Thursday marked the anticipated full approval of the Alzheimer’s disease drug Leqembi. Although this news was expected, it has resulted in some investors choosing to sell.

Biogen stock (BIIB) experienced a 3% decline in Friday morning trading, reaching $276, while the American depositary receipts of Japan’s Eisai (ESAIY) saw a 1% decrease at $17. These two companies have a profit-sharing agreement for Leqembi, which became available to Americans following the provisional “accelerated approval” from the Food and Drug Administration in January.

The recent full approval now allows Medicare to cover the expenses associated with the expensive drug. Given that Medicare is the health insurer for the majority of the one to two million patients eligible for Leqembi, this is significant. The Centers for Medicare and Medicaid Services have declared their readiness to cover 80% of Leqembi’s $26,500 cost for early-stage Alzheimer’s patients enrolled in Medicare’s Part B drug program.

According to sales forecasts, Leqembi is expected to generate substantial revenue, projected to range between $2 billion and $3 billion annually by 2026. However, it is worth noting that patients will need to visit an infusion clinic twice a month for treatment. Therefore, the FDA’s decision regarding Eli Lilly’s monthly rival drug is being closely monitored by Wall Street. Moreover, Biogen and Eisai plan to seek approval for a more convenient injectable version of Leqembi next year.

Biogen has stated that it does not expect to turn a profit on Leqembi until late 2024. The complexities associated with administration and record-keeping are expected to slow down the launch of this infused drug, as highlighted by Wall Street analysts in their Friday notes.

Danielle Brill of Raymond James wrote, “Rollout of Leqembi is expected to be slow, as there are many bottlenecks in place.” She further elaborated that the treatment requires infusion every two weeks, and hospitals have limited capacity in their clinics. Brill currently holds a Neutral rating on Biogen stock.

Medicare’s Coverage of Leqembi: A Breakthrough in Alzheimer’s Treatment

Medicare has taken a monumental step by providing coverage for Leqembi, a groundbreaking class of drugs that targets and dissolves the sticky plaque responsible for the accumulation in brain cells, a known hallmark of Alzheimer’s disease. This decision follows the government health program’s refusal to cover Aduhelm, a previously developed plaque-buster from Biogen, which failed to demonstrate a clear effect in slowing the memory decline associated with this devastating illness.

The approval for Leqembi was recommended by a panel of outside advisors to the FDA last month. However, during the discussions regarding its approval, experts noted significant side effects, including brain swelling in patients with specific genetic profiles. As a result, prescribing Leqembi will require genetic tests and mandatory reporting of brain scans to a Medicare registry.

One crucial question remains: how will Medicare reimburse the costs of these required tests? RBC Capital Markets analyst Brian Abrahams delved into this matter and discovered that the agency is still deliberating which of these expensive tests it will cover. Notably, the expense of a PET-scan every six months could pose a significant barrier for many patients. Abrahams, who maintains a Buy rating on Biogen stock with a $351 price target, stresses the importance of resolving this reimbursement issue.

Despite these challenges, Biogen shares trade at less than 18 times the consensus forecast for next year’s earnings, making them an attractive investment option. This valuation represents a substantial discount compared to the 20-plus multiple of the S&P 500 index. Consequently, most analysts surveyed by FactSet recommend investing in Biogen.

Exciting updates regarding scientific advancements in Alzheimer’s medication, including Biogen’s drug and those developed by competitors like Lilly, are expected to be unveiled at the upcoming Alzheimer’s Association International Conference commencing on July 16.

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