Date: 06/14/2021
Author: Mr. X
Biotech stocks live and die by drug approvals. So the whole world took notice when the Food and Drug Administration unexpectedly approved Biogen’s [BIIB] Alzheimer’s disease drug Aduhelm. At noon on June 7, BIIB was at about $286.31 a share. One hour later, it was about $411.69 a share.
This decision did not come without controversy. Actually, forget that kind of restrained, respectable language – this was one of the most shocking approvals ever made in American medical history. No fewer than three members of an FDA advisory committee have resigned in protest. Dr. Aaron Kesselheim of Harvard Medical School says it “was probably the worst drug approval decision in recent U.S. history.”
The drug’s performance is hardly overwhelming. It arguably improved cognitive performance very slightly on an 18 point scale. How slight? Less than 0.4 points – not even enough to be considered statistically significant. The drug is also reportedly not without serious side effects, including brain swelling in some cases.
The FDA didn’t give blanket approval. Still, it was something close. Biogen must perform an additional conditional trial. However, it has until 2029 to complete it. Until then, Biogen can sell the drug to Alzheimer’s patients at a cost of about $55,000 a course. Some of that cost will be absorbed by Medicare – i.e. by you.
Of course, this was also the first significant Alzheimer’s drug approval in about 20 years. The question was not between an existing, cheaper drug or an expensive drug that might perform slightly better. It was between this or nothing.
By 2025, about 7.1 million Americans will have Alzheimer’s. This is, bluntly, a huge market. And there is a case to be argued that it is compassionate to offer people something. After all, it’s not like patients (or those making decisions for patients) won’t be able to find out about the prospective costs and benefits of the drug.
Since AIDS exploded during the 1980s, cases of this kind have become political questions. Some of the most radical, confrontational activism from AIDS patients was directed against the FDA for supposedly being too cautious when it comes to approving drugs. The argument was that in a diagnosis that is 100% fatal, there is nothing to lose.
Some patients suffering from other terminal diseases such as Amyotrophic Lateral Sclerosis (ALS, or Lou Gehrig’s Disease) have made the same case. The FDA is arguably “protecting patients to death” by not giving them a chance to try treatments that might help.
Of course, as with anything in medicine, it’s not that simple. Drugs have side effects. Wasting money on ineffective or even harmful treatments hurts patients’ remaining quality of life. At the least, it’s a waste of resources that prevents investments into more productive directions.
Yet these are rather cold, clinical ways of looking at such questions. Ask yourself – if you were staring down the barrel of a dread diagnosis (or, worse, had to make decisions for someone you loved), wouldn’t you try something rather than nothing? It’s a hard thing to just say no.
Patients are also politically organizing. Every disease has a kind of “lobby.” Generally speaking, they are pushing for faster action on treatments that can help people now. Are those more fortunate in a moral position to tell them there is no hope?
The question becomes even more confusing when we consider the relationship between pharmaceutical companies and the FDA. Sometimes, the same people who make decisions about approving drugs go on to work for companies that develop those drugs.
For example, ex-FDA commissioner Dr. Stephen Hahn will join Flagship Pioneering (the venture firm behind Moderna [MRNA]) as a medical officer. Of course, the FDA will be making many more calls about vaccines and COVID-19, especially as the apparently more dangerous “Delta” variant continues to spread throughout the world.
Some might regard this as sinister. There’s obviously a conflict of interest. Still, realistically, there’s no one else who can fill such roles. Why wouldn’t you want someone who knows the bureaucracy and the science to be in such positions?
And while pharmaceutical companies are hardly the most popular institutions in this country, they have support because they churned out vaccines at blistering speed during the COVID-19 pandemic. Though it’s uncomfortable to talk about, those vaccines only became available because the FDA was willing to approve them on an “experimental” basis given the scope of the emergency. Moderna only recently applied for full FDA approval.
This article has been full of uncomfortable questions and difficult scenarios. Now we come to the coldest and most cynical – as an investor, what does this mean for you? The brutal truth is that if you were holding Biogen, the FDA’s decision was a financial godsend. Furthermore, a more liberal policy of drug approvals would presumably lead to greater gains for other companies.
Yet investors should be cautious before thinking a new era has dawned. Just recently, the FDA instructed Johnson & Johnson [JNJ] to destroy 60 million vaccine doses because of possible cross-contamination. The FDA refused to approve Avenue Therapeutics [ATXI]’s neuropathy drug, leading ATXI to drop by about as much as BIIB gained. And Eton Pharmaceuticals [ETON] took the L when the FDA refused to approve its dehydrated alcohol injection for methanol poisoning. The stock fell over 15% in the immediate aftermath.
What is the takeaway? Trying to predict what the FDA will do is reading the tea leaves. It’s reminiscent of those foreign policy specialists who would make sweeping declarations about the Soviet Union based on who stood where during May Day parades. If you somehow had advanced knowledge of the advisory board’s ruling on Biogen’s Alzheimer’s drug, you’d have predicted a veto – and you’d have been wrong. No one can forecast exactly what will happen without straight up breaking the law.
However, we might see the beginnings of a pattern. The FDA might be more willing to approve drugs for incurable diseases even if they only offer modest benefits. The odds for approval might look even better if patients are advocating for more access to drugs. It’s important if they have organizations lobbying on their behalf. Finally, look for companies to do what Biogen did in this case – find data that shows possible efficacy for a subgroup of patients from past trials, and use that to push for broader approval.
I can think of no question that offers greater moral complexities than whether or not to approve drugs for horrifying diseases. I’ve read the studies, and I even pore through patient reports in search of clues. Yet I ultimately think that what we’re facing is a political question.
Our job here isn’t to cure cancer. Our job is to help you make informed investing decisions on whether to put your money behind companies who do have such a mission.
My suggestion is not to look at this as a medical decision, but as a political one. If a bill in Congress doesn’t have active lobbyists, a mass constituency interested in the outcome, and insiders who know the political battleground, that bill will fail.
Perhaps that is the way we should look at drug trials in the future. Therefore, when making a choice about a biotech stock, consider whether a company’s treatment is meeting a truly unmet need for a large group of patients who have organizations at their back and no good therapeutic options. A company with that kind of treatment would pique my interest. If you’re looking for the next Biogen, that’s how to start searching.
