Leqembi: Medicare coverage needs ‘a convincing set of evidence’ for FDA approval, analyst says

William Blair Biotech Equity Research Analyst Myles Minter joins Yahoo Finance Live to discuss his Outperform rating on Biogen stock, Biogen’s Alzheimer and depression treatment drugs, full-year guidance, profit growth, cost-cutting efforts, and the outlook for the company.

Video transcript

RACHELLE AKUFFO: Well, speaking of health care, Biogen beat Wall Street estimates for fourth-quarter profits and sales this morning. A big win for the company, but many are focusing on the commercialization of Leqembi, the drug Biogen is counting on to help overcome setbacks from its older Alzheimer's treatment Aduhelm.

Now for more on Biogen's fourth quarter, let's get to William Blair biotech equity research analyst Myles Minter and joined by Yahoo Finance's Anjalee Khemlani. A big thank you to you both.

So, William, we saw this beat on the top and bottom line, but a lot of this optimistic revenue full-year guidance was really pegged to some things, including Leqembi as well. I know that's something you were watching. What were you hoping to hear in the call there, and did you get enough-- did you get enough to really feel good about the outperform rating that you have on Biogen at the moment?

MYLES MINTER: Yeah, so I think the majority of the call was focused on Leqembi and their initial launch expectations for that drug in Alzheimer's disease. And what we did get is commentary on how that rollout will be.

Now, look, it's going to be a slow and considered rollout here, largely due to the fact that they need to overcome CMS reimbursement issues. We did get some color on that. And then also the logistics of, you know, launching an intravenous therapy in a drug that could really be treating a population that, in the US, is 6 million patients. So we did get some color there.

As far as earnings goes, you know, they were solid, exceeding the top end of guidance. They came in at $10.17 billion. That was largely due to beating on a declining revenue basis. So they have a multiple-sclerosis franchise, which is suffering generic competition, and also some rare-disease products that are also in decline.

As far as guidance goes for 2023, that did come in above where the Street is currently by a few percentage points. Largely again due to the fact that their expectation is that one of their multiple-sclerosis drugs might go off patent in the EU later than expected. We'll get that decision on March 16, and until then, it's going to be very much focused on Leqembi and whether their partner, Eisai, can secure full approval of that drug this year and also CMS reimbursement, which I'm sure we'll get into later.

ANJALEE KHEMLANI: Myles, Anjalee here. Definitely want to talk about Leqembi, but first of all, I know that we heard a little bit about just generally the sort of defensive position that they're in right now, talking about possibly, you know, cuts in the future. And it seemed like that was one of the key themes I walked away with today, so let's talk about that. Do you think that this is very directly Aduhelm related, or is there more to it?

MYLES MINTER: Yeah, so a lot of talk about, you know, trying to reinvent the cost basis of this company, which I think is really important. So traditionally pre-Aduhelm launch, they were operating at an operating margin of about 45% to 50%, and now they're down towards, you know, a 25% operating margin there. So it's basically how do we increase the profitability here?

Last year, they already incorporated $500 million in annualized cost savings here. I expect more to come, and a source of that could be from the fate of Aduhelm So that product was initially granted accelerated approval by the FDA for Alzheimer's disease. There's a confirmatory trial ongoing for that, and the company is currently in a sort of a return-on-investment analysis to see whether they should keep that trial ongoing or, you know, cut back completely, focus on the Leqembi, and reduce costs in that matter.

The other thing that they did comment on is that not all of these cost measures or cost-reduction measures will be brought to the bottom line. They will be reinvested in R&D as this company transitions itself, you know, potentially away from neuroscience into immunology and other rare-disease areas and also into the SG&A expense for the upcoming launch of Leqembi and also Zuranolone in major depression. So cost cutting is definitely a focus for the company and reinvestment into the pipeline for future growth.

ANJALEE KHEMLANI: I'm glad you're calling it "Le-kwem-bee" because I didn't know if it was "Le-kem-bee" or "Le-kwem-bee." But looking at that specifically, we know that there's obviously questions coming out from the shadow of Aduhelm still kind of looking at that and what happened there. The company is looking, you know, and really excited about looking at Alzheimer's earlier and even earlier, you know, presymptomatic with that plaque buildup.

So I'm curious. What do you think the outlook is for this considering CMS's stance on the previous drug but also just where we are and how the regulatory process is going, generally speaking, for these accelerated approvals?

MYLES MINTER: Yeah. So just top level, you know, I'm bullish on Leqembi. It's a disease-modifying therapy for Alzheimer's. It's really showing us in the Clarity AD trial an unequivocal effect versus placebo. And we can argue whether it's clinically meaningful, but that's something that Leqembi has whereas Aduhelm did not. There was controversy over the data.

As far as where we are in the regulatory process, it did receive-- this is Leqembi-- accelerated approval in January. But really what the CMS I think is looking for is a drug and a convincing set of evidence that will require full approval from the FDA. Biogen and their partner Eisai are fully expecting that full approval to come sometime this summer or by the end of the year and that CMS could potentially, you know, revisit their current national coverage determination and promote broader coverage for Leqembi here as we move forward into that market.

As far as for initial numbers, there's a lot of Street estimates out there suggesting $6 billion drug, $10 billion drug, more than that. And I mentioned that there's 6 million patients in the US with Alzheimer's, and it's growing. They're actually saying maybe 100,000 on therapy here with the intravenous product. And then the subcutaneous product, which is also in clinical trials and we might have a filing early next year, could basically enhance or penetrate larger-- a larger proportion of Alzheimer's disease and obviously be a much more friendly formulation.

RACHELLE AKUFFO: And we'll certainly be keeping track of what happens in March with those decisions as well. William Blair biotech equity research analyst Myles Minter and Anjalee Khemlani, thank you so much.