Biotech giant Biogen (NASDAQ:BIIB) has been a standout performer since the recession thanks to its industry-leading portfolio of multiple sclerosis products, led by oral drug Tecfidera. However, with the MS space getting more competitive, and Tecfidera sales finally beginning to slow due to market saturation, Biogen was one of the worst large-cap performers in 2015. Over just the trailing 12-month period Biogen shares have dropped by 20%.
However, Biogen and its CEO George Scangos believe there's a lot to look forward to in 2016 and beyond. He expressed these opinions at the Super Bowl of all conferences for the healthcare sector, the J.P. Morgan Healthcare Conference, with a presentation this past Monday.
What you need to know from Biogen's CEO
As you might have expected, Scangos highlighted a number of key therapies that have allowed it to grow over the past couple of years. He also laid out Biogen's key pipeline products, which we're going to get to in a few moments. But what really defined the presentation (for me at least) was Scangos' discussion of why Biogen takes the approach of researching tough-to-treat indications. Here's what he had to say:
"We get comments a lot that our pipeline is risky. That we're addressing areas where the industry has had a hard time being successful. We are addressing those areas. If we weren't addressing those areas then I'd be up trying to answer the question of why we think we could maintain good pricing in... me-too indications. So these kinds of indications are the kinds of indications for which we will be able to maintain healthy pricing regardless of what the pricing environment looks like in the future. If we attack these diseases in a measured, thoughtful way with a good understanding of the biology and good biomarkers we think the risk is quite reasonable, and the risk-reward benefit for our company, for our patients, is quite attractive." -- George Scangos
What Scangos' comments demonstrate is that Biogen, despite being a megacap drug developer, bears more downside risk than many of its peers. It does have the potential to grow and expand into new therapeutic indications, but it's very reliant on neurological indications, which have a high propensity for failure in the clinical setting, to grow its top- and bottom-line.
On the flipside, success in indications that are tough-to-treat can be extremely rewarding. Not only do patients with tough-to-treat indications get additional treatment options, but Food and Drug Administration-approved tough-to-treat therapies also bear substantial pricing power and usually face less competition than the "me-too" indications. In other words, Biogen's current valuation may not hold up if its key pipeline products fail, but it may also be vastly undervalued if its tough-to-treat disease candidates succeed.
Key pipeline products to monitor
Scangos discussed a number of potential compounds in various stages of clinical development that could wind up becoming major value drivers for Biogen in 2016 and beyond. But just as he didn't hit on every drug in development, we won't either. There are, however, three in particular that are most critical to Biogen's future. Let's briefly review those, as well as note what new data we can expect from them in 2016.
Arguably the most exciting and important developing drug is aducanumab, the company's experimental treatment for Alzheimer's disease. As reported last year, aducanumab, a drug designed to remove amyloid plaques that are responsible for the reduction in cognition experienced over time for Alzheimer's patients, actually demonstrated a statistically significant improvement over the placebo in two measurements of cognition. The data was so impressive that aducanumab was streamlined past phase 2 studies and moved right into phase 3.
The bad news? You're not going to be getting any information on that phase 3 study in 2016. However, Scangos does expect to report phase 1b titration data sometime this year for aducanumab. I wouldn't anticipate this being a huge mover for the share price in 2016, but next year aducanumab could make or break investors' and patients' hearts.
Another critical developing product is anti-LINGO, a drug being studied in a 600-patient phase 2 trial for MS. Anti-LINGO was initially studied in acute optic neuritis, ultimately missing its primary endpoint. But Biogen researchers observed a regenerative effect in the unaffected eye during the study that lends hope that anti-LINGO may be able to slow, halt, or even reverse the adverse effects of lesions tied to MS.
Out of Biogen's key trials, the phase 2 anti-LINGO is, without question, its riskiest. It's very possible anti-LINGO could fail in MS, but if it succeeds, Biogen's dedication to the MS space and taking chances could be vindicated with a monstrous blockbuster.
Lastly, pay close attention to an exciting late-stage therapy for spinal muscular atrophy known as nusinersen. Nusinersen is a drug developed by Ionis Pharmaceuticals (NASDAQ:IONS), which Biogen subsequently partnered with. Biogen and Ionis are working on two phase 3 trials, ENDEAR for infants and CHERISH for children, with the ultimate goal of extending the life and quality of life for infants and kids with SMA, who often die very young.
A phase 2 open-label study reported by Ionis demonstrated encouraging efficacy, with 10 ambulatory children improving in the six-minute walk test by a mean of 24.4 meters 12 to 16 months after the baseline. For infants, 14 of 16 who were dosed with either 6 mg of 12 mg nusinersen demonstrated increases in muscle function scores, with the higher dose yielding the biggest improvements. Expect additional phase 2 data this year, and its phase 3 readout in 2017.
Yay or nay to Biogen?
The most important question, of course, is whether or not you should be buying Biogen. That answer is really going to depend on your risk tolerance.
To be fair, Biogen doesn't have nearly the same built-in risk as a clinical-stage company. Even if all three of its key therapies above fail in clinical trials, which I believe is unlikely, it could always fall back on its leading MS therapeutics, growing hemophilia program, and partnered oncology products. Still, data from these studies could lead to quite a bit of volatility in the coming years. Personally, I believe Biogen is right around an appropriate valuation here considering its slowing MS growth, but I would certainly be supportive of a higher valuation if aducanumab, anti-LINGO, and/or nusinersen hit the mark.