BB Biotech’s bet on a positive US regulatory review of Biogen’s controversial Alzheimer’s disease therapy aducanumab is poised for its denouement, with the PDUFA date – the deadline for the FDA to render an approval decision – now less than two weeks away. The Swiss investment firm acquired a stake in Biogen (accounting for 3.3% of its 31 March portfolio value) in the fourth quarter last year, taking a broadly non-consensus view that the market was too bearish on the probability of success. Its investment thesis is to capture a potential post-approval bounce that might see Biogen’s shares rise by 50% or more.
The US approval decision, which could come at ahead of an FDA review deadline on 7 June, is widely considered to be the largest biotech binary event this year, principally because of the huge commercial value of a disease modifying treatment for Alzheimer’s disease. But at the same time, the special circumstances around this product have made it one of the most difficult for biotech specialists to call.
Biogen’s efficacy data on aducanumab clearly fall far short of what would normally be required for an approval and have had to be extensively adjusted to find a positive case. However, the FDA does seem to be looking for a way to bend the rules to provide a new therapy for Alzheimer’s patients and possibly an incentive for further pharmaceutical development in this area, given the complete lack of progress in the field for many years.
Biogen conducted two large Phase III studies, one of which failed to render a positive result requiring the other to be stopped early. However, a delayed analysis of the data from both studies did provide some evidence of activity, albeit falling short of the level normally required to support an approval. Biogen discussed the data with the FDA and suggested it had been encouraged to submit aducanumab for review.
Most specialists believe that if there is any case for approval, it would be one that is conditional on the conduct of a third confirmatory trial (and would probably also give the drug a very narrow label to restrict its use). The US agency will be mindful that such studies in Alzheimer’s are incredibly expensive and time consuming – Biogen and its partner Eisai is thought to have spent the order of $2.5bn over four years on the aducanumab Phase III programme – so it would probably not be realistic to expect the companies to fund a confirmatory study prior to approval.
Further complicating the picture, is the fact that the FDA’s external scientific advisory committee, which might have been expected to provide some third-party validation for such exceptional treatment of the drug, rendered one of the most unambiguously negative recommendations ever to emerge from such a body, when it met to review the then available data in November last year.
However, the FDA subsequently delayed aducanumab’s original PDUFA date by three months to allow it to review some additional data, leading some investors to believe it must still be looking for a way to approve the drug. On the other hand, several recent regulatory decisions on other drugs this year have suggested the FDA is trying to raise regulatory standards generally.
The US agency therefore faces a difficult decision on whether to break its own rules and overrule the advice of its outside advisory expert committee or dash the hopes of Alzheimer’s patients and potentially setting back drug development in the field by years. And this comes at a time, when the FDA lacks a head (the commissioner is a political appointment that has yet to be made by the Biden administration) to manage this difficult decision.
Biogen’s stock price, at $284/share, has in fact risen by 15% this year, considerably outperforming the Nasdaq biotech index (which has fallen by 10% over the same period). At this price, analysts suggest investors are collectively ascribing roughly a 50:50 probability. However, if this is the real probability there is also a significant downside risk, given that some element of success is logically already priced in.
BB Biotech is probably currently sitting on a profit on its shareholding, assuming it was acquired in the $240-250 range after the advisory committee meeting in November (the stock having briefly spiked to $355 on hopes the committee would render a more positive recommendation).
BB Biotech’s experience and the diversified portfolio allows it to consider opportunities such as this that are probably unsuited to most investors, although this would still be an exceptional case. Its approach contrasts with that of International Biotechnology Trust (LSE: IBT), which tries to avoid holding stocks through binary events such as this. Biogen is however held by London-listed Biotech Growth Trust (LSE: BION, 2.5% of NAV at 30 April), among other UK-listed investment trusts.
BION : BB Biotech’s Biogen bet nears Alzheimer’s denouement