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If there is one topic that scientists disagree strongly about in the field of medicine, it is the so-called amyloid hypothesis. This theory, believed by many scientists, holds that the protein amyloid-β accumulates into toxic deposits as Alzheimer’s disease progresses, ultimately causing dementia.

However, others think that amyloid is associated with the problem, but it isn’t the problem. The doubters point to a very detrimental second protein called tau. This protein also deposits in the brains of people who have Alzheimer’s, and it is actually the one that more strongly correlates with cognitive decline.

However, if the amyloid hypothesis does hold up, one company stands to benefit greatly…

Lecanemab and Alzheimer’s

That company is Biogen (BIIB), and it’s all thanks to recent clinical trial results.

Developed by Biogen and Japan’s Eisai (ESALY), lecanemab is a monoclonal antibody designed to clear clumps of amyloid protein from the brain.

The companies conducted a Phase III trial, Clarity AD, which ran for 18 months and covered 1800 patients in more than a dozen countries. According to data released on September 27, the drug candidate slowed the rate of cognitive decline by 27%; however, only a limited amount of data has been made available so far, and scientists are awaiting the full analysis results before proclaiming lecanemab a miracle drug.

Still—for a disease with virtually no effective treatment measures, that 27% is a significant figure.

At the moment, all doctors can offer Alzheimer’s patients are medications that alleviate some of the symptoms. Patients in the early stages of the disease might be given drugs to increase the levels of a brain chemical called acetylcholine, which helps nerve cells communicate. Also, psychiatric medications are sometimes prescribed to manage the behavioral and psychological symptoms that arise as Alzheimer’s advances.

The question remains whether the benefit lecanemab brings is worth the risks. During the trial, about 20% of participants who received lecanemab showed abnormalities on their brain scans that indicated swelling or bleeding, although fewer than 3% of those in the treatment group experienced symptoms of these side effects.

The FDA is reviewing lecanemab for ‘accelerated approval’ on the basis of Phase II results that showed a decrease in amyloid. The new Phase III results could tip the scales in favor of approval, although the trial is not formally part of the review. The agency expects to announce its decision on January 6, 2023.

Biogen Needs an Approval

Biogen needs the FDA approval on lecanemab badly.

Last year, its predecessor, aducanumab, was a flop. It was also designed to target amyloid plaque in the brain, but it wasn’t clear that the drug meaningfully slowed the rate of cognitive decline in clinical trial participants. In addition to the questions over aducanumab’s efficacy, there were concerns about its safety after roughly 40% of clinical trial participants developed brain swelling and bleeding.

Despite this, aducanumab received approval from the FDA, setting off an outcry. The Department of Health and Human Services, which oversees Medicare, decided to restrict the use of aducanumab to only patients enrolled in clinical trials. So, in effect, the drug’s rollout was over before it began.

Biogen’s share price suffered as a result, plunging from around $400 per share to a bit below $200. Shareholders have been hoping good trial results for lecanemab will turn the company’s fortunes around. For the company itself, lecanemab would be a game changer.

There’s no denying that many uncertainties remain around lecanemab. But Wall Street will be able to form a fuller opinion once the trial’s data is presented at the Clinical Trials on Alzheimer’s Disease (CTAD) conference in late November.

Then the drug will need to be approved for reimbursement by the Centers for Medicare and Medicaid Services (CMS), the same body that restricted the use of aducanumab to clinical trials. Both the conference and the CMS verdict have the potential to move Biogen’s share price in a big way.

But if all goes well, the reward could be huge.

Biogen’s Potential

With nearly six million Alzheimer’s patients in the U.S. today—and no effective method of slowing the disease’s progression—demand for lecanemab will likely be significant. Evaluate Pharma, a pharmaceutical industry intelligence provider, has estimated that the market for Alzheimer’s drugs will exceed $12 billion before the end of the decade.

Biogen’s portfolio of drugs is far less diversified across diseases than many rival biotechs and has fewer patented products as well. However, Biogen has the distinct advantage of a clearly defined specialty: neurological illnesses. Many of the diseases it seeks to treat, from multiple sclerosis to motor neuron disease, have few, if any, effective treatments available currently. This specialization serves as a kind of economic moat, or competitive advantage, for the company.

And Biogen remains much cheaper than its peers. FactSet places the company’s price-to-earnings multiple at 15.6 times for the full financial year—significantly below the 37.6 times average of its biotech peers.

Obviously, much will depend on government regulators and the release of full trial data for lecanemab. Nevertheless, there is plenty to be optimistic about with Biogen, making it a speculative buy.

You can buy shares anywhere in the $240 to $275 range.
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With the bond market in focus this year, there’s been plenty of options action in iShares 20+ Year Treasury Bond ETF (TLT). The long-term bond fund is the most active of the treasury bond ETFs, trading around 180,000 options per day on average. A large trader or fund placed a very interesting spread trade last

This year is on pace to be the worst in history for the standard 401k investment strategy. A balanced portfolio of stock and bond index funds has performed terribly in 2022. Workers who get their third-quarter 401k statements will be shocked.

Today, let’s discuss why this happened and how to do better…

The traditional 60/40 portfolio has 60% in stock index funds and 40% in bond index funds. The bond funds are supposed to be less volatile and make up for some of the stock market losses during bear markets. But that strategy hasn’t worked out this year: so far in 2022, stocks are down 23%, the iShares 7-10 Treasury Bond ETF (IEF) is down 17%, and investment-grade corporate bonds have fallen by 22%.

Put these negative returns together, and never in history has a traditional stock and bond balanced portfolio lost so much money. Most of us understand that stocks go through bull markets and bear markets. What’s harder to grasp is how investment grade and Treasury bonds can lose 20% of their value.

Bonds are interest-paying instruments that pay off a face value when they mature. The expected return should be the yield to maturity in effect when a bond is purchased. The problem comes from how bonds were viewed through 30 years of falling interest rates.

Bond prices move inversely to interest rates. This relationship means when rates are falling, bond prices are supposed to go up. The long period of falling interest rates trained money managers to count on capital gains from bond funds in addition to interest income. As interest rates moved close to zero, financial advisors continued to depend on bond price appreciation from the recommended bond funds.

A return to rising, and quickly rising, interest rates blew up bond fund investing. It’s a direct, mathematical correlation between bond fund prices and interest rates. Since bond funds don’t hold bonds to maturity, bond fund share prices go down and stay down when interest rates go up.

Bond fund prices are different from stock prices. Share prices can and do recover from a market decline. Bond fund share prices will only go up if interest rates fall, and the nature of bond funds (vs. owning bonds directly) makes recovery much less than the magnitude of the decline. And that’s assuming interest rates go down.

I hope you get the idea that index-tracking bond funds are not good for your wealth or your 401k account value. That said, now that interest rates have gone up, investing in fixed income securities makes sense in a balanced portfolio. You want to invest in securities with a fixed maturity that will pay a face value when they mature. Here are a few ideas…

Buy individual bonds. You can easily buy Treasury Bills and Notes through your brokerage account. Six-month T-bills yield above 4.3%, and these bonds are very liquid. Talk to your broker about municipal bonds if you are in a high tax bracket.

Certificates of Deposit (CDs) pay similar yields. You will likely find better CD rates through your stockbroker than from your local bank.

Series I Savings Bonds pay based on the rate of inflation and currently yield close to 10%. I Bonds have some limits and restrictions, but if you have some cash to sock away, the yield is fantastic.

The Invesco BulletShares series of bond ETFs solves the bond fund problem. Each of these ETFs own bonds that mature in a specific year. These funds allow investors to set up an old-fashioned bond ladder, an excellent tactic to maximize investment income and liquidity.

In my Dividend Hunter service, I have provided in-depth information on the BulletShares features and how to use them in a portfolio. See below for how to join.
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