Shares of Biogen (BIIB) are under pressure on Wednesday after Medicare said it proposes to only cover the company's Aduhelm drug for certain recipients who have enrolled in qualifying clinical trials. If finalized, this decision would restrict access to the therapy. Following the news, Piper Sandler analyst Christopher Raymond downgraded the stock to Neutral as he sees the Centers for Medicare and Medicaid Services' draft decision as "restrictive." His peer at Oppenheimer also sees the CMS proposal of Coverage with Evidence Development as a potentially "significant setback" for Aduhelm, while Wells Fargo analyst Jim Birchenough called it a "clear negative."
PROPOSED DRAFT COVERAGE: The Centers for Medicare & Medicaid Services, or CMS, posted on Tuesday night its draft National Coverage Analysis for monoclonal antibodies directed against amyloid for the treatment of Alzheimer's disease. The Centers for Medicare & Medicaid Services proposes to cover Food and Drug Administration approved monoclonal antibodies directed against amyloid for the treatment of Alzheimer's disease under Coverage with Evidence Development in CMS approved randomized controlled trials that satisfy the coverage criteria specified in Section C, and in trials supported by the National Institutes of Health, the document said. All trials must be conducted in a hospital-based outpatient setting, CMS added.
The document added, "Antiamyloid-beta monoclonal antibodies, or antiamyloid mAbs, the treatment considered in this NCD, are laboratory-made proteins designed to bind a specific substance in the body, with the goal of marking it for destruction by the body's immune system. Scientists design various mAbs as treatments with the goal of targeting and neutralizing or clearing infections, cancer cells, and in the case of Alzheimer's disease, amyloid accumulation in brain. Aduhelm, or aducanumab, is the first and only such antiamyloid mAb to be approved by the FDA, and was done so under FDA's "accelerated approval" pathway. At the time of this NCD analysis, CMS is aware of at least three other antiamyloid mAbs currently approaching Phase 3 trials. This NCD addresses antiamyloid mAbs as a class since the drugs have a similar function of reducing amyloid in the brain."
MOVING TO SIDELINES: Piper Sandler analyst Christopher Raymond downgraded Biogen to Neutral from Overweight with a price target of $216, down from $362, as he said that his Overweight thesis "has clearly not played out," namely that while neurologists may not believe in Aduhelm's clinical premise, they'll prescribe it anyway. Raymond also pointed out the Centers for Medicare and Medicaid Services' draft decision announced last night is "restrictive." Combining this with continued pressure on Biogen's base business and "little in the way of pipeline backfill," he thinks the right thing to do here is "cut losses and move on."
'SIGNIFICANT' SETBACK: Commenting on CMS' proposed Coverage with Evidence Development for anti-amyloid antibodies to treat Alzheimer's disease, Oppenheimer analyst Jay Olson said he believes it could represent a "significant setback" for Biogen's Aduhelm, lecanemab, and others. This proposal is a draft that is open to a 30-day comment period prior to finalization in April, the analyst noted, pointing to the example of CMS proposing a CED for CAR-T therapy on Feb. 15, 2019, which was eventually broadened to FDA-approved indications on Aug. 7, 2019. While the likelihood of broadening CMS's proposed CED for anti-amyloid antibodies is uncertain at this time, Olson noted his current valuation of $78 per share for Aduhelm and BAN2401 implies a $272 floor for Biogen's shares should the anti-amyloid antibodies become worthless in a worst-case scenario. The analyst kept an Outperform rating and a price target of $350 on Biogen's stock.
Also discussing the news, Wells Fargo analyst Jim Birchenough argued that the proposed coverage decision for anti-amyloid drugs is a "clear negative," as it would only allow for reimbursement for the patients who are enrolled in clinical trials. If this draft rule becomes final, the potential Alzheimer's sales for Biogen may be negligible for 2022 and 2023, he contended. In addition, the analyst argued that it might also mean that the FDA may have to rethink its accelerated approval pathway for these drugs, as CMS does not appear to follow the FDA here. He further noted that this decision is not final though, as in a recent CAR-T NCD, the draft coverage was CED and then became full coverage by final determination. Final decision is expected by April 12. Birchenough expects Biogen's stock to move down 5% on this. He also expects Eli Lilly (LLY) to trade down in sympathy as the company is also seeking an accelerated approval pathway. If the FDA does not approve Eli Lilly's donanemab early, the analyst sees $10 to $20 per share downside for Eli Lilly stock, he noted.
TARGET CUTS: Mizuho analyst Salim Syed lowered the firm's price target on Biogen to $207 from $270, while keeping a Neutral rating on the shares. The analyst removed "nearly all" Aduhelm sales from his model following the CMS proposed decision memo on the coverage for amyloid-targeting monoclonal antibodies for the treatment of Alzheimer's. The document "offers a rather scathing evidence review specifically on Aduhelm," Syed told investors. The "read also goes dead against" how the FDA is currently looking at this class, and is calling for evidence of "meaningful" benefit on cognition and function, and states that "no biomarker has achieved surrogate status," the analyst added.
Needham analyst Ami Fadia also lowered the firm's price target on Biogen to $292 from $328 but kept a Buy rating on the shares. The analyst lowered the probability of success for Aduhelm for treatment of Alzheimer's following the CMS draft decision to cover monoclonal antibodies from 75% to 20%.
NEW BIG 2022 EVENT: Stifel analyst Paul Matteis argued that CMS draft decision to implement a fairly restrictive CED for aducanumab "fundamentally changes the stock set-up in 2022" for Biogen, assuming this ends up final. BAN2401 Phase 3 data due in the third quarter "now becomes the big 2022 event" and makes the stock set-up "binary on the fate of BAN2401" given his initial take that Aduhelm is "not going to be a meaningful revenue driver for the foreseeable future," Matteis said. The analyst believes Aduhelm credit will be largely discounted in Biogen's stock and acknowledges that his model with a $344 price target is "considerably more optimistic than what's priced in the stock," but views the probability-of-success for BAN2401 asset as close to 50/50 and would view the stock as "fairly cheap and discounting optionality," even with the set-up now fundamentally altered. Matteis kept a Buy rating on Biogen shares.
PRICE ACTION: In Wednesday morning trading, shares of Biogen have dropped over 8% to $221.73, while Eli Lilly's stock has slipped almost 4% to $252.54.
Biogen
-19.61 (-8.12%)
Eli Lilly
-10.295 (-3.92%)