Breakingviews: Investors too gloomy over Biogen Alzheimer’s drug

There are good reasons to be skeptical that Biogen’s Aduhelm, the first new treatment for Alzheimer’s disease in nearly two decades, will change patients’ lives for the better. Investors are far too pessimistic, however, on how good this drug might be for the $48 billion biotechnology firm.

Since the U.S. Food and Drug Administration approved Aduhelm in June, Biogen has added a net $5 billion to its market capitalization. A good rule of thumb in biotech is that a drug is worth perhaps five times its peak sales. Biogen has to share eventual profit with partner Eisai too. But the stock price appears to suggest it will sell a remarkably meh $2 billion or so of the compound annually.

Perhaps 1.5 million Americans are eligible for the drug, based on Biogen’s estimates. At a price of $56,000 per year, and assuming a quarter of eligible patients take it, that’s over $20 billion of revenue, which would make it the best-selling drug of all time. Given this, investors aren’t expecting much.

Perhaps they’re correct. An advisory panel for the FDA concluded in November there was insufficient evidence to prove the drug was clinically effective. The FDA’s acting head, Janet Woodcock, has called for a probe into staff contacts with Biogen. Hospitals like the Cleveland Clinic and Mount Sinai say they won’t administer Aduhelm. A few insurers have said they won’t pay. Medicare is studying how to cover the drug and may limit use. And revenue in the first quarter was only about $2 million.

Yet disease sufferers will undoubtedly demand it absent other effective treatments. Because patients start on low doses, revenue per patient will grow over time. And the odds big insurers and Medicare will push back is uncertain. The U.S. healthcare system is mostly ineffective at restricting access to high-priced treatments if patients clamor loudly. That’s why the nation spends about 18% of GDP on healthcare, according to Peterson-KFF data. Average expenditure across comparable countries was only 10%.

Perhaps history will be made, and America will begin its long-awaited pushback against healthcare costs. Investors shouldn’t count on it.

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