Cambridge, Massachusetts-based biotech Biogen ( BIIB) and Japanese drug maker Eisai ( ESALY) reported on Wednesday morning that their experimental Alzheimer’s disease treatment had met the main goal of a late-stage clinical trial. The candidate, Lecanemab, reduced the pace of cognitive decline in patients diagnosed with early-stage disease by 27% over 18 months compared to those treated with a placebo.
This result could be a major accomplishment for researchers who have been trying for decades to find a way to treat Alzheimer’s. The medicine, before Biogen and Eisai started trying to develop it, was licensed from Sweden’s BioArctic.
All three stocks were up in their home markets on the news. In fact, the stocks of both Eli Lilly ( LLY) and Roche Holding ( RHHBY) were also higher in early trading as they are also known to be working on similar Alzheimer’s treatments. I am long LLY stock.
Just an FYI: There were some negative side effects experienced during the Lecanemab trial. Some patients did have to deal with brain swelling and/or bleeding. Severe cases were said to be rare, though.
Background on Lecanemab and Amyloid
Lecanemab is meant to reduce or remove a toxic protein known as amyloid that clutters the brain and is thought by many to be a leading cause of Alzheimer’s disease. Many drugs have been tested with less-than-spectacular results over the years that attack amyloid. The concept that amyloid is a primary cause of the disease and that by removing or reducing that protein in a patient’s brain would improve that patient’s condition is known as the “amyloid hypothesis.”
This is not the first at-bat for Biogen and Eisai in trying to develop an amyloid-reducing medication. Readers may recall in mid-2021, the drug Aduhelm, in one trial, mildly slowed cognitive decline in Alzheimer’s patients but failed to show an effect in another trial. Aduhelm was controversially approved in the U.S., but failed commercially because Medicare refused to pay for it, not just because of the price tag, but because of the contradictory trial results.
These results if not proving the amyloid hypothesis, at least lend some credibility to the idea.
Lon Schneider, professor of Psychiatry and Behavioral Sciences at the University of Southern California, was quoted at Bloomberg News. Schneider indicated that he thought Lecanemab would probably receive full FDA approval based on these clinical results.
He sounded less than thrilled with the 27% slowing in the pace of cognitive decline, however: “The debate is going to be about the small effect size.” Schneider is not sure that 27% over 18 months will be seen as clinically meaningful.
Biogen & Lilly
Though highly profitable, Biogen stock has been in decline as have the company’s earnings and revenues on a year-over-year basis. Despite beating Wall Street expectations for both top-line and bottom-line performance for the June quarter, Biogen has suffered negative earnings growth in five of the past six quarters and negative revenue growth for eight consecutive quarters.
The company still drove solid free cash flow, and still runs with a solid balance sheet. Yet coming into this news, the stock was trading at just 12 times 12-month forward-looking earnings.
With the shares up close to 50% in premarket trading and still more than 35% after the open Wednesday, that could quickly become 18 times, even before factoring in when (and if) Lecanemab might contribute to the company’s financial performance.
The stock is trading around $271 at around 10:00 a.m.
Readers can see that BIIB has not traded in this neighborhood since 2021.
BIIB has traded in a basing range of consolidation for literally all of 2022. The gap created Wednesday morning will be enormous and it would not surprise me in the least if it fills at least partially if not today than some “down” day for the market soon. At last glance, less than 1.5% of the float was held in short positions, so you are not going to see a squeeze. My bet would be bearish at anything approaching $300.
However, I told you that I was long Eli Lilly.
In my opinion, Lilly has more going for it. Lilly also has a strong balance sheet and strong free cash flow. Lilly seems to have better luck growing both revenues and earnings. The company also has the Mounjaro diabetes drug, which appears to successfully combat obesity. I will await results from the Eli Lilly anti-amyloid anti-Alzheimer’s disease offering.
In the chart, above, readers can see LLY coming to an inflection point as the above pennant formation closes. The stock could go either way in a hurry as that happens.
I know that the 200-day simple moving average (SMA) is just as rapidly rising about $25 below where the stock is. I see this as supportive as this is something that portfolio managers look for when deciding on whether they should increase or decrease exposure.
My primary target here is the $335 July high, but I see that spot as more of a pivot.
Should LLY take and hold $335, which is possible as soon as today, my target moves to $385.