Analyst Note
| Karen Andersen |The U.S. Food and Drug Administration has granted accelerated approval to Biogen and Eisai’s Alzheimer’s disease drug lecanemab (now branded as Leqembi), and we’re slightly raising our Biogen fair value estimate to $340 from $330 after boosting our probability of approval from 90% to 100%. While this approval was based on the drug’s ability to lower amyloid plaque levels (a surrogate endpoint for clinical benefit) in a phase 2 study, we expect that positive phase 3 data presented in November will allow Leqembi to gain full approval and strong reimbursement from private payers and Medicare by the end of 2023. Eisai announced plans to launch the drug by late January at a price of $26,500 annually, in line with Biogen’s $28,000 price for Aduhelm and our own pricing estimates. We model $5 billion in annual Leqembi sales by 2031 (with profits shared by the two partners). The potential for maintenance monthly dosing (after amyloid levels have been significantly cleared) could eventually put pressure on average prices, but this would also reduce the burden on infusion centers and open up more space for new patients, therefore making it unlikely to have a significant impact on our valuation. Maintenance dose pricing would also put Leqembi within the cost-effective pricing range estimated by the Institute of Clinical and Economic Review, which could reduce future pricing risks for Biogen’s Alzheimer’s-related cash flows and lower the uncertainty rating (currently at High) we assign to Biogen’s shares. We see shares of Biogen as slightly undervalued, as Leqembi’s potential should allow Biogen’s revenue growth to swing to positive territory in 2024 and beyond. In the longer term, Biogen is focusing on an undervalued pipeline that includes tau-targeting Alzheimer’s drugs as well as potential launches in lupus, stroke, and Parkinson’s in the second half of the decade. We think Biogen’s neuroimmunology pipeline is underappreciated by investors and helps support a wide moat.