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Summary

  • Biogen is rapidly expanding into other diseases beyond multiple sclerosis.
  • It has a chance to gain three FDA approvals this year.
  • The value of the pipeline should be added to Biogen’s valuation.

Multiple sclerosis

In 2013 the size of the global MS (multiple sclerosis) market was about $15 billion and the market is growing at a rate of 11 percent annually.

Biogen Idec' (NASDAQ:BIIB) share of that market was about the third in recent years. With Tecfidera's launch and success last year the company is now able to increase that share.

The multiple sclerosis drugs can be divided into different segments according to the delivery method.

Injectables: Traditionally most of the drugs are injectables. Biogen's Avonex belongs in that category.

To make it more convenient and the use of it less painful, the company has introduced the Avonex Pen, an auto-injector with a thinner needle. The pen has been well received by the patients and even helped Avonex to gain some additional market share.

But the use of the pen does not change the injection frequency, which is once-a-week and the manner of the injection which is intramuscular (into the muscles).

The new drug Plegridy, which is expected to get approval this year, is also a beta interferon like Avonex, but it is a pegylated version which means longer lasting, therefore the injections can be done less frequently. The approval is expected for a subcutaneous injection (into a layer below the skin) every two weeks or every four weeks.

Plegridy is an improvement over Avonex in that will go from once a week intramuscular to either once every two weeks or once every four weeks subcutaneous injections, and it also includes a nice auto-injector. So while this segment of the market will probably shrink in the future, Biogen's share of it may even increase.

Analysts estimate that Plegridy could bring in about $2.5 billion in peak sales.

High efficacy segment: In that segment Biogen is represented by Tysabri.

Tysabri is viewed by physicians and patients as having a practically unrivalled efficacy in relapsing-remitting multiple sclerosis.

The company has done a lot to mitigate the risk of PML (progressive multifocal leukoencephalopathy), a dangerous brain disorder which is the occasional side effect of the drug.

In April 2013, Biogen has acquired full ownership of Tysabri from Elan, its partner, gaining a greater share of the profits and full operational control.

Biogen is testing Tysabri for various other indications, among them for the treatment of the secondary progressive form of MS (SPMS). SPMS represents a worsening of the disease, a steady progression of nerve damage, symptoms and disability.

Approximately 35 percent of MS patients have SPMS, and according to the National Multiple Sclerosis Society, approximately half of the patients with relapsing-remitting multiple sclerosis will transition to SPMS within 19 years.

There is no approved drug for secondary progressive MS. This is a big segment of the market with a huge unmet need and it seems from early data that Tysabri can be effective in it.

Biogen is running a two-year trial to test this opportunity. The trial has finished enrollment last year, and will read out in 2015.

If Tysabri is approved for this indication, it would become a standard of care and could double Tysabri peak sales estimates of $2.6 billion to $5.2 billion.

In the same segment Biogen and partner AbbVie (NYSE:ABBV) are developing daclizumab high-yield process (HYP) in relapsing-remitting multiple sclerosis. The companies have completed a Phase 2b trial and expect the results of the Phase 3 study in mid-2014.

Oral: Tecfidera was launched as an oral MS drug last year. Since then it has become the number one prescribed oral medication for MS in the U.S.

It is also approved in the European Union and was launched in Germany. Efforts are made to get it approved throughout Europe, a process that takes about six months to 1.5 years as a deal has to be worked out with 26 different regulatory agencies. The negotiations are all about price and reimbursement.

Also useful: Some drugs, like Fampyra which is marketed in Europe, are not addressing the substance of the disease but helping patients with some functions like walking.

Another experimental drug called Anti-Lingo is promising to achieve remyelination and neuroregeneration. Remyelination is a repair of a nerve's myelin sheath.

Anti-Lingo, also known as BIIB033, is currently in two Phase 2 proof-of-concept studies, one in acute optic neuritis (data expected in 2014) and one in MS (data expected in the second half of 2015). It is supposed to work across all forms of MS as an adjunctive therapy.

Hemophilia

Biogen is preparing for approval two drugs for hemophilia, Alprolix, a long-acting version of Factor IX and Elocate, a long-acting version of Factor VIII.

Coagulation Factor IX is a protein made on the instructions of the F9 gene.

Coagulation factors are a group of proteins that are essential for the formation of blood clots. After an injury, the clots protect the body by sealing off damaged blood vessels and preventing further blood loss.

Coagulation factor IX is made in the liver. This protein circulates in the bloodstream in an inactive form until an injury that damages blood vessels occurs. In response to injury, coagulation factor IX is activated and interacts with coagulation factor VIII and other molecules. The interactions set off a chain of additional chemical reactions that form a blood clot.

Both Alprolix and Elocate have longer half-lives than the factors on the market and therefore can be infused less frequently. The reduction in infusion frequency is a critical need for patients.

Hemophilia is a genetic disease, patients are born with it. The factors have to be infused intravenously, lifelong. Enabling the patients to have longer periods between infusions offers them a welcome relief and improves their quality of life.

Some analysts predict that Elocate will take away a significant share from the current standard, Baxter's (NYSE:BAX) Advate. How significant, remains to be seen because Baxter has claimed that about half of its Advate patients are on once-every-three-days dosing, and therefore the benefit would not be that great for switching to Elocate.

Baxter is also working on its own long-acting treatment, BAX 855.

Hemophilia is a market estimated at $7 billion.

Biogen's hemophilia drugs are developed in partnership with Sobi or Swedish Orphan Biovitrum, a Swedish company specializing in rare diseases.

Biogen has distribution rights in the U.S., Japan, Canada, Australia, Sobi has the EU and some middle-eastern countries. The U.S. approval of the drugs may be coming later this year.

Biogen has big plans for the hemophilia treatment market. Behind the first two products more are being prepared and the newer drugs will extend the half-life of the compounds even longer.

Pipeline

Biogen believes it is well qualified to find a treatment for Alzheimer's, a disease which has been targeted by many companies without success.

Biogen has signed a deal with Eisai (OTCPK:ESALY), offering to cover half of the research and development costs of a pair of mid-stage Alzheimer's therapies for half the potential profits. In exchange Eisai got an option on a pair of Biogen's own internal Alzheimer's programs: an anti-amyloid antibody dubbed BIIB037 and an anti-tau monoclonal antibody.

Biogen is currently developing BIIB037 in a phase 1b proof-of-concept study for Alzheimer's, with expected data readout in the second half of 2014.

Biogen and partner ISIS Pharmaceuticals (NASDAQ:ISIS) are developing ISIS-SMN-Rx in patients with SMA (spinal muscular atrophy). ISIS plans to advance ISIS-SMN-Rx into phase 3 development in 2014, with a phase 3 trial in infants (type I SMA) commencing by mid-2014, and a phase 3 trial in children (type II SMA) commencing in the second half of 2014. If the treatment works, it would be helpful for about 60,000 patients and generate more than $5 billion with peak orphan drug pricing.

The companies are also working on ISIS-DMPK-Rx for Myotonic Dystrophy, the most common form of muscular dystrophy in adults, with an estimated 150,000 patients in the developed world.

Recently a collaboration was signed with a small company Sangamo (NASDAQ:SGMO) to develop therapies for sickle cell disease and beta thalassemia.

Sangamo's revolutionary gene editing technology is aiming to correct a gene defect or compensating for one. It is uncertain if this is going to work at all at this point but the potential is huge.

Biogen is intrigued by the disease called ALS also known as Lou Gehrig's disease.

It's a complicated disease, which may have different causes in different patients.

Biogen has organized a group of academic researchers to study the biology of the disease. They worked on it for about a year now and have come up with interesting targets for medicines to develop.

Various trials are conducted for Gazyva, which is owned with partner Roche (OTCQX:RHHBY). The trials are run by Roche.

Gazyva is a successor to the blockbuster drug Rituxan. Biogen has a substantial financial interest in the product. Under an agreement with Genentech, a part of Roche, Biogen is responsible for 35 percent of the development and commercialization cost and will receive between 35-39 percent of the profits based upon the achievement of certain sales milestones.

Gazyva has great data in CLL (chronic lymphocytic leukemia) and more results are coming from various trials for NHL (non-Hodgkin lymphoma) and other ailments during the year.

Investors' view

Biogen Idec's total revenues for 2013 were $6.9 billion, a 26 percent increase from the year before.

The company reported earnings of $8.96 for 2013, for 2014 the estimate is $11.34 and for 2015 $14.10.

At the end of 2013 the company had cash and cash equivalents totaling approximately $1.8 billion.

In the past few years, since 2007, Biogen's revenues have grown at an annual rate of 14 percent and non-GAAP EPS at an annual rate of 22 percent.

The company has generated lots of cash and the cash, management believes, was used wisely.

60 percent or $6 billion out of the $10 billion has been returned to shareholders through stock repurchases.

$3 billion was used to acquire the rights of Tysabri and about $1 billion has been used for small licensing deals and small acquisitions. These latter were deals to bring in additional compounds into the pipeline and many of those products have either reached the market or are waiting for approval now.

For 2014 revenue growth is expected to be approximately 22- 25 percent. Non-GAAP diluted EPS is expected to be between $11.00 and $11.20. Capital expenditures are expected to be approximately $300 million.

The share price in the past 52 weeks ranged from $174.53 to $354.07, and the shares outperformed other high flyers like Regeneron Pharmaceuticals (NASDAQ:REGN), Gilead Sciences (NASDAQ:GILD), Celgene (NASDAQ:CELG) and Amgen (NASDAQ:AMGN).

BMO Capital Markets' target price for Biogen is $422.0.

Biogen has been doing a great job for years on the strength of its multiple sclerosis treatments. Now, the focus is starting to move to Biogen's widening pipeline to sustain, and potentially accelerate growth beyond 2014.

Source: Biogen's Winning Strategy