as with all investments, due diligence is crucial.
In the ever-evolving world of biotech investments, Biogen evidently stands as a company with potential. Its endeavors in Alzheimer's treatments, strategic partnerships, and acquisitions position it as a stock to watch. While challenges remain, the company's trajectory suggests a promising future, making it a consideration for investors seeking growth in the biotech sector. I suggest you buy the dip.
Mad Hedge Biotech and Healthcare Letter
August 25, 2022
Fiat Lux
Featured Trade:
(A RISK WORTH TAKING)
(AXSM), (SAGE), (RLMD), (PFE), (LLY), (BMY), (BIIB)
When a drugmaker does not deliver a new product within the promised timeframe, its shares generally drop.
When this happens, investors should take a closer look at regulatory headwinds as potential buying opportunities, especially in the biotechnology world.
However, it’s important to determine whether the business in question can satisfactorily address the issues raised by the regulators and eventually get the green light for the held-up product.
Several companies find themselves in this scenario, but a particular one looks promising: Axsome Therapeutics (AXSM).
While Axsome isn’t one of the most renowned biotechs and its shares may look somewhat risky, it’s worth considering initiating positions in this growing company.
One reason is Axsome’s recent victory over a hurdle, finally gaining the long-awaited FDA approval for its depression drug that can take effect within just 1 week because it uses a unique mechanism instead of the traditional elements.
The drug, previously known as AXS-05, will be marketed as Auvelity and slated for sale in the fourth quarter of 2022.
For months, investors have been closely monitoring the progress and approval of this drug with some concern.
Doubts over Axsome’s capacity to deliver started to hound the company, especially after FDA’s self-imposed approval deadline for AXS-05 passed in 2021.
However, the company attributed the delay to the pandemic and shrugged off concerns over the actual drug.
Auvelity is the first of a class of drugs, which are classified as NMDA receptor antagonists, to be marketed in pill form created as a treatment for depression.
It is the only approved pill working as a fast-acting drug targeting major depressive disorder. This will also be Axsome’s first-ever marketed product.
Other than Axsome, there are several biotechs working on antidepressant treatments.
Among them, the closest potential competitors are Sage Therapeutics (SAGE) and Relmada Therapeutics (RLMD).
Sage recently started rolling out its own candidate, Zuranalone, for approval as a treatment for major depressive disorder.
Relmada is also working on a similar candidate, REL-1017, but seems to be at an earlier stage.
Psychiatric treatments like Auvelity are widely sought after and highly coveted assets in the biopharma world for a myriad of reasons.
The sheer potential of Auvelity puts Axsome on buyout watch for several Big Pharma and even expanding biotechnology and healthcare companies today.
Moreover, Axsome’s major depressive disorder drug would dovetail conveniently with the lineups of a lot of leading pharmaceutical names in the industry including Pfizer (PFE), Eli Lilly (LLY), Bristol-Myers Squibb (BMY), and even Biogen (BIIB).
With that in mind, Axsome’s brain trust would most likely demand an astronomical premium based on or relative to its current valuation if it ever enters any buyout discussion with interested suitors.
Auvelity sales are projected to hit $209.1 million in 2023, growing impressively to blockbuster status by 2027 at $1.5 billion.
By 2030, sales of this major depressive disorder drug are estimated to reach $2 billion every year.
Auvelity is made up of two drugs that physicians already readily prescribe and are comfortable with for years; one of which is bupropion.
Bupropion, marketed under the brand name Zyban, actually raked in blockbuster sales marketed as a smoking cessation treatment.
Hence, Axsome plans to leverage the success of Auvelity to begin a pivotal study that could utilize this major depressive disorder as a smoking cessation treatment as well.
On top of these, Axsome is anticipating another FDA approval in the next months.
The company submitted its new migraine treatment, AXS-07, for review in 2021. Like Auvelity, it encountered delays due to the pandemic. However, things seem to be moving along as the regulatory committees catch up.
By 2023, Axsome plans to submit another candidate for FDA approval. Clinical trial results for its fibromyalgia treatment, AXS-14, recently released positive data.
So, what now?
When investing in biotech, it’s always good to keep in mind that extreme volatility is an ever-present risk. This makes the sector unfit for those looking for short-term investments.
For Axsome, the biggest challenge today is showing that Auvelity sales can support the development of AXS-07 and AXS-14 and fund operations into 2024 without the need to ask shareholders for more capital.
However, even if Auvelity fails to deliver strong revenues in 2023, the rest of the company’s late-stage pipeline still looks pretty exciting.
Taken together, Axsome looks like a promising stock to invest in as a relatively small portion of a diversified biotech portfolio.
Mad Hedge Biotech and Healthcare Letter
July 21, 2022
Fiat Lux
Featured Trade:
(A BAD NEWS BUY HYPE)
(BIIB), (SAGE), (REGN)
Even when they’re on the dip, there are some stocks you should avoid. In a bear market, it’s always challenging to determine which stocks are good buys and which ones you should steer clear of at the moment.
Shares of biotechnology giant Biogen (BIIB) have plummeted by 40% in the past 12 months, clearly underperforming the broader market over the same period. While there are a lot of factors to consider, the drugmaker’s decline could be attributed to the controversial Alzheimer’s treatment Aduhelm.
Although Biogen’s shares are currently on sale, it doesn’t necessarily follow that the stock is a buy. So far, the company’s future still looks quite grim.
Admittedly, Aduhelm’s approval was an incredible milestone for the biotechnology industry. It was the first-ever FDA-approved Alzheimer’s disease therapy since 2003.
Unfortunately, it failed to live up to its potential. Actually, it didn’t even get close to fulfilling its promise.
Recapping the whole Aduhelm saga would take up more space than necessary, so here’s a quick rundown of the key events involving the controversial drug.
In June 2021, the FDA approved Biogen’s Aduhelm as an Alzheimer’s treatment.
The green light was a shock, especially since the FDA’s committee of experts adamantly voted against the drug, and the agency typically adheres to the group’s recommendations.
To appease the public, FDA required the biotech company to perform a post-approval study to re-confirm Aduhelm’s efficacy and safety. If the treatment fails, it must be taken off the market.
While Aduhelm became available commercially across the US by the second quarter of 2021, the drug failed to deliver on sales expectations. It only racked up a disappointing $3 million in revenue then.
By April 2022, the US Centers for Medicare and Medicaid Services (CMS) disclosed its coverage plan involving Aduhelm. It was limited to Alzheimer’s patients with mild cognitive impairment enrolled in clinical trials approved by CMS.
Biogen announced in May 2022 that it would drastically reduce its spending on commercial infrastructure focused on Aduhelm, owing in part to the CMS' limited coverage and possibly as a cost-cutting strategy. This move, which saved the biotech approximately $1 billion, reflects the company's loss of faith in Aduhelm and potential plans to abandon the project entirely.
Despite the Aduhelm fiasco, Biogen is still looking for Alzheimer's treatments.
The biotech completed a rolling submission to the for lecanemab in the same month it announced its decision to cut costs on Aduhelm infrastructures.
Lecanemab, which Biogen is developing alongside Esai (ESALY), is another Alzheimer’s therapy.
Lecanemab also works by getting rid of the beta-amyloid plaques in the brain. Understandably, it’s difficult to be too optimistic since it essentially has the same concept as Aduhelm.
Hence, Biogen needs a strong candidate to pull the company from this slump. Its revenue fell 6% year-over-year to $2.5 billion in the first quarter of 2022.
Biogen’s net income for the same period was $303.8 million, down from the $410.2 million it raked in the first quarter of 2021.
Most of Biogen’s revenue comes from its multiple sclerosis (MS) treatments. However, Tecfidera’s loss of exclusivity has allowed generic competition to chip away at their market share.
For context, the company’s total revenue from this segment in 2021 was $6.1 billion, which is 29% lower from 2020.
Meanwhile, Spinraza, another MS drug, hasn't experienced much growth either. In 2021, Spinraza recorded $1.9 billion in sales, falling by 9% from the $2.1 billion it reported in 2020.
Aside from its efforts in the Alzheimer’s and MS segments, Biogen also has other programs. It currently has 9 treatments queued for Phase 3 trials and several candidates for early-stage studies.
One promising prospect is its collaboration with Sage Therapeutics (SAGE). The two are working on zuranolone, which is a major depressive disorder treatment. The goal is to file for an NDA before 2022 ends and another NDA for postpartum depression by 2023.
Another prospect is its work on a biosimilar for Regeneron’s (REGN) top-selling macular degeneration therapy Eylea. This could lead to a lucrative market for Biogen since Eylea rakes in an average of $2.5 billion in revenues.
Needless to say, Biogen has so much riding on its pipeline programs. After all, it could no longer afford another spectacle like the Aduhelm episode. This is a critical reason that the stock is not looking attractively valued, particularly given the headwinds it’s facing.
Therefore, investors would be better off looking elsewhere right now. Declining revenues and earnings, exclusivity losses, growing competition, and no feasible catalyst on top of a struggling new product do not make any company—no matter how tumultuous the market—very attractive. Biogen may look cheap compared to other biotech and healthcare stocks, but it appears to have all the makings of a value trap.
Mad Hedge Biotech and Healthcare Letter
January 11, 2022
Fiat Lux
Featured Trade:
(A GOOD STOCK TAINTED WITH CYNICISM)
(BIIB), (LLY), (RHHBY), (SAVA), (PRTA), (SAGE)
Last year, talks that Samsung was in the process of making a $42 billion buyout bid for Biogen (BIIB) brought about a mixture of cynicism, hope, intrigue, and excitement over a potential agreement.
It was especially intriguing since the reported offer was roughly 20% more than Biogen's expected $35 billion projected value.
Eventually, this report was proven to be false.
But the mere fact that it garnered such traction and interest only highlighted Biogen’s seemingly debilitated state following their failure to deliver on a promised unprecedented motherlode following the controversial Alzheimer’s drug approval and lukewarm reception.
If you recall, experts expected Biogen’s Alzheimer’s drug, Aduhelm, to generate double-digit billions in sales considering its list price of approximately $50,000 annually and the roughly 5.8 million individuals diagnosed with the condition in the US alone.
Theoretically, Aduhelm’s addressable market was projected at $325 billion.
At that time, Aduhelm was anticipated to rake in at least $50 billion per annum—a projection that was reflected in the 55% increase in the company’s share price.
However, things didn’t go according to plan. Aduhelm’s accelerated FDA approval caused so much uproar that it eventually affected the drug’s marketability as well.
In an attempt to temper the protests, Biogen cut the cost of Aduhelm to almost half, with the drug priced at $28,000 annually instead of its original $50,000.
Despite this, the projected mega-blockbuster’s sales continued to disappoint, with its third-quarter earnings in 2021 only reaching a measly $300,000.
This January, though, Aduhelm might have a shot at saving redemption courtesy of a potential Medicare reimbursement scheme.
Ultimately, however, the decision to offer any form of reimbursement scheme will not only affect Biogen but all the Alzheimer’s disease treatments in the future.
This is actually one of the critical points that many people missed when Aduhelm gained approval.
In focusing too much on the share price of Biogen, they appeared to have misinterpreted the true purpose of the FDA’s decision.
Granting an accelerated approval for Aduhelm did not mean that the FDA was handing the company a chance to generate double-digit billions in sales.
What the agency intended was to demonstrate support for Biogen's thesis regarding a potential Alzheimer’s therapy.
That is, you can slow down the patients’ cognitive decline by aiming to reduce the amyloid-beta levels in their brains.
The FDA’s decision has, in effect, opened the floodgates not only for Biogen’s Aduhelm, but for all the other biotechnology companies working on the same idea.
To date, the companies developing their own Alzheimer’s disease treatment include Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.
Both are expected to release results within the year or early 2023.
Other names are Anavex Life Sciences (SAVA) and Prothena (PRTA).
Outside its Aduhelm efforts, Biogen has also been developing new treatments, as demonstrated by the $4 billion investment it made on its R&D last year.
One promising candidate that can deliver blockbuster sales is its major depressive disorder treatment Zuranolone, which is a collaboration with Sage Therapeutics (SAGE).
Meanwhile, Biogen is also working with Ionis (IONS) to develop a successor for its spinal muscular atrophy treatment Spinraza.
Since this top-selling drug is expected to lose patent protection in 2023, the company has spent $60 million to come up with a new and more potent version: BIIB115.
For context, Spinraza recorded more than $2 billion in sales in 2021.
At this point, investor sentiment on the company has stooped at an incredibly low level. Unfortunately, the weak rollout of its Alzheimer’s treatment has planted suspicions regarding Biogen’s entire pipeline.
However, I think this kind of pessimism is quite misguided.
While the reality is that Aduhelm may never achieve the mega-blockbuster status it was once believed to reach, the situation shouldn’t necessarily diminish the truth that Biogen is actually performing quite well—and it will continue to do just fine.
Mad Hedge Biotech & Healthcare Letter
April 15, 2021
Fiat Lux
FEATURED TRADE:
(BET ON THIS BIOTECH STALWART)
(BIIB), (LLY), (RHHBY), (SAGE)
Biogen’s (BIIB) move to develop the first approved treatment for Alzheimer’s disease remains the biggest story in the biotechnology industry.
Now, we’re down to the waiting part of the process as the US Food and Drug Administration reviews the drug, Aducanumab.
If successful, then Aducanumab could generate a whopping $12 billion in peak sales.
The approval could also push Biogen stock up to $400. Meanwhile, a failure could let it spiral to $200.
Aside from the United States, Biogen has also applied for approval in Europe and Japan.
Apart from Aducanumab, Biogen has another Alzheimer’s disease treatment candidate, Gosuranemab.
For comparison, Aducanumab targets the amyloid plaque in the brain while Gosuranemab targets another kind of brain protein, called tau. This candidate is currently undergoing a Phase 2 trial, with results expected to be released by June this year.
While there’s still not much to go on in terms of the efficacy of Gosuranemab, positive data from its study is estimated to push Biogen stock to reach into the $350 ballpark if we base it on previous movements involving Aducanumab.
Although Biogen is definitely the face of the race to find an approved treatment for Alzheimer’s disease, it’s not alone.
To date, its strongest competitors are Eli Lilly (LLY) with Donanemab and Roche (RHHBY) with Gantenerumab.
Outside its Alzheimer’s disease programs, Biogen has been working with Sage Therapeutics (SAGE) on another potential blockbuster.
The two companies have been developing a depression drug, Zuranolone, and the data so far have offered promising results.
Like Gosuranemab, Biogen expects data on the study in the first half of 2021 as well.
If the study on Zuranolone turns out positive results, then Biogen shares are projected to jump by as much as $72.
While all these are promising, less aggressive investors may not find Biogen a suitable investment at this point. Evidently, the stock brings with it a lot of risks.
Aside from the uncertainty of its Alzheimer’s programs, there’s also the ongoing patent battle involving one of its top-selling drugs, multiple sclerosis treatment Tecfidera.
When the company lost its patent exclusivity, the FDA started to approve generic versions of Tecfidera.
This is a major concern for Biogen since Tecfidera is a substantial revenue source.
For context, this drug generated $4.4 billion in sales in the US in 2019 alone. By 2020, sales dropped to $2.6 billion.
Now, sales for this drug are estimated to reach only $1.6 billion in 2021.
While Biogen appealed its loss of patent exclusivity, the company has already taken steps to continue benefiting from Tecfidera’s success.
An obvious effort is the launch of a newer and more potent multiple sclerosis drug, Vumerity.
To attract patients and retain its customers, Biogen has been marketing Vumerity as a more powerful and effective version of Tecfidera.
In terms of the uncertainty brought by Aducanumab, it’s true that gaining FDA approval would have the Biogen stock skyrocketing.
However, rejection won’t be as devastating to the stock. While shares are expected to fall if that happens, the suffering would be short-term.
In the long run, Vumerity will gradually gain traction and eventually reach the level of success of Tecfidera, while the rest of Biogen’s pipeline programs hold the potential to add to the company’s revenue stream.
After all, Biogen is one of the first names that comes to mind when you hear the word “biotech.”
Founded in 1978, this biotechnology company has amassed a market capitalization of more than $40 billion and multiplied its annual profit to over 200%.
While its gamble on finding a treatment for Alzheimer’s disease is a risk that not a lot of investors would be willing to take, Biogen still holds one of the most promising pipeline programs in the industry and a portfolio of existing drugs with notable potential.
Going forward, approval for Aducanumab would mean a massive year for shareholders of Biogen.
If not, then this is still a respectable company with strong rewards and worth investing in, especially if you buy the dips.
