Last Friday, Christmas came early for Biogen (BIIB 3.78%) and Ionis Pharmaceuticals (IONS 2.81%) with the FDA approval of their spinal muscular atrophy (SMA) drug Spinraza (nusinersen). SMA is an inherited neurological disorder that results in progressive muscle wasting, impacting a person's ability to move and even breathe.
Although this disease is rare, with a U.S. incidence rate of 1 in 10,000 live births, it is the leading genetic cause of death in infants, and prior to Spinraza's approval it lacked any form of effective pharmaceutical intervention. As orphan drugs like Spinraza often come with sky-high prices and little to no payer pushback, Biogen and Ionis appear to have a real winner on their hands from a revenue standpoint. With this in mind, let's dig deeper to understand how this new drug may impact Biogen's top line next year.
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Modeling Spinraza's 2017 U.S. sales
The SMA Foundation estimates that there are approximately 9,000 potential SMA patients in United States right now. While the FDA did grant Spinraza the broadest label possible, the fact remains that not all 9,000 patient candidates will be properly diagnosed and receive treatment. So based on the prevailing trends for other orphan drugs on the market -- and admittedly, there is a lot of play in these figures -- we can expect something along the lines of 40% of all SMA patients in the U.S. to be correctly diagnosed, and around 90% of this sub-group to eventually receive pharmaceutical intervention in the form of Spinraza.
Now, while first-to-market orphan drugs like Spinraza do tend to have stellar penetration rates that approach nearly 100% of eligible patients (patients that have been diagnosed and have access to insurance), this process does take time -- often close to a decade. In short, investors should expect Spinraza's first-year penetration rate to be something along the lines of, say, 10% of its eligible patient population, implying that the drug will be sold to around 325 patients in the U.S. in 2017.
Finally, there is the all-important issue of Spinraza's price. At the time of writing, the drug's wholesale price has yet to be announced, but a $200,000 annual price tag is in line with industry norms for the initial launch for an orphan product.
So, all things considered, Spinraza appears to be on track to generate somewhere in the neighborhood of $55 million to $65 million in U.S. sales for Biogen next year.
Potential near-term impact on Biogen's top line
According to investment bank Leerink, Biogen will book Spinraza's sales up front, prior to doling out tiered royalties to Ionis. As such, we can justifiably add Spinraza's sales estimate to Biogen's estimated 2017 outlook to get an idea of how this drug could impact the biotech next year.
So without any additional approvals in ex-U.S. territories in the near term, Spinraza stands to add about half a percentage point to Biogen's revenue growth in 2017. Interestingly enough, though, this rough estimate isn't far off the mark compared to the Street's high-end revenue estimate for the drugmaker next year, lending credence to the notion that investors shouldn't get too excited just yet. After all, the minor difference between the Street's estimate and the one presented here likely reflects the possibility that Spinraza could add perhaps another $15 million to $20 million in overseas sales in 2017.
Although Spinraza probably won't turn out to be a game-changer for Biogen immediately -- at least based on the ballpark figures presented above -- the drug does have some serious commercial potential in the long term. Once the drug is approved elsewhere and its U.S. launch gets underway in earnest, it could produce peak sales of $1.5 billion to $2 billion within a decade, depending on how aggressive Biogen is when it comes to price hikes.
All told, this orphan drug should turn out to be an important value-driver for Biogen in the years to come, but investors should temper their near-term expectations.
