Immunology is an area where a lot of research for drug discovery is taking place because multiple treatments are possible for various diseases. One such disease is multiple sclerosis, or MS, which affects the central nervous system. Biogen Idec (BIIB) develops MS drugs. In the second quarter ending in June this year the company generated around 80% of its revenue from MS drugs and has launched drugs like Avonex, Tysabri and Tecfidera as a cure for MS. With the MS market already valued at $8.5 billion this year, the company has taken a lead role in developing MS drugs.
The grand opening
In April this year, Biogen Idec launched the oral drug Tecfidera for the treatment of relapsing-remitting multiple sclerosis, or RR-MS, in the U.S. RR-MS is a type of MS where the disease has the tendency of reoccurrence and disappears upon taking medication. In the second quarter ending in June 2013, Tecfidera sales crossed the company's sales target of $66 million, reaching $192 million. Currently the major oral drugs for MS available in the market are Gilenya, Aubagio, and Tecfidera. Gilenya is produced by Novartis (NVS) and Aubagio is manufactured by Sanofi (SNY).
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We believe that Tecfidera sales in the U.S. will be driven by two factors - first the drug is an oral treatment of RR-MS and secondly the safety profile of the drug.
RR-MS is a chronic disease that has a long-lasting effect on the patients' health; so medication is required frequently to keep this disease at bay. Since drug administration for RR-MS is repetitive, oral medicines are preferred compared to an injectable drug. Oral medicines are easier on the patient, and there is no issue of syringe disposal. In the U.S., around 85% of the MS patients are diagnosed with RR-MS. This shows the huge market for oral drugs for the treatment of this chronic disease.
The following table shows a comparison of the different medications available in the MS drug market in the U.S. based on the mode of administration and their effectiveness:
Form of Medication
Effectiveness in reducing RR-MS
Exact reduction in relapse not quantified.
Table 1: Drug administration and Efficacy profile
The table shows that within the class of oral medication Tecfidera and Gilenya are close competitors in terms of effectiveness. Efficacy is measured by a drug's ability to reduce relapses of the untreated condition. With comparison to all injectable drugs except Tysabri, Tecfidera shows a higher efficacy in terms of reducing the number of relapses.
Now, let's take a look at the safety profile of the above mentioned drugs.
Side Effects and related safety issues
Flu-like symptoms, depression, and liver dysfunction
Depression and suicide, heart problems, liver problems, allergic reactions, blood problems
Injection site reaction, runny nose
Flu-like symptoms during the initial weeks, may affect liver function, blood counts or thyroid function.
Nausea, hair loss, menstrual disorders
Viral infection of the brain called progressive multifocal leukoencephalopathy, or PML, which leads to severe disability or death.
Can cause heart rate to slow down, lowers lymphocyte counts, swollen macula.
Potential liver damage, numbness of hands and feet
Reduced blood lymphocyte counts, no severe infections and no damage to liver.
Table 2: Safety Profile
Tysabri is another medication by Biogen designed to treat RR-MS. As we have discussed in the table above, the safety profile of Tysabri is inferior to that of Tecfidera, despite its better efficacy rate. This could lead to a shift of RR-MS patients using Tysabri to Tecfidera.
Also, one more point to be observed for MS drugs is that Biogen has come out with an MS drug every decade; Avonex launched in 1996, Tysabri in 2006 and Tecfidera launched this year. This shows the company's continued focus on the development of better MS drugs. The company had a leadership position last year in the MS drug market with 34% share, and with a positive sales trend of Tecfidera, it will further enhance its leadership position.
The table shows that Novartis' Gilenya has a similar efficacy profile but carries the added risk of cardiovascular damage. On the other hand, Sanofi's Aubagio has a lower efficacy profile. On the price front, Gilenya costs around $60,000 , Aubagio costs around $48,000 while Tecfidera costs around $55,000 annually. It can be concluded from the drugs' pricing that Tecfidera can undercut the market from Gilenya. However, Aubagio, though priced lower than Tecfidera, doesn't constitute much of a threat because of its low efficacy profile.
We believe Tecfidera's ability to reduce RR-MS by around 50% and its safety profile will further drive its sales. According to BioTrends Research Group, Tecfidera's market share of is expected to be around 16% over the next six month period. In the U.S., around 350,000 people suffer from MS, and the price of Tecfidera for a year course is around $55,000. Around 85% of all MS patients suffer from RR-MS in the U.S. Therefore, the drug will give the company a revenue opportunity of around $2.61 billion per year.
Tecfidera generated $192 million or 11.3% of the company's total revenue in the second quarter ending in June 2013, showing the potential for Biogen. This will enhance Biogen's strong presence in the MS drug market. In the second quarter ending in June 2013, it generated revenue of around $1.7 billion out of which 80% was generated from MS drugs like Avonex, Tysabri, and Tecfidera.
As we discussed the various drugs available in the market for the treatment of RR-MS, we understood that why an oral medication is preferred over an injectable drug. The better efficacy and the safety profile are expected to make the drug a preferred medication for the treatment of RR-MS. These factors lead us to believe that Tecfidera will able to capture a major portion of the RR-MS drug market in the coming quarters, and it is expected to generate a good revenue opportunity for the company. Tecfidera proves Biogen's continued focus on the development of MS drugs, and it will maintain a leadership position in the MS drug market. Also, the above table shows that Biogen has the lowest PEG ratio compared to Sanofi and Novartis. The lower PEG ratio signifies Biogen's high revenue growth potential. Biogen has an attractive valuation because of its strong revenue growth potential.