Is Biogen a Risky Stock?

Following the spinoff of two of its fastest-growing drugs, Biogen Inc. (BIIB -0.48%) is more focused on neurological disease than it's been in years. However, the company could face a stiff new challenger in multiple sclerosis soon, and the best drug in its research pipeline is arguably a moonshot. Is Biogen a stock worth buying? In this clip from The Motley Fool's Industry Focus: Healthcare podcast, Kristine Harjes and Todd Campbell discuss what might be next for the large-cap biotech giant.

A full transcript follows the video.

This podcast was recorded on Feb. 1, 2017.

Kristine Harjes: What about Biogen itself? This was actually one of Tom's questions directly. He said, "Is Biogen less valuable? Or is it potentially more focused after the spinoff?"

Todd Campbell: I think one of the biggest questions that I have about Biogen right now is actually due to a competitor. Celgene (CELG) has been working on a drug that is taken orally for multiple sclerosis, and data is expected in the first half of this year. If that data is good, then theoretically, you have what could be or prove to be a best-in-class solution that reshapes the oral market for MS drugs. And as a reminder, in case you don't follow this company closely, one of the best-selling drugs at Biogen is Tecfidera. Tecfidera rakes in about $4 billion a year, and it is the leading oral drug right now. So you have to watch very carefully here in the next few months what comes out of Celgene, because there could be a big threat in 2018 to Biogen's growth because of that drug. So I think it's great to see that Biogen is more focused. But there is a threat there that we need to be aware of, especially since there is not a tremendous amount of news flow expected in 2018 regarding Biogen's pipeline.

Harjes: Exactly. They don't have a lot of short-term opportunities to prove that they have more firing power if they were, potentially, to lose market share in MS. The one thing that could potentially be a big growth driver for this company is a drug called Spinraza, which was just approved on Dec. 23 for SMA, which is spinal muscular atrophy. This could be a huge drug. I believe we talked about it on the show. It's priced at $750,000 a year, which is just a mind-blowing price tag. Todd, what do you think the odds are that this drug will succeed?

Campbell: I think the odds are probably very good. There are no treatments for this indication. You get 13,000 new cases a year, about 20,000 people in Europe and the U.S. with the condition now that can be addressed by this drug. Yes, it's not cheap, but I think negotiations will happen. Even if you take the conservative and say, at $500,000 a year, you don't need a lot of patients to turn this into a $1 billion drug. Now, Biogen is going to have to share some of that in royalties to the drug's co-developer, Ionis Pharmaceuticals, but this still could be, I think, a nine-figure drug relatively quickly, and potentially a 10-figure drug over the course of the next two or three years. That would be one really nice piece of upside and would obviously replace a lot of the lost sales from spinning off those two hemophilia drugs, which contributed over $800 million in sales last year.

Harjes: Right. And management agrees with you as well. I will point out that the CEO, on the latest call, said that Spinraza is "Biogen's most exciting commercial opportunity for 2017." He noted that, in the early part of its launch, that reimbursement is choppy, but ultimately, this is a necessary drug. The patients have no other options. So I really don't see insurers pushing back much on this price.

Campbell: They'll be slow to roll it out, and I'm sure they're going to try and put some blocks, kind of like we've seen with some of the other high-priced drugs that have launched. But yeah, I think, ultimately, this is going to be a nine-figure drug or better, and that's going to be, maybe, the brightest spot for the company, as far as the story over the next 12-18 months. Again, the big question is, what's in the pipeline for Biogen further out? What news could be coming? And what's going to happen on the competitive landscape in multiple sclerosis, and how will that take out as far as market share in the next year or two?

Harjes: Right. And speaking of the pipeline, I think there's one drug that, we can't talk about Biogen without mentioning the potential and the opportunity here. This drug is called Aducanumab, and it is still in development, in trials. It's a treatment for Alzheimer's. If you've been following the healthcare landscape, you know this is a heartbreaking disease to try to treat. These drugs get so close to the finish line, and then they fail, time and time again. So Biogen's candidate targets the same target as Eli Lilly's (LLY 1.96%) recently failed drug; the target is called amyloid. But, there are some key differences between the Biogen drug and Lilly's failed drug that, hopefully, for the sake of patients, and also, I guess, for shareholders of this company, those could be pivotal.

Campbell: Yeah. Biogen's management was asked specifically about this -- how is your drug different from the one that just failed at Eli Lilly? And Biogen's response was, there are a couple different reasons that are important here. One, Lilly's drug had trouble passing through the blood-brain barrier, and getting to the brain where those plaques build up. They claim that their drug, Biogen's drug, does not face that risk, that it does pass through and does reach the brain, and therefore could become the more efficacious in breaking down these plaques that are thought to be behind the disease.

The other thing that they brought up was that the end point, what the trial was designed to prove is different in their trial versus Eli Lilly's trial. And because they are using a different endpoint that they think they have a better chance of delivering the goods on, that this trial may not fail in the same way that Lilly's drug failed. Time will tell. We've talked about this on the show. Alzheimer's disease is an incredibly important indication, very limited treatment options, nothing that slows disease progression. So, there's a big unmet need. But if you look at the 2002-2012 time period, more than 99% of the drugs that have gone into clinical trials for Alzheimer's disease have not panned out. So there's an incredible amount of risk associated with this.

Harjes: Right. Huge risk, but also a huge potential upside. If you are a shareholder of this company, or considering an investment, it's a drug that you'll want to keep your eyes on.