Following the approval of its latest drug, the share price of Biogen (NASDAQ:BIIB) has exploded this month. Seeing the stock of a biotech company surge after receiving the green light from regulators is quite common. But in the case of Biogen, the US pharmaceutical group has achieved a milestone that many of its peers have failed, despite investing billions of dollars. Let’s take a closer look at what just happened and whether this is a business that belongs in my portfolio.
The surging Biogen share price
Earlier this month, the FDA approved Biogen’s new Alzheimer’s drug called Aducanumab. This is actually the first medicine that targets the neurodegenerative disease to receive approval in nearly 20 years.
There are already several products on the market that help reduce the symptoms of the disease. However, trial data from Aducanumab showed that it successfully breaks down clumps of amyloid plaques in the brain. These are what scientists believe cause the illness. In other words, it appears to be able to substantially slow down the progress of the disease — the first drug ever to do so.
Given that an estimated 5.5 million people in the US suffer from Alzheimer’s, this represents an enormous potential market for Biogen with little competition to fend off. The treatment is expected to cost $56,000 per year. So it opens up a possible $300bn annual opportunity for the firm in the US alone. Therefore, I’m not surprised to see the Biogen share price rise by double-digits on the news.
Taking a closer look at the fine print
As promising as this progress is, there remains a long road ahead for this business. It is worth being aware that the FDA approval was provided as part of the accelerated pathway. This pathway is reserved for rare cases where there are very few alternative treatments available. It enables companies like Biogen to get their unique treatments on the market faster while trials are still ongoing.
Moving forward, Biogen will need to begin new monitored confirmatory trials to conclusively determine whether Aducanumab works as well as believed. While the company can market and sell the drug in the meantime, this trial process will be long and expensive. What’s more, should it fail to achieve the desired results, Aducanumab may promptly have its approval status revoked.
The Biogen share price has been significantly elevated due to investor expectations of income from this new treatment. Therefore, should any signs of trouble start to emerge, I think it’s likely to mean a significant level of volatility in the stock.
Time to buy?
Several city analysts have labelled this latest achievement by Biogen as “game-changing”. And I’d have to agree. There remains a long road ahead to receiving full approval. But the company seems to have all the resources it needs to see the next set of trials to the end. And so, while the risks are high, I would consider adding Biogen to my portfolio even after the recent jump in its share price.
