Is “The End of Alzheimer’s” Going to be “Jeff Bezos’ Next Big Thing?”

What's being teased by Behind the Markets?

By Travis Johnson, Stock Gumshoe, June 15, 2021

Alzheimer’s Disease is on everyone’s mind these days, thanks to Biogen’s (BIIB) controversial FDA approval for marketing Aduhelm as the first Alzheimer’s treatment in years, and arguably the first disease-modifying treatment at all… so both hope (for patients and families) and greed (for investors) are back in the picture.

The dispute over the approval was heated, with the risks of the drug and the limited efficacy in clinical trials causing several members of the FDA advisory panel to quit after their recommendations weren’t followed by the FDA (and critics went beyond that, saying this approval represents a dangerous loosening of standards from the agency).

Nobody really knows what this will look like when it comes to insurance coverage and usage by doctors, and it might take years of real-world use before we really know whether Aduhelm makes a difference… but it has at least rekindled hope that there will someday be a real solution for the Gray Plague. And since this is arguably the largest unmet pharmaceutical need in the world, Biogen steps into a possible whirlwind of money — even with the limited efficacy, the caution from doctors, and the lack of clarity about how many people will get insurance coverage for the $50,000+ cost of the medicine, Biogen’s market capitalization increased by $20 billion on the day the approval was announced.

It’s also fair to say that this is really just bookending the $20 billion Biogen lost in value on the day they abandoned Aduhelm, then called aducanumab, when their early 2019 clinical trial results led them to believe it would not be effective, and Biogen’s value is just back to where it was in that prior hopeful period in 2017 and 2018… but still: Hope is in the air, and Alzheimer’s Disease makes investors see dollar signs.

And, frankly, there’s also a reset to some degree in the minds of investors now — while a couple decades of billions of dollars of wasted R&D on failed Alzheimer’s Disease drugs had brought us all to a point of cynicism, with the long-held truism that Phase 3 clinical trials are where Alzheimer’s drugs go to die, it might be that we’re resetting that a little bit… even if only to say, “if they’ll approve that drug, with all its weaknesses and question marks, maybe this other drug that I was skeptical about will make it through the gauntlet as well.”

So be ready for the next wave of hope from the pitchmen, who would like to identify the next Aduhelm and the next Biogen. Today we’ll take a quick look at one of those, it’s a spiel from Dylan Jovine, who’s selling subscriptions to his Behind The Markets newsletter ($79/yr), and it throws both Jeff Bezos and Alzheimer’s into the headline to try to get our attention — here’s how the ad starts:

“Jeff Bezos’ Next Big Thing…

“The End of Alzheimer’s

“The tech visionary who built a $1.6 trillion company from scratch has backed an unknown biotech with a new way to treat Alzheimer’s.

“Our research shows that investors who get in today could turn every $1,000 into $1.1 million.”

That’s about a 110,000% return, by the way, in case you’re penciling that in for your retirement plans. That’s almost as much as you would have earned if you bought Amazon on IPO day 24 years ago, in case you’re into that kind of financial pornography (and yes, you would have had to be committed and strong of stomach to hold AMZN that whole time, particularly during its several 50-90% declines along the way… and as it perhaps became 50% or more of your portfolio in recent years).

And yes, the example that Jovine uses for that return potential is our old friend Biogen, which did indeed have a 113,548% return if you bought in the doldrums of the mid-1990s and sold at the peak in 2015 — that was mostly thanks to their blockbuster Multiple Sclerosis drugs, but yes, big drugs create blockbuster stocks sometimes. That’s an outlier, to be sure, but even a more tepid return like that from Amgen (AMGN), often considered the first big biotech success, would be impressive — AMGN is up only about 350% over the past 20 years, similar to the S&P 500’s return, but if you go back further it has now returned close to 100,000% for very early investors, too, but in that case you had to wait about 40 years, not just 20 (both Amgen and Biogen had a few 40-50%+ drops along the way, too, not unlike Amazon, lest you think their success was preordained or easy).

So where is it that Jovine sees these riches? It begins with an origin story…

“In October 2013, a scientist wrote three words down on a piece of paper….

“He then began telling fellow scientists the words. And his ideas for them.

“He soon recruited a team that’s been called “the best scientists on earth.”

“In May 2015, Fidelity Biosciences cut him a check for $217 million.

“In August 2016, he told Jeff Bezos three words. He walked out with a check for $130 million.

“It took just over a year – 390 days – for this company to hit a $1 billion valuation. That’s faster than any company in history, including Facebook.”

And the list of backers grows longer…

“… experts say this treatment could help with “the biggest medical expense facing this country.”

“That’s why large drug companies world-wide have already invested billions into this small firm –

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“U.S. Big Pharma giant Biogen invested $1 billion.

“French Big Pharma giant Sanofi invested $125 million.

“And Japanese Big Pharma giant Takeda Pharmaceutics invested $150 million.

“That’s on top of the $330 million Jeff Bezos and Fidelity Biosciences already invested into this.”

Jovine describes this company as having breakthrough science, a massive market, and a strong distribution partner, all thanks to their breakthrough in solving the “blood-brain barrier,” which is our body’s natural defense system that keeps large molecule drugs from getting to the cells in the brain where Alzheimer’s (or other neurological diseases) is operating.

So this is starting to sound a little familiar, perhaps — but here are some more clues about the company from the ad, just to make sure we get our match:

“Instead of inventing one treatment to treat one disease, they’ve invented a platform that could treat multiple diseases…

“5.8 million people have Alzheimers…

“10 million people are living with Parkinson’s…

“And 16,000 people have ALS

“By treating all these different neurodegenerative diseases, you could help over 15.8 million people in the United States alone!

“All told, it’s expected to be a $62.7 billion market.”

So what’s the company Jovine is teasing with his “Past the Blood-Brain-Barrier: The Small Company Revolutionizing Alzheimer’s Disease?”

Well, it’s a familiar one — this is the same company he teased as a “takeover target” a year and a half ago — to his credit, I should be clear, because that pick was very successful (the stock has roughly tripled since then). Jovine is again teasing Denali Therapeutics (DNLI)… in a somewhat typical newsletter marketing strategy, he has taken the big pitch idea from his higher-priced newsletter from last year and recycled that same theme to sell his entry-level newsletter.

Here’s what I said about that at the time:

“Denali did have three drugs in “early clinical trials” a few months ago, though that number has now swelled to six according to their pipeline page. A key part of their drug discovery is their work with degenogenes, which are the genes that, when mutated, create a major risk factor for neurodegenerative diseases — and they are also, as you might imagine, very focused on delivery of drugs to the brain across that blood-brain barrier, either through molecule design or with various proprietary “transport vehicles” they have developed to deliver larger molecules to the brain.

“But that is now further than I should have gone in talking about the science part of this, because I’m a low-functioning idiot in that area and still get a nervous twitch when I picture my high school chemistry teacher. Suffice to say that yes, they are a high-profile R&D company trying to develop drugs and drug-delivery systems for neurodegenerative diseases.

“On the financial side, they’ll probably always be a tempting takeover target because they have a strong team and are addressing some very large potential markets (meaning, there are a ton of people suffering from Alzheimer’s, Parkinson’s, Lou Gehrig’s Disease and the others they’re trying to treat, so the bucket of gold at the end of the “FDA approval” rainbow is a large one), but they’re also still very high risk because they’re at the very first stages of clinical trials.”

This is still an area where I claim idiocy, and Denali is now a $9 billion company with a lot of fans and has a pretty active pipeline of early-stage drugs — their Alzheimer’s Disease drugs are not really the focus at the moment, we haven’t yet seen any clinical trial results from those (the first one is in Phase 1 now, with initial safety data expected in the second half of this year, the second will probably see an IND filed within a year or so and, if successful, should begin Phase 1 trials soon after). It will be many years before they have a drug in Phase 3 trials for possible approval, most likely, but they do have $1.5 billion in cash and can certainly keep plugging along — so it’s really just all about the science. They’ve got the backers, they’ve got their unique technology and their pipeline of drugs in the clinic that have attracted partners (including Sanofi, Takeda and Biogen), and we’ll start to find out in the next couple years if their drugs represent real hope for Alzeimer’s (or, perhaps a little more likely in the near future, Hunter Syndrome, ALS, and Parkinson’s Disease).

If you’d like to begin to dig into this story a little more, their latest Investor Presentation outlines their partnerships, clinical programs and transport technology (across the blood-brain barrier) pretty well. The pipeline is growing, the partnerships are strong, the initial clinical trial data seems promising for Parkinson’s Disease and some rarer neurodegenerative disorders, and it’s mostly a waiting game. There are no financial results that are likely to really matter for the next couple years — they will get some revenue, mostly from partners who are funding them with milestone payments, but that kind of funding is not steady and the profit they posted in 2020 was a one-time flareup from the Biogen agreement they signed last Fall, which generated more than $300 million in revenue for the fourth quarter… they’ll likely be burning through a good chunk of their $1.5 billion in cash over the next few years as expenses ramp up considerably with later-stage clinical trials, but they’ve certainly got plenty of funding for now — if you’re interested in this company watch the clinical results, not the income statements.

I tend to avoid investing in clinical-stage biotechs, mostly just because the science is not my specialty and I don’t like the fact that I’d almost certainly be buying shares from people who understand the business a lot better than I do, but I know we’ve got a lot of biotech enthusiasts among the great Gumshoe readership, so please do feel free to chime in and let us know if you think Denali’s on the right track… or if it’s too popular for its own good. Thanks for reading!

P.S. Yes, Bezos did invest in Denali Therapeutics when it was still private. That was reportedly one of the investments from his Bezos Expeditions venture fund back in 2015 or 2016, along with other biotechs he has backed, including Juno Therapeutics (bought by Celgene a few years ago) and Unity Biotechnology (UBX, often teased but now crushed by the failure of their first clinical trial). I don’t know if he has done anything with that position in the meantime. Bezos has invested in dozens of private and public companies, all of which pale in comparison to the billion or so dollars he spends each year funding his Blue Origin space company and, of course, the nearly $200 billion worth of Amazon shares he still owns and which, most days, still put him atop the “Richest Man in the World” standings. So in context, his investment in Denali is about on par with a person with a $1 million 401(k) betting $650 on a penny stock.

Disclosure: Of the companies mentioned above, I own shares of Amazon. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.

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