A decade ago, after returning to finance from 30 years covering computer technology, I got into an argument over a company called Dendreon. You’ll see why this lingering thoughts connects me to BIIB stock below.
Dendreon had launched a treatment for prostate cancer called Provenge. It is an immunotherapy, tied to the specific DNA of the patient. It was ferociously expensive. But data indicated it extended life by only a few months. How could we expect Medicare to pay that kind of cost for that kind of benefit, I asked? You can’t have an unlimited draw from a limited pool of funds.
That came rushing back to me recently after Biogen (NASDAQ:BIIB) won approval for Aduhelm. That’s a drug for Alzheimer’s for which the Food and Drug Administration (FDA) gave accelerated approval in June. The news sent BIIB stock up 50% in a day and it has held half its gains.
But the question must be asked.
Is This the Next Dendreon?
Biogen is not the start-up Dendreon was. It’s over 40 years old, with 2020 revenue of over $13 billion. It sells drugs for multiple sclerosis, inflammatory bowel disease, and leukemia. Aduhelm is its first Alzheimer’s drug.
As the FDA notes, Aduhelm is meant to reduce the amyloid-beta plaques that are a hallmark of the disease. But as a recent University of Cincinnati study stated the plaques, first identified by Alois Alzheimer a century ago, may not be causing the disease. Instead, it may be a decline in soluble amyloid-beta peptides, which can accompany the plaques, that’s creating what is often called “the long goodbye.”
What has people angry, as was the case with Dendreon, is the price BIIB stock put on Aduhelm, $56,000/year. If Aduhelm cured Alzheimer’s, I’d pay it. But, again as with Dendreon, it doesn’t. And if just 500,000 people took Aduhelm, a small fraction of the 6 million who have Alzheimer’s, it would cost $29 billion/year. Medicare, the program that would likely pay out most of that, spent $37 billion on all drugs in 2019.
Why That Price?
Biogen CEO Michel Vounatsos claims the price “reflects the overall value this treatment brings to patients, caregivers and society – and one that will enable continuous innovation.”
That’s gobbledygook. It’s part of a new trend among high-end drug companies, to price based not on their development or manufacturing costs but on the perceived value of patients’ lives. It’s blackmail.
I have a dog in this fight. My mother died of dementia in 2016. It’s a terrible way to go. A cure would be a great miracle.
By law, Medicare must pay for drugs, when approved, for the specific patients covered by the approval. This law also extends to insurers. But Aduhelm’s pricing, and what may be limited efficacy, is generating pushback.
There are also other drug companies looking to cash in on the Aduhelm approval process, in which a scientific committee was overruled by the commissioners. Eli Lilly (NYSE:LLY) also has a monoclonal antibody for Alzheimer’s. So does Prothena (NASDAQ:PRTA), which also has a $2 billion agreement with Bristol Myers Squibb (NYSE:BMY) for another Alzheimer’s candidate.
The Bottom Line on BIIB stock
The dispute here isn’t so much about Aduhelm’s efficacy as Biogen’s pricing strategy, which could bankrupt Medicare and all insurers.
It’s that strategy, put in a decade ago by Dendreon, that should haunt both government and biotech investors.
BIIB stock isn’t going to win. If I played short, I’d short it. There’s going to be a lot of competition for Aduhelm. Government will find a way around its pricing strategy because it must. That’s going to cast a pall over Biogen and the industry.
What about Dendreon? Once worth billions, Dendreon filed for bankruptcy in 2014 . It recently re-emerged as a contract manufacturer.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future, now available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.