Biogen Idec (NASDAQ:BIIB) is a large cap biotech company with a current market cap of $56 billion and $5.5B in sales in 2012. Its leading products are Avonex and Tysabri for the treatment of multiple sclerosis (MS) as well as oncology drug, Rituxan. Going forward, Biogen's revenues growth will largely depend on the new drugs to be approved after 2012. These include Tecfidera, an oral drug approved for MS, Gazyva for the treatment of chronic lymphocytic leukemia, and 2 hemophilia drugs.
This is Part 1 of a stock review on Biogen Idec. With BIIB currently trading at $230-$240 range, the question is: is there still an upside for this stock? In addition, from where will future revenue growth be coming from? To answer these questions, we will analyze BIIB's existing products, patent expirations, drug pipelines, and financial projections with the goal of deriving an estimated intrinsic value for this international corporation.
Biogen Idec is a large cap biotech company with a current market cap of $56 billion and $5.5B in sales in 2012 (BIIB 10K 2012). Its leading products are drugs for the treatment of multiple sclerosis, including Avonex, Tysabri, and Tecfidera. Tecfidera was approved in March 2013 and is the second oral drug approved for MS. The first oral drug for MS is Gilenya made by Novartis (NYSE:NVS). The combined sales of Biogen's MS drugs were $4B or 73% of total revenues in 2012. Its sales could reach $5B in 2013, representing 78% of total revenues.
Rituxan is an oncology drug that Biogen co-commercializes with Genentech (a Roche subsidiary) (OTCQX:RHHBY). Rituxan generated net sales of $1.1B in 2012 or 20% of total revenues. We estimate its revenues growth at a baseline 3% going forward.
The company's future revenue growth is counting on Tecfidera and new product categories, including oncology and hemophilia drugs to be approved after 2013. Biogen filed a regulatory approval of Gazyva (GA101, anti-CD20) for the treatment of chronic lymphocytic leukemia (CLL) in April 2013 to both the FDA and EMA. Due to its breakthrough status and positive outcome in Phase 3 data, there is a high probability that the drug will be approved in December 2013. The drug is co-developed with Roche/Genentech.
Biogen collaborates with Swedish Orphan Biovitrum on the development and commercialization of Alprolix and Eloctate for hemophilia treatment. BIIG has filed a Biologics License Application (BLA) for Alprolix (Factor IX) for hemophilia B and another BLA for Eloctate (antihemophilic factor) for hemophilia A. Biogen is expected to launch both drugs in 2014, pending FDA approvals.
In its drug pipeline, the company is conducting phase 3 trials on Daclizumab (ant-CD25) for multiple sclerosis. The phase 3 data are expected mid-2014. Biogen is also conducting several phase 2 clinical trials, in which the interim results will be available in the second half of 2014. These programs include an antisense RNA-based therapy for spinal muscular atrophy; Anti-LINGO for acute optic neuritis; Anti-CD40L for lupus; BIIB037 for Alzheimer's diseases; Neublastin for sciatica; and STX-100 for idiopathic pulmonary fibrosis. The regulatory events for these new drug candidates are expected to occur in 2016-2017. Their projected revenues will be discussed in this report.
In the following sections, we will analyze BIIB's existing products, patent expirations, drug pipelines, and financial projections with the goal of deriving an estimated intrinsic value for this international corporation.
Sales growth from existing products
The key drivers for Biogen's revenues are 3 multiple sclerosis drugs that generated combined sales of over $4B, or 75% of total revenues in 2012 (BIIB 10K 2012). The combined sales of MS drugs were $4B or 73% of total revenues in 2012. Sales could reach $5B in 2013, representing 78% of total revenues (BIIB 10Q 3Q2013). Through acquisition and partnership, the company will expand its pipeline to hemophilia, oncology, and inflammation areas.
We first review existing drugs and ongoing clinical trials for new products. At the end of this section, we will derive revenue projections for the next 5 years based on the sales of existing products and future revenues from new drugs.
Multiple sclerosis drugs
Avonex (beta-interferon) is one of the most prescribed treatments for relapsing forms of multiple sclerosis worldwide. It is Biogen's leading product with annual sales of $2.9B in 2012. However, with the introduction of newer oral products into the market (Gilenya, Tecfidera), we estimate that its sales growth rate will slow down from 8.4% in 2012 to a more modest 2-3% going forward. To counter the revenue decline, Biogen has another extended release form of beta-interferon (Plegridy) that could receive the regulatory approval in 2014. We therefore project that the combined beta-interferon revenues (Avonex, Plegridy) will grow at a baseline rate (~3%) from $3B in 2013 to $3.9B in 2017.
Tysabri is a monoclonal antibody approved in numerous countries as a monotherapy for relapsing MS and is also approved in the U.S. to treat Crohn's disease, an inflammatory disease of the intestines. Because Tysabri increases the risk of progressive multifocal leukoencephalopathy (PML), an opportunistic infection of the brain by the JC virus that usually leads to death or severe disability, the drug was pulled off the market in 2005 and then reintroduced in 2006.
Despite the history, the drug remains an effective therapy for MS and generated $1.1B sales in 2012 and could increase to $1.4B in 2013. In addition, with its expanded use in autoimmune diseases, we estimate that its revenues will grow at steady rate of 6%, with projected revenues between $1.2B in 2013 and $1.5B in 2017.
Tecfidera was acquired by Biogen as part of its acquisition of Fumapharm AG in 2006. The FDA approved Tecfidera as first-line oral treatment for people with relapsing forms of MS in March 2013. By September, the sales of Tecfidera have already reached $478M (BIIB 10Q 3Q2013). We estimate that its revenues will be $600M in 2013, rapidly ascend to $2.9B in 2017, and become one of BIIB's blockbuster MS drugs.
Rituxan (anti-CD20) is a widely prescribed monoclonal antibody used to treat non-Hodgkin's lymphoma, rheumatoid arthritis, chronic lymphocytic leukemia and two forms of ANCA-associated vasculitis. Biogen collaborated with Genentech (Roche) on the development and commercialization of this product. In 2012, Biogen booked $1.1B sales of Rituxan. Rituxan composition and use patents will expire in the U.S. in 2015 and 2018, respectively. In addition, there is competition from future new drugs that also target CLL, including Ibrutinib developed by Pharmacyclics (NASDAQ:PCYC) and Idelalisib developed by Gilead (NASDAQ:GILD). These factors will put downward pressure on its sales. We estimate its growth rate to stay at a baseline of 3% over the next 5 years. Thus, we project its revenues to be $1.17B in 2013 to $1.3B in 2017.
The combined revenues of the existing MS (excluding Tecfidera) and oncology drugs are estimated at $5.5B in 2013 and will increase to $6.4B in 2017, which represents a 3.7% annual growth rate over the next 5 years.
Drug pipeline and new drug applications awaiting FDA action
In this section, we analyze Biogen's drug pipeline and how it will impact revenues going forward. Biogen has acquired several biotech companies in the past few years along with their drug candidates in phases 2 and 3 clinical trials. It has also entered collaborations with pharmaceutical companies to commercialization hemophilia and oncology products. These drugs, if approved by the regulatory agencies, will provide decent growth to Biogen's revenues in the coming decade.
Biogen collaborates with Swedish Orphan Biovitrum AB on the commercialization of long-lasting recombinant Factors VIII and IX. Eloctate is a recombinant Factor VIII Fc fusion protein, which is developed as a treatment for hemophilia A. The company submitted a Biologics License Application (BLA) to the FDA for marketing approval of Eloctate during the first quarter of 2013. Regulatory decision and product launch is expected in 2014.
Alprolix is a recombinant Factor IX Fc fusion protein for the treatment of hemophilia B. The company filed a BLA to the FDA for marketing approval of this product during the fourth quarter of 2012. A regulatory decision and product launch is expected in 2014.
Both products are long-lasting versions of previously approved molecules for hemophilia. Therefore, they are most likely to be approved and launched in 2014. We estimate that both drugs can generate $150M in 2014 and $970M in 2017. Since Biogen and Swedish Orphan Biovitrum have equal sharing agreement on these drugs, the revenues to be reported by Biogen will be 50% of the total revenues, e.g. $75M in 2014 and $486M in 2017. These numbers will be used for cash flow and stock valuation.
Biogen collaborates with Genentech (Roche) on the development and commercialization of another anti-CD20 product, Gazyva (or GA101). Based on positive phase 3 results, Roche submitted marketing applications for GA101 to regulatory authorities including the FDA and EMA in April 2013. Due to the significance of the positive trial results and the serious and life threatening nature of CLL, the FDA granted the GA101 application both breakthrough therapy designation and priority review.
Based on the Phase 3 data, GA101 demonstrated a statistically significant 86% reduction in the risk of disease worsening or death (HR=0.14, 95 percent CI 0.09-0.21, p<0.0001) when combined with chlorambucil compared to chlorambucil alone in previously untreated people with CLL and co-existing medical conditions (FDA grants GA101 Priority Review for CLL-July2013). So, it is highly anticipated that the drug will be approved for CLL in December 20, 2013 (PDUFA date).
According to the collaborative agreement, BIIB will receive between 35% and 39% of the profits of GA101 US sales based upon the achievement of certain sales milestones (BIIB 10K 2012). Since Biogen will pay 35% of the development and commercialization expenses of GA101, we assume that it can record 35% of the revenues on its financial statement. We estimate GA101 revenues to be $300M in $300M in 2014 and $1.9B in 2017. This translates to $105M (2014) and $680M (2017) of product revenues that BIIB may record on its statement.
Multiple sclerosis program
Daclizumab is an anti-CD25 (IL2R-alpha) currently in clinical trials phase 3 for relapse-refractory multiple sclerosis MS. It is a collaborative project with AbbVie, Inc. (NYSE:ABBV). Under the agreement, development and commercialization costs and profits are shared equally. The phase 3 data are expected to be released mid-2014.
Based on the phase 2b data released in August 2011, the results showed that daclizumab, administered subcutaneously once every four weeks, met primary and key secondary study endpoints, compared to placebo (BIIB 10Q 3Q2013). We assign a 70% probability that the drug will be approved for MS in 2015. If the drug is approved, we estimate that it will generate $150M revenues in 2015, $270M in 2016, and $486M in 2017. This translates to $53M (2015), $95M (2016), and $170M (2017), by taking into account the 50% revenues sharing and 70% probability of approval.
Biogen is also conducting several phase 2 clinical trials, in which the interim results will be available in second half of 2014. These programs include an antisense RNA-based therapy for spinal muscular atrophy; Anti-LINGO for acute optic neuritis; Anti-CD40L for lupus; BIIB037 for Alzheimer's diseases; Neublastin for sciatica; and STX-100 for idiopathic pulmonary fibrosis. The regulatory events for these new drug candidates are expected to occur in 2016-2017. Since these 2 drugs are a few years away from regulatory approval, we do not include them in revenue projection.
Based on our estimation of the probability of approval, the market size, and competition for the above new drugs, we project that these new drugs (including Tecfidera) will generate aggregate revenues of $600M, $1.26B, $2.1B, $3.2B, and $4.2B from 2013 to 2017, representing an annual growth rate of 63%. These new products will have a more meaningful impact on revenue growth after 2014.
In the next part, we will integrate these estimated revenues from existing drugs and new drugs into financial analysis and stock valuation.
Disclosure: I am long NVS, JNJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.