NEW YORK (Reuters Breakingviews) - Biogen’s potential new treatment of Alzheimer’s disease could be the biggest drug ever. The company added $17 billion to its market capitalization on Wednesday when the Food and Drug Administration hinted in released documents that regulators were persuaded the drug worked. A better indication comes on Friday, when an FDA advisory committee will decide whether to recommend approval. A green light could send Biogen up more. But it may be worth far more to the drug industry overall.
It’s easy to imagine the company led by Michel Vounatsos reaping gigantic revenue. Alzheimer’s is widespread and devastating, and there are no effective treatments. Doctor surveys have indicated a third of the 2.2 million Americans with mild dementia could be on a new drug within three years, Cowen analysts note. Assuming it’s priced at $50,000 a year, that’s approaching $40 billion of potential annual revenue. The bank warns, though, that real-world use would probably be lower. Assume annual sales at just a third of that level and put them on a multiple of five, a rule of thumb valuation metric for the industry, and Biogen’s drug may be worth $60 billion or more. Biogen’s market capitalization prior to Wednesday’s news was $38 billion.
Biogen’s new treatment once appeared to be a dud. The company did two essentially identical large studies, with one showing apparent efficacy and the other failing. Normally, that’s not enough. Moreover, other similar potential drugs have a history of bombing in clinical trials. Yet the FDA now seems to think Biogen’s successful study was persuasive.
The agency’s calculus may be simple: Alzheimer’s is awful, patients lack therapies and the side effects appear mild, so setting a lower bar might make sense. The same rationale could be applied to many cancers and inherited diseases. Easier approvals of new treatments, even with questionable efficacy, would mean substantially more revenue for the industry. Shareholders in companies like Biogen would rejoice. But selling pricey new drugs with marginal benefits at best wouldn’t help patients much – or restrain U.S. healthcare spending.
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