Alzheimer's Disease: Positive Results Lift All Stock Prices

The results of Biogen's drug candidate BAN2401 did not just lift its own stock price, but that of its main competitor as well

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Maxwell Koobatian
Jul 23, 2018
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On July 5, Biogen (BIIB) and Eisai (ESALY) announced positive topline results of BAN2401, a drug candidate for the treatment of Alzheimer's disease. This is significant because it further secures Biogen’s dominance in the Alzheimer's disease space.

Currently, Biogen has six drug candidates in development for the treatment of Alzheimer's disease, two of which are in phase 3 clinical trials with completion dates estimated around 2020. In a previous article, I noted that Aducanumab (also developed by Biogen) was arguably the most promising Alzheimer’s disease drug candidate in development and if successful will likely become one of the most successful drugs ever approved. Some have projected that annual sales of Aducanumab could reach over $20 billion.

While the development of BAN2401 and Aducanumab are very promising, there is another candidate known as Crebezumab that should not be ignored. Crebezumab was originally developed by AC Immune (ACIU), a Swiss biotech company, but is being evaluated by Roche (RHHBF) in phase 3 development for Alzheimer's Disease treatment and phase 2 for Alzheimer's disease prevention. The exclusive licensing agreement between AC Immune and Roche (which owns Genentech) was finalized in 2006 and stated the following:

“Under the terms of this agreement, Genentech will make an upfront payment to AC Immune, with the potential for a total of over $300 million in payments upon successful completion of clinical and regulatory milestones for Alzheimer's and additional applications. Upon commercialization of a product, Genentech will pay AC Immune royalties on net sales of AC Immune's antibodies in the field of Alzheimer's or other human applications.”

Why is this important? Large drug companies such as Roche, Pfizer (PFE) and even Biogen have to depend on some drugs in their pipelines to do exceptionally well in order to grow at a reasonable pace, return value to shareholders and ensure stable employment for their employees.

AC Immune, however, is small in comparison, with only 62 employees at the time of its initial public offering in 2016, and a current market cap just shy of $1 billion. AC Immune is also not facing patent cliffs such as Biogen and Genentech’s Rituxan drug which is set to expire this year. In other words, the success of Crebezumab will arguably be felt to a greater extent by the stock price in AC Immune, then Roche. In fact, the success of Biogen’s BAN2401 is even realized in AC Immune’s stock price because while AC Immune is effectively competing with Biogen, the mechanisms of both drug candidates (Crebezumab vs. BAN2401) are so similar, the success of one translates to the success of the other.

This is why when Biogen released its positive topline results of BAN2401, AC Immune’s stock jumped as high as 22% in a day. Below is a chart comparing the percent change in stock price between AC Immune (ACIU), Roche (RHHBF), Eisai (ESALY) and Biogen (BIIB) this past month. AC Immune registered the highest jump in stock price by a significant margin.

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Another attractive quality of AC Immune is that in addition to Crebezumab and its partnership with Roche, it has a promising pipeline of other drug candidates, many of which are being pursued solely by AC Immune. Disease indications being pursued by AC Immune include Alzheimer's disease, glaucoma and diagnostic imagining agents for Parkinson’s disease, Alzheimer's and progressive supranuclear palsy.

In summary, there are two important considerations worth making when deciding whether to make an investment in a biotech or pharmaceutical company because of a promising drug candidate. First, consider looking at its partners. Is it developing  its drugs by itself or with the help of another company? Second, are there any other drugs with similar mechanisms of action under development or that have already been approved? The success and failure of one can likely affect the price of another company's (and its partners') stock prices as well.

In this case, the success of BAN2401 directly increased the price of AC Immune’s stock. Yet, it is worth noting that this just as easily could have gone the other way. While it is true that the mechanisms of action for BAN2401 and Crebezumab are similar, the homology between Crebezumab and Solanezumab is also similar. And Solanezumab (being investigated by Eli Lilly), which failed in phase 3 clinical trials, is considered one of the greatest disappointments in finding an Alzheimer's disease treatment to date.

All of these subtleties are important to keep in mind when investing in biotech and pharmaceutical stocks.

Disclosure: I do not have positions in the stocks mentioned.

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