Biogen skyrockets after Alzheimer’s drug approval – time to buy?

Biogen Inc. (NASDAQ:BIIB) shares pulled back on Tuesday to trim Monday’s gains. The biotechnology stock rallied more than 38% after the FDA approved its Alzheimer’s drug, aducanumab. It is the first Alzheimer’s drug cleared by the Food and Drug Administration in almost 20 years.

Some analysts are skeptical of aducanumab’s efficacy rate in slowing down cognitive decline in people living with Alzheimer’s disease.

Is Biogen stock overvalued?

Biogen shares have pulled back nearly 4% since Monday’s spike. However, at the current price of about $376.00 per share, the stock trades at a price-earnings ratio of $19.97. Under normal circumstances, this would be compelling to investors. However, just a few days ago, investors were only willing to pay about $286.00 per share for BIIB stock. 

Investors did not think that Biogen shares were worth a higher premium before the aducanumab approval. The current P/E ratio factors the FDA’s approval of the new Alzheimers drug. But the problem is not everyone is convinced. 

CFRA Research analyst Kevin Huang told CNBC’s Squawk Box that he remains skeptical of the drug’s efficacy rate. Huang said that he would have to observe how aducanumab performs in the next few years to change his mind. He has a price target of $363.00 on BIIB shares.

Technical overview

Technically, BIIB stock appears to have pulled back significantly after Monday’s spike. The pullback creates another opportunity for a rebound. However, the stock price has spiked in the past only to end up plunging back to previous lows. The same could happen again.

Investors will target short-term profits at around $420.06 or higher at $468.36. The key support levels are $322.13 and $267.46.

Bottom line: It may be worth waiting for BIIB stock price to drop before buying

Biogen shares have rallied to record highs after Monday’s aducanumab approval. The rally could entice investors to buy the stock. 

However, as demonstrated over the last 18 months, these spikes are not new to BIIB stock. They always ended with a massive pullback. The same could happen again, which would open a better opportunity to buy the stock.