FDA’s OK Isn’t Always a Happy Day for Biotech Investors

livemint.com:

Biotech companies often spend years—and millions of dollars—to develop a drug they hope will make it to market. If the day comes when their medicine finally gets regulatory approval, it is usually a cause for celebration by management and employees. Investors should curb their enthusiasm.

In recent weeks, three closely watched Food and Drug Administration decisions came in positive for the companies—followed by their stocks going negative. While every drug has its own set of challenges, the disappointment generally came down to FDA decisions that, while giving the companies the much-needed go-ahead, may also have created unexpected hurdles, explains Jefferies healthcare strategist Will Sevush. The best-known of the three was the decision on Biogen and Eisai’s Leqembi for Alzheimer’s disease.

The FDA on Thursday granted full approval, which means that Medicare enrollees who qualify can now get fully covered treatment with the drug. The regulatory nod, along with the ensuing Medicare coverage, is a massive victory for the companies after their Aduhelm, also an anti-amyloid drug, was essentially shut down by Medicare. Eisai said Leqembi could generate $7 billion in annual sales globally by 2030, and many analysts think the figure could be higher.

Yet for investors, the incremental news last week was negative. Since investors already perceived the approval as priced in, they were instead troubled that the FDA label includes a warning that anti-amyloid drugs are linked to risks of brain swelling and bleeding while also recommending people get tested for a gene called APOE4, which is associated with Alzheimer’s. Biogen shares dropped 3.5% on Friday before partly rebounding on Monday.