This year has turned against biotech investors, as the long-awaited correction came on hard in March and April. While conditions seem to have stabilized for the time being, Biogen Idec (BIIB) remains an outperformer as investors have slower to dump shares of more established biotechs with strong launch and pipeline stories like Biogen, Gilead, and Regeneron. Biogen's pipeline is has higher risk than many of its peers, but the rewards if SMNrx, STX-100, or the anti-LINGO antibody BIIB 033 work out will be considerable and Biogen has lower risk drivers like the ongoing Tecfidera launch and rollout of new hemophilia compounds to keep investors engaged.
Tecfidera continues to build
When Biogen Idec reported its first quarter earnings, sales of the company's latest multiple sclerosis drug Tecfidera once again came in stronger than expected. Sales rose 27% from the December quarter to over $500 million, beating sell-side expectations by about 14%. Through May of this year, Tecfidera appears to be on pace to generate around $2.2 billion in U.S. sales, putting earlier peak sales targets of over $3 billion well within reach.
Tecfidera has already carved out about 17% share in the U.S. MS drug market, with Teva's (TEVA) Copaxone still the leader with approximately one-third market share. Biogen's Avonex is second in the market with close to 20% share, while Merck KGaA and Novartis come in with 10% share for Rebif and Gilenya, respectively.
The biggest near-term question for Tecfidera is how quickly European markets will adopt the drug. Markets like France and Germany have a tendency of being more demanding in regards to demonstrated clinical benefits over earlier drugs before granting favorable reimbursement, and Biogen has had to work a little overtime to make the case for Tecfidera in certain European markets. Given the demonstrated benefits in relapse rates, it is likely mostly a matter of time but there remains a risk that the European sales will be slower to materialize and/or peak at a lower level.
Hemophilia on the way, with a competitor sidelined
Biogen Idec is still waiting for U.S. FDA approval of Eloctate, the company's long-acting Factor VIII compound, but the company will very likely soon be on the market with new long-acting Factor VIII and Factor IX (Alprolix) compounds. These two compounds will address a large part of the estimated $6 billion market for hemophilia compounds and will have a roughly one-year lead on any competitive response from Baxter (BAX 0.79%), the current leader in the market.
As I have written previously, I believe that Baxter is likely to hold on to more share than Biogen bulls believe. Doctors are slow to switch patients from therapies that are working and about half of the people using Baxter's Advate (rFVIII) are on a once/three-day regimen that likely won't prove so vulnerable to the advertised Eloctate benefits.
While that could be construed as a potential negative for Biogen (as would strong clinical data from Baxter's long-acting BAX 855 rFVIII clinical trial compound later this year), the company did get some good news in the past few months on another competitor. Novo Nordisk's (NVO 1.83%) long-acting hemophilia compound showed very good clinical results in terms of bleeding and inhibitors, good enough that it would be a potentially serious competitor. The good news came when Novo Nordisk announced that due to limited manufacturing capacity, the company did not intend to pursue regulatory approval until 2017/2018. Given Novo's existing presence in the market, they would have been a serious threat but now Biogen has a real opportunity to gain share with a differentiated product.
The pipeline is high-potential, but foggy
Biogen has several drugs in clinical testing that could generate well over $1 billion each in annual sales. The probably is that it is much too soon to say with any certainty that these drugs have the requisite efficacy and safety to make it to approval, much less blockbuster status. Of the pipeline opportunities, the chance to get expanded labeling for Tysabri in secondary progressive multiple sclerosis (SPMS) is perhaps the least frequently discussed – several neurologists have reportedly had good results in a limited number of cases and clinical data should be available in 2015. With about 20% to 30% of the MS population considered SPMS, this could be a sizable add-on opportunity.
STX-100 in idiopathic pulmonary fibrosis and the anti-LINGO antibody BIIB033 for remyelination in MS are both high-potential drugs with phase II data on the way. Phase II data on STX-100 in the second half of 2014 should indicate whether this is a real potential rival to Intermune's perfenidone and/or Boehringer Ingelheim's nintedanib, while the Phase II RENEW study of BIIB033 in optic neuritis is considered an important "proof of biology" gateway to larger studies in MS.
Last and not least, Isis Pharmaceuticals' SMNrx remains a consummate high-risk/high-reward opportunity. Data from a Phase II study in type 1 spinal muscular atrophy would seen to support biological effect to/from the drug, but the lack of placebo controls and the wide variations in the natural history of the disease make it difficult to say much more than that the drug may be effective and seems worth further exploration. Biogen has a long time to decide on whether to partner into this drug, but a successful drug for this indication could be an annual revenue opportunity in excess of $4 billion (some of which Biogen will have to share via royalties and milestones).
The bottom line
Biogen shares are about 10% cheaper than in mid-Feburary when I thought they looked a little too pricey to buy. That 10% decline isn't enough to make me wildly excited about the valuation, but I do believe that Biogen offers less pipeline and performance risk over the next six months than most of its biotech peers.
