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Sell Biogen Going Into Its Aducanumab BLA Filing

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About: Biogen Inc. (BIIB)
by: Zhiyuan Sun
Summary

Aducanumab's clinical results in the EMERGE trial cannot be replicated in the ENGAGE trial without post-hoc fallacy in analysis.

More than 10 drug candidates relying on the beta amyloid hypothesis for treating Alzheimer's disease have failed in the past decade.

Even if approved, Aducanumab's results have not been tested in non-inferiority studies against generics and hence may offer very little value proposition to patients.

Alzheimer's maybe untreatable under current scientific hypothesises unless mABs can cause neurons in the brain to regenerate, an obvious impossibility.

Company Thesis

Biogen's (BIIB) Aducanumab under investigation for the treatment of dementia in Alzheimer's disease has seen a stunning reversal after a previous analysis by an independent data monitoring committee demonstrated futility. The question of whether or not the drug can be approved is of critical importance to investors after a dramatic rally. After an evaluation of all relevant clinical data; investor presentations; and medical journals, the author finds the approval of Aducanumab to be highly unlikely due to conflicting scientific evidence and post-hoc biases in analysis, and would contain little value proposition to patients even if approved. Without further ado, let's take a look as to why BIIB will be assigned a sell rating.

Image Source: Medical News Today

Mechanism of Action

Aducanumab is a human monoclonal antibody that selectively targets aggregated forms of amyloid-beta plaques, including both soluble oligomers and insoluble fibrils. Long time skeptics of this mechanism of action argue such class of drugs are futile as there have been no effective methods of inducing regeneration of neurons by mABs. Moreover, plaques have shown to act as immobilizers for toxic amyloid-beta oligomers, which would cause the risk of its removal to directly offset that of the drug's potential benefits. There are also countless oligomers present in plaques, making the suppression of multiple toxic receptors by a single node antibody extremely unlikely.

Needless to say, the drug industry's track record on developing vaccines; base inhibitors, and base indicators for AD has been abysmal. In the past decade, all of the investigational candidates (12 total) for this indication have failed despite billions of R&D investment. Unfortunately, both investigators and the scientific community seem overly committed to a theory which has been repeatedly proven to be unfeasible by empirical evidence. To investigate the amyloid hypothesis, vaccines were first developed which carried synthetic antibodies into the brain. However, these vaccine studies were discontinued due to a serious risk of encephalitis post administration. Next, mABs were given to patients with all stages of AD, which also failed to achieve clinical significance. A fallacious post-hoc analysis then opened the possibility that such class of antibodies may have an effect only on patients with mild AD, which also resulted in trial failure. Finally, BIIB theorized mABs may have an affect only on patients with early stages of AD and investigated such claims in its EMERGE and ENGAGE clinical trials.

Clinical Efficacy

Before commencement, the trial was designed for shorter treatment duration with reduced dosages of Aducanumab due to fears of adverse events such as brain edema. As a result, an interim analysis conducted by an IDMC recommended the trial be discontinued for futility. However, a follow-up analysis of the entire treatment group for EMERGE (n=1650) illustrated a small overlook on the study criteria may have resulted in a large negative impact on the integrity of the entire trial. Patients given the 10mg higher dose for an extended period of time saw significant benefits even if they discontinued the trial. In this analysis, Aducanumab was able to demonstrate 23% reduction in the CDR-SB for high dosages (p=0.01, 0.031), and 11% reduction (p value NS) for lower doses. Furthermore, secondary endpoints such as Mini-Mental State Exam saw a 15% improvement over placebo (p value questionable); while ADAS-COG witnessed 27% improvement vs. placebo (p=0.01) and ADCS-ADL-MCI saw 40% improvement vs. placebo (p=0.001)

Whilst such data points to the drug's approval when analyzed alone, it is rather diminished by red flags in the company's ENGAGE trial. In this investigation, the company claims while the overall clinical trial did not meet its goals, a subsection of patients demonstrated statistically significant reduction in dementia and hence supports the conclusion in the EMERGE trial. However, BIIB has yet to provide any explanation as to what inclusion criteria in its trial design led to the outperformance of the subsection. As readers can see, this is a textbook example of the post-hoc fallacy, and demonstrate results in the EMERGE trial are not scientifically replicable.

Rough Path To Approval

In the ENGAGE investigation, treatment group consisting of the highest dose of Aducanumab saw only a 2% improvement against placebo on the CDR-SB (p value not significant). In the low-dosage groups, subjects did not experience any clinical nor statistical improvements in alleviating dementia. In other words, the supposed benefits of Aducanumab could not be scientifically reproduced, especially considering the trial is the exact same as that of EMERGE. Moreover, the FDA mandates a minimum of 2 clinical trials be conducted for drug approval. Whilst the FDA has historically approved products for serious indications based on the result of just one trial, it is important to note such precedents were not given to candidates which saw efficacy in one trial and failed another. At a bare minimum, the FDA will likely require BIIB to conduct another clinical trial to verify the results of the EMERGE investigation before approval. In such event, the earliest which Aducanumab can be approved will likely be 2023.

Drawbacks

Moreover, Aducanumab is riddled with drawbacks with makes its risk-reward proposition much more restrictive. For starters, the drug must be delivered via an intravenous fusion at a clinic as opposed to a taken-at-home oral formulation such as donepezil, and requires at least 1 fusion every month for up to one hour per fusion. Chronic use has been shown to result in brain swelling (edema), which is also not witnessed by other drugs targeting AD. Continuing on, Aducanumab neither stops dementia nor reverses it, but merely alleviate its symptoms. Finally, Aducanumab has not demonstrated efficacy in any non-inferiority studies, and hence little health incentive exists as to why physicians would prescribe it versus other generic variants. All of the above makes Aducanumab extremely restrictive in its value proposition.

Valuation and Summary

New therapeutic options for central nervous disorders can be priced anywhere between $1,000 to $5,000 for a one-year treatment. Given there exist an estimated 3.5 million patients in the U.S with AD, multiplying patient count by pricing yields a total addressable market of $35 to $175 billion. However, investors should be warned in the unlikely event of an approval, Aducanumab cannot realistically capture a significant portion of this market share. The drug's modest efficacy; combined with unreplicable results, risk of brain swelling, inconvenience caused by IV fusion, and lack of evidence of superiority against other generic pills targeting AD, assigns it a severe handicap in terms of value proposition. The author estimates, at best, the odds of drug approval are 10% and may result in $500M to $1B in peak annual revenues for BIIB if approved.

The company is trading at a 20-30% discount to other biotech peers, including 4x EV/Sales, 7x EV/EBITDA, P/CF of 8, and is projected to grow its revenues by a modest 5% over the next 3 years. If approved, revenues from Aducanumab will likely increase BIIB's sales by just 4-8% per year from 2023 onward. The discount persists as patent litigation woes surrounding BIIB's biggest product has significant downsides should its IP becomes invalidated. With its value discount justified, a company which possesses an unpromising drug candidate should not experience a 35% rally due to a flawed post-hoc analysis of trial. Hence, shares of BIIB will be rated as a sell due to the potential of a significant inhibitor (FDA rejection of Aducanumab) acting on a growth stock with disappointing potential.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in BIIB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.