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Biogen (NASDAQ: BIIB) shares are receiving a lot of attention. The stock rallied on Monday after the US Food and Drug Administration (FDA) gave approval for the company’s Alzheimer’s drug.
I’m not surprised that Biogen shares soared on this news. But should I buy now? No, but I’ll be monitoring the stock. There’s a lot of hype now surrounding this biotech firm. Firstly, I’m waiting for this euphoria to subside. Secondly, I’ve analysed the FDA’s statement, and the company still has a lot of work to do. Unfortunately, the approval isn’t straightforward.
Let me start by saying that it’s always a big deal for a biotech company when a regulator, like the FDA, gives an approval. And this certainly applies for Biogen.
Biogen has developed an Alzheimer’s drug called aducanumab, which is sold under the brand name Aduhelm. On Monday, the FDA gave this drug an accelerated approval. But what does this mean?
Well, the FDA has indicated that the drug could provide a clinical benefit to Alzheimer’s patients. But I think the key thing to note is that the FDA now requires Biogen to conduct new randomised and controlled clinical trials to verify this.
I reckon the hard work for the company has just started. If the additional trials fail to confirm clinical benefit, then the FDA may have to withdraw the approval of the drug. There’s no guarantee the drug will be successful. Now that Biogen shares have rallied and are trading close to all-time highs, the stock is likely to be sensitive to any negative news.
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If the biotech firm can get this right, then the upside is huge. According to the FDA’s website, Alzheimer’s is a debilitating disease that affects 6.2m Americans. It’s a progressive brain disorder that slowly attacks the memory and thinking skills. Eventually, it can impair the ability to carry out simple tasks.
Now here’s where Aduhelm comes in. So far the drug is the first of its kind approved for this devastating illness. In fact, scientists have been trying for years to treat the disease. This approval is the first new treatment approved for Alzheimer’s since 2003. In my opinion, this is a crucial inflection point for the battle against the illness.
But as I mentioned, Biogen has to conduct further trials. This will come at an additional cost to the firm, which could place pressure on profitability.
Just as Biogen shares rallied, institutional investors have also become bullish on the stock. Several investment banks have increased their price targets.
For example, Barclays has hiked its price target for Biogen to $395 from $265, but still maintains an ‘equal weight’ rating on the stock. Citigroup has upgraded the shares from a ‘sell’ to a ‘neutral’ and lifted its target from $200 to $440.
I think Biogen has made a huge amount of progress to develop a treatment to tackle Alzheimer’s. And for this I commend the biotech company.
But there’s still a lot of risk involved and no guarantee the drug will be successful in future trials. So for now, I’ll be watching the stock closely.
The post Should I buy Biogen shares? appeared first on The Motley Fool UK.
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Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Biogen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021