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Morningstar | Biogen and Eisai's BAN2401 Details Spark Confusion; We're Maintaining Our Thesis and Biogen FVE

At the Alzheimer's Association International Conference on July 25,  Biogen and Eisai presented detailed data from a phase 2 study of amyloid antibody BAN2401 that supported our view of the drug's potential to treat patients at the earliest stages of the disease. We're not making any changes to our $420 fair value estimate for Biogen. Biogen shares fell after hours as investors processed the details, which we think continued to support a strong efficacy and safety profile for the drug. However, due to patient imbalances in key arms of the study, the option of an early filing with regulators is likely off the table (this is not included in our valuation). Future subgroup analysis should clarify the efficacy profile of the therapy, and we think data were very supportive of the amyloid theory and the potential of both BAN2401 and Biogen's similar product aducanumab, which recently completed phase 3 enrollment and should have data in early 2020. We factor in $10 billion in amyloid antibody sales by 2027 if BAN2401 and aducanumab are approved and use a 60% probability of approval for both drugs. We still see Biogen's steady neurology focus and increasingly diverse portfolio and pipeline as supporting a wide moat.

Diving deeper into the data, the 161 patients in the highest-dose arm saw impressive reductions in amyloid burden (as evidenced by PET images), with 81% converting from amyloid positive to negative. Patients in this arm saw a significant slowing in decline as measured by ADCOMS (30% slower decline) and ADAS-Cog (47% slower decline) versus placebo, and a trend to a benefit on CDR-SB (26% slower decline). These measures of decline have varying levels of emphasis on cognition and function, which likely explains the variation in results. However, the size of aducanumab's phase 3 trials (each at 1,600 patients) gives the firm more power to demonstrate significance on CDR-SB, which is the primary endpoint of the aducanumab trials.

In a worst-case scenario, an unplanned imbalance in patients who carry the APOE4 genetic variant may have driven the efficacy of the drug relative to placebo, but we still think this is an unlikely scenario and continue to model a 60% probability of the drug's eventual approval. An international regulator requested a change to the trial in 2014 that resulted in APOE4-positive patients being allocated to the second-highest-dose arm (10 mg/kg monthly) rather than the highest-dose arm (10 mg/kg biweekly). This resulted in APOE4-positive patients comprising 70% of the placebo arm but only 30% of the high-dose arm. There is not clear evidence showing a difference in the rate of decline for APOE4-positive and APOE4-negative patients, although patients who are APOE4-positive tend to get the disease at a younger age and are also more likely to experience ARIA-E (brain swelling). We're encouraged by the directionally positive data for the second-highest dose group, which had an even higher proportion of APOE4-positive patients than the placebo group (90%) yet still saw positive trends on clinical decline.

For more background on the amyloid hypothesis and the drugs in development for Alzheimer's, see our Healthcare Observer, "Wide-Moat Firms in Alzheimer's Disease: Why the Market Is Mispricing the Opportunity."