Opportunity for biotech firms as a new age of neuro drugs accelerates

Graig Suvannavejh
Graig Suvannavejh Managing Director and Senior US Healthcare Equity Research Analyst
June 14, 2023

Key Takeaways

  • The FDA has approved new treatments for challenging neurodegenerative disorders.
  • A number of companies have presented promising data for additional treatments of the diseases and symptoms. 
  • Investors may benefit by targeting smaller drug makers, but need to follow the underlying science. 

In 2021, the FDA approved Aduhelm, a new drug to treat Alzheimer’s disease, and the first new treatment in more than 20 years. The decision was controversial, as scientists debated the effectiveness of the drug. But, as a milestone for drug development, there was no debate. A new era in the treatment of neurodegenerative diseases had begun. 

Innovative biotech companies are using groundbreaking science to develop drugs for neurodegenerative disorders. At the same time, the FDA has signaled a potential new standard for approvals that could offer a higher success rate for drug developers. In the last year, biotech companies have reported promising data on treatments for Alzheimer’s disease and amyotrophic lateral sclerosis (ALS). A number of drugs have been approved, bringing new hope to millions of patients. Investors may benefit too, but to find the most promising companies, you have to follow the science. 

Prioritizing progress

Both Alzheimer’s and ALS are devastating diagnoses for patients and those who care for them. More than 6 million Americans suffer from Alzheimer’s and about 30,000 people in the US are living with ALS. There is no cure for either disease. Alzheimer’s is the sixth leading cause of death in the US, and most patients with ALS succumb to the disease 3-5 years after diagnosis. 

Thanks to what appears to be increased flexibility in approval standards, the FDA has recently approved a number of Alzheimer’s and ALS treatments that were shown to be safe and to have an impact on important biomarkers, or surrogate markers for drug efficacy in treating disease. Previously, in addition to acceptable safety, the FDA approval mainly required clinical efficacy — such as improvement in cognition and functional ability, in the case of Alzheimer’s disease. We believe this potentially emerging standard is a major event for investors and drug companies, because it could mean faster drug development, less-costly trials, and a higher success rate for pharma companies. 

A growing Alzheimer’s treatment pipeline

Last year, Eisai and Biogen’s lecanamab showed positive Phase 3 data in the treatment of Alzheimer’s. That drug, brand named Leqembi, which was approved in January of this year, is now being brought to market. Eli Lilly has also announced positive Phase 3 data for its drug, donanemab.

These drugs represent new hope for patients and, by our estimates, could represent a $30 billion market opportunity. As investors are trying to determine which of the pharma giants will gain market share, my colleagues and I at Mizuho recently hosted, over two days in Boston, our first Neuro Connections Dinner and also our first Neuroscience Summit, bringing together emerging private and public biotech companies, key opinion leaders (KOLs) in medicine, and investors. We hosted multiple talks with our KOLs on Alzheimer’s disease and the emerging treatment paradigm, and our panelists noted that the two drugs have potential market strengths, based on their different profiles: lecanamab may have less adverse events and be better tolerated, while donenemab may be more effective.

Even with these developments from the largest pharma companies, we believe small biotech companies are still likely to play a major role in the future of Alzheimer’s treatments, as they are developing a host of promising new therapies. For example, Prothena, Acumen Pharmaceuticals, and Alzheon are working on new drugs that target the plaque in the brain that may offer advantages over the drugs coming to market now. In the example of Alzheon, it is developing a pill you can take at home, instead of receiving an intravenously administered infusion in a clinic.

Other companies are targeting novel pathways to treat Alzheimer’s disease. Our panelists singled out immunomodulators that target TREM2 and could modulate the immune system to remove plaque in the brain as an exciting area of research. Alector and Vigil Neuroscience are both developing monoclonal antibody therapies that target TREM2 with such potential.

In addition, innovative new therapies are in the pipeline to help manage the symptoms of Alzheimer’s disease. Axsome Therapeutics has presented positive Phase 2 and 3 data for a drug called Auvelity, an already approved antidepressant that may also treat agitation, one of the most challenging symptoms of Alzheimer’s. BioXcel Therapeutics is testing its lead drug called Igalmi, which is approved for treating agitation in schizophrenia and bipolar disorder, in the hope it also can be an acute treatment for agitation in Alzheimer’s patients. Phase 3 data for Igalmi in Alzheimer’s related agitation are expected to be announced in June. 

Meanwhile, other biotech companies are working on treating psychosis that is seen in Alzheimer’s disease patients. Karuna Therapeutics is developing KarXT, a unique combination drug that works on modulating muscarinic receptors with already established safety and efficacy from multiple Phase 3 studies in patients with schizophrenia. Even without an approved drug on the market, the company’s market value has grown to more than $8 billion, due to investor optimism for the treatment. In addition, Cerevel Therapeutics is developing Emraclidine, which also targets muscarinic receptors, as a potential new treatment for Alzheimer’s psychosis, but it is several years behind Karuna. 

New hope for ALS

For years, ALS patients have relied on Rilutek (which has been available as a generic drug called Riluzole since 2013) as the standard treatment, but the drug offers limited benefits. Mitsubishi Tanabe’s Radicava is also approved to treat ALS; originally approved only in Japan, and also with rather limited efficacy, this drug is unique in that it was approved by the US FDA without a clinical data in US patients – highlighting, in our view, the dire need for new treatments for ALS. 

Last year, the FDA approved a new drug, Relyvrio from Amylyx Pharmaceuticals. Sales of the drug have exceeded expectations, but the approval was somewhat controversial, as it was on the basis of a Phase 2 data. Trial results showed improved function and survival, and a separate study showed reduction in a key biomarker called neurofilament light chain, but more typically, drugs are approved on the basis of data from a larger Phase 3 trial. In the case of Relyvrio, top-line data from such a Phase 3 trial called PHOENIX is due by mid-2024, and investors are watching carefully. If the trial results can’t show effectiveness, there is concern from ALS patients – as well as investors – that the drug could get pulled from the market. That said, assuming a successful Phase 3 outcome, we project global sales could reach $1.8 billion. 

Biogen and Ionis recently received FDA approval for another new ALS treatment, Qalsody. Qalsody is a genetic medicine that targets a specific mutation present in a small portion of ALS patients. Again, the efficacy data on this drug was mixed — it showed improvement in neurofilament light chain, again that key biomarker, but not overall efficacy. Yet, the FDA approved the drug anyway, where we believe the key was the drug’s positive impact on biomarkers. 

While there are still only a few approved drugs for ALS, the good news is that over the past several years, there has been an explosion of interest and, as a result, clinical activity by companies in the ALS space. Here, it is mainly the smaller biotech companies that are leading the charge, and given the increasing regulatory flexibility that we’re seeing from the FDA, we’re hopeful many more drugs will be available for ALS patients over the next decade.    

Investing in smaller drug makers

In our view, smaller companies have enormous potential to grow, as they explore the use of new mechanisms of action and treatment modalities. But the outcomes of the drug trials, which are critical, are often uncertain and difficult to predict. Each new data set can have a profound impact on a company’s market value and future trajectory. 

Investing in the biotechnology space requires an understanding of the evolving science and the ability to manage the risk of clinical setbacks. For the companies that succeed, the benefits to patients and investors may be profound. 

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