Biogen's (NASDAQ:BIIB) disclosure that aducanumab doesn't appear to help patients with Alzheimer's disease is a major blow to the big biotech's future growth, especially since its pipeline is fairly limited. The simple solution would be to use the $4.9 billion it had sitting in the bank at the end of 2018 to acquire something -- anything! -- to boost its revenue.
Fellow Fool Cory Renauer gave two suggestions -- Neurocrine Biosciences (NASDAQ:NBIX) and Sage Therapeutics (NASDAQ:SAGE) -- that would complement Biogen's neurology focus. They're both good ideas that would enhance Biogen's current holdings.
But a better choice might be to buy a company that Biogen already has a working relationship with. The clear advantage over Neurocrine or Sage is that Biogen's management should be able to better value that company's pipeline with its inside knowledge. Given its multiple partnerships with Biogen, antisense drug developer Ionis Pharmaceuticals (NASDAQ:IONS) would seem to fit the bill.
Why buying Ionis makes sense
First and foremost, buying Ionis would save Biogen some money.
Ionis developed the spinal muscular atrophy drug Spinraza, which Biogen sells. An acquisition would wipe out the $238 million in royalties that Biogen paid Ionis last year on sales of the drug. With Spinraza sales up 30% year over year in the fourth quarter, that royalty figure should increase exponentially in the years ahead; the royalties are tiered, so additional sales will come at the highest royalty rate.
In addition to Spinraza, Biogen and Ionis are partnered on three other neurology drugs in the clinic and have a broad partnership that could result in dozens of additional drugs being developed.
IONIS-SOD1Rx, which Biogen calls BIIB067, is arguably the most promising of the group; its interim phase 1 data shows that the drug can lower the level of SOD1 protein, which potentiates an inherited form of amyotrophic lateral sclerosis (ALS). The treatment, albeit in just 10 patients at the highest dose, also slowed patients' clinical decline as measured by the ALS Functional Rating Scale-Revised. Biogen is on the hook for potentially $55 million in future milestone payments and royalties in the low to mid-teen percentages on annual worldwide net sales of the drug if it's approved.
The companies also have an Alzheimer's disease drug IONIS-MAPTRx (BIIB080) in development. Unlike failed aducanumab that targets amyloid beta, IONIS-MAPTRx targets TAU, which also aggregates in the brains of Alzheimer's disease patients. Like amyloid beta, it isn't clear if TAU is a cause or an effect of the disease, so IONIS-MAPTRx is high risk, high reward. Of course, drugs with that profile are certainly something Biogen's management has been willing to tackle.
Finally, on the clinical trial front, Ionis and Biogen have IONIS-C9Rx (BIIB078), which targets another protein that causes amyotrophic lateral sclerosis. The companies are still enrolling patients, but presumably Biogen has access to interim data that could help it value the program.
But Ionis comes with baggage
Part of the premise for Biogen to buy Ionis is that Spinraza sales will continue to increase, but that's not guaranteed with Novartis (NYSE:NVS) having a spinal muscular atrophy gene therapy called Zolgensma under review by the FDA.
If approved, Zolgensma will put some pressure on Spinraza, but how much is still in question. Given the small number of patients treated in its pivotal clinical trial -- just 12 at the proposed dose -- doctors may be hesitant to recommend Zolgensma right away since Spinraza has been used in a lot more patients. Zolgensma is also likely to only be approved for use in infants, where Spinraza's growth potential is in treating one of the variants of spinal muscular atrophy, which could help patients live into adulthood. And finally there's the likely high cost of the one-time treatment that Novartis will have to work out with insurance companies to pay.
Likely a bigger issue with Biogen buying Ionis is that Ionis has quite a few partnerships with other drugmakers. It seems unlikely that Biogen would want to take responsibility for deals with Roche, Novartis, Bayer, AstraZeneca, Johnson & Johnson, and GlaxoSmithKline, especially since Biogen competes directly with many of those drugmakers.
In addition to acquiring partners, buying Ionis would also result in Biogen owning a majority of Ionis' spinoff, Akcea Thearapeutics (NASDAQ:AKCA). Ionis has been using Akcea as a marketing company, which makes some sense for Ionis, but Biogen certainly has the marketing muscle to sell the drugs itself.
Of course the outstanding stake in Akcea is small enough that Biogen could likely just negotiate for the acquisition of both companies if it decided that grabbing Ionis was worth the effort.
Never say never
While Ionis' vast partnerships seem like a high deterrent to getting acquired by Biogen, partnerships aren't always a deal-breaker for drugmakers desperate to make an acquisition. Eli Lilly, for instance, bought ImClone, outbidding ImClone's partner Bristol-Myers Squibb, which resulted in the companies collaborating on selling Erbitux until Eli Lilly finally bought out Bristol's rights to the cancer drug.