Biogen's Surprising Weakness

With blockbusters such as Avonex, Tysabri, and Tecfidera on pharmacy shelves, Biogen (BIIB 1.68%) is a multiple sclerosis giant. These successful programs helped it become one of the world's largest biotech companies. In the second quarter of this year alone, its MS franchise reported more than $2 billion in sales. That's impressive, but it's also a little troubling since it comprises nearly 80% of total revenue.

Recently, Biogen made impressive strides toward diversification by guiding two groundbreaking hemophilia therapies through development and onto the market. Hemophilia patients lack the necessary clotting factors, and many require frequent infusions to avoid dangerous bleeding events. As you can imagine, these infusions are uncomfortable, to say the least.

Sensing an unmet need for more convenient dosing, Biogen scooped up two hemophilia candidates along with Syntonix Pharmaceuticals in 2007. Last year, Eloctate and Alprolix became the first long-lasting factor replacement therapies for hemophilia A and B, respectively. Because they remain in the bloodstream for much longer, they allow patients a far more convenient dosage schedule.

When you consider the complications associated with frequent intravenous infusions, such as soreness and infections, you'd think a longer-lasting solution would have taken off like a rocket.

Well, surprise.
Despite being an industry leader with a market cap in excess of $70 billion, Biogen just can't seem to gain traction with hemophiliacs. More than a year following FDA approval, last quarter's sales came in at $74 million for Eloctate, and $54 million for Alprolix. That's not awful, but at the time they were approved, consensus estimates predicted peak annual Eloctate sales of $1.5 billion, and $286 million for Alprolix.

Although Alprolix is well on its way to beating that estimate, Eloctate's hemophilia A indication represents a much larger opportunity. Unfortunately, dominance in this field by Baxter -- or its recently spun-off biopharmaceutical segment, Baxalta (NYSE: BXLT) -- has made realizing this opportunity far more challenging than expected.

Baxalta's Advate is one of the most popular factor replacement therapies. Like Eloctate, it's a recombinant form of Factor 8. The main difference is that Eloctate is an Fc fusion protein, and as such it stays in the bloodstream longer. Different patients require different dosages to control bleeds, but Eloctate stays in the bloodstream long enough that patients switching from Advate can reduce infusion frequency by about half.

Sales of Baxter's hemophilia offerings, including Advate, have slowed following Eloctate's approval, but it didn't take the hit many analysts were expecting. The company doesn't break down sales of Advate, but for the full year of 2014, the hemophilia franchise grew 10% over the year previous when excluding the negative effects of currency exchange. In the first half of this year, its hemophilia franchise booked a more modest 3% gain at constant currency. 

What gives?
The simplest reason for Advate's stickiness is brand loyalty. If you're letting a product drip into your veins every other day, the peace of mind that comes with a familiar brand might be worth the inconvenience.

Also preventing Advate patients from switching is the likely arrival of a long-lasting version that could hit the U.S. market early next year. Unlike Eloctate's use of Fc fusion, BAX-855 is a pegylated version of Factor 8. This tried-and-true method of drug-delivery seems to be working, as results from its pivotal trial suggest twice weekly infusions should effectively control bleeding episodes. In terms of dosing, this would put it on even footing with Eloctate.

The FDA accepted Baxter's application for BAX-855 last December, and we should hear an announcement by the end of the year. Biogen will probably begin feeling pressure from the drug soon after, but an even bigger threat from Switzerland could be on the way.

A little further out
Around the time Baxter submitted its application for BAX-855, Roche presented compelling data from a mid-stage study with an even longer-lasting hemophilia A therapy. Unlike BAX-855 and Eloctate, Roche's drug ACE-910 is a novel antibody that mimics the function of Factor 8 instead of simply replacing it.