A 40% rise in the stock market seems like a lot, but it actually reflects some skepticism from investors
An effective treatment for Alzheimer’s has long been the holy grail for drug companies. Wednesday’s 40% rise in Biogen’s stock market looks impressive, but implies some skepticism that she and his partner, Japan’s Eisai, have found it.
They say their candidate, lecanemab, slowed cognitive decline in a trial of some 1,800 early-stage patients, among other advances. There are more tests to do. Doctors will debate whether this slowdown is clinically significant, or even real, since measuring progress is difficult. What is clear is that, if it works, investors are making assumptions about sales that are not far-fetched.
Biogen’s $11 billion capitalization gain implies about $6.5 billion in sales over five years, assuming revenues are split between the two companies, discounted at a 10% rate, and valued at the same sales multiple as Amgen. about five times. He seems conservative. If the drug is priced at $20,000 a year per patient after discounts, that implies about 330,000 take it. That’s less than a quarter of the 1.5 million Americans with early-stage Alzheimer’s. Since it affects many more people in the world and there are no effective treatments, it seems very little.
Decades of failure explain why investors are timid. A 2014 study showed that 99.6% of drugs tested between 2002 and 2012 failed to help patients, and the following decade was more of the same. Even Aduhelm, developed by Eisai and Biogen and approved in 2021, was a commercial disappointment as the government placed strict limits on its payout, given little evidence of its effectiveness. Lecanemab continues to face obstacles. But the number of patients will increase substantially, and its appearance of efficacy means that it will probably be reimbursed by insurers and governments. This could mean an opportunity for investors bold enough to bet on Biogen.