Biotech stock Biogen Idec Inc (BIIB) is seeing its shares surge in early trading on Tuesday after early testing of BIIB037, a medicine aimed at combating Alzheimer’s, showed compelling results. Biogen is fast-tracking the drug to Phase 3 clinical trials due to the promising results.
Before the stock market opened today, BIIB stock was up 10.3% this year, slightly trailing the S&P 500’s 11.1% return. The healthcare sector as a whole, however is outperforming the S&P by about six percentage points year-to-date. After today’s jump, BIIB stock is up 18% YTD.
Alzheimer’s disease is the most common form of dementia, often occurring in the elderly. A heartbreaking ailment, victims suffer from an ever-worsening memory loss and often struggle with language and lose control of their bodily functions in the later stages. Eventually, the disease becomes fatal.
According to the Alzheimer’s Association, more than 5 million Americans are living with the disease, and Alzheimer’s is the sixth-leading cause of death in the U.S.
There is no known cure for Alzheimer’s, and the Alzheimer’s Association has computed the economic cost of the disease to be $214 billion — $150 billion of which comes from Medicare and Medicaid expenses. For a frame of reference, BIIB didn’t even crack $7 billion in sales last year. If Biogen can prove BIIB037 is safe and effective, this stock could go to the moon.
Why BIIB Stock Looks Compelling
We know very little about Biogen’s potential breakthrough right now, and there’s no evidence that this promising Alzheimer’s study will lead to FDA approval and sales down the line. But given the fact the drug showed “positive effects on cognition” by reducing amyloid plaques in the brain, investors have to be excited.
Investors can also be reassured by Biogen Idec’s track record. Tecfidera, Biogen’s oral treatment for multiple sclerosis, was just approved by the FDA last year, entering a crowded market with competing drugs Gilenya and Aubagio, made by Novartis AG (ADR) (NVS) and Sanofi SA (ADR) (SNY), respectively.
Since its approval, Tecfidera has become a blockbuster MS drug, with sales of $700 million in a single quarter earlier this year. BIIB stock is up more than 70% since the FDA approval in March of 2013.
Novel treatments to massive health problems can offer the best of both worlds, solving or ameliorating a disease while making investors gobs of money. MannKind Corporation (MNKD), for instance, was a $1.60 stock in 2012 and ran up to a peak near $11.50 earlier this year as its inhalable insulin treatment, Afrezza, was approved by the FDA earlier this year.
In fairness, even if Biogen developed an approved treatment for Alzheimer’s, it’s doubtful that BIIB stock would be able to run up as quickly as MNKD in as short a time. Biogen is already a $70 billion company, and the small cap MannKind was betting its entire future on one drug.
Still, after today’s news, BIIB is a stock to buy for patient investors looking for exposure to large-cap healthcare. It may take a few years for this Alzheimer’s treatment to play out, and it’s possible nothing comes of it. But if it’s successful, it should be Biogen’s next blockbuster, and it will change the lives of millions.
For the more risk-tolerant among us, I still think MannKind stock is a screaming buy, especially given its marketing partnership with Sanofi.
As of this writing, John Divine held MNKD Jan 2015 $3 calls, Jan 17 2015 $5 calls and Jan 2016 $7 calls.
