Biogen (NASDAQ:BIIB) shows how fleeting biotech success can be: all it takes is a couple of clinical setbacks and slowing revenue growth and investors begin demanding strategic course corrections.
Yesterday’s announcement of a new share buyback and departure of chief executive George Scangos seems calculated to assuage traders in the short term. But Tecfidera’s slackening sales and commercial threats, along with a pipeline heavily tilted toward a high-risk Alzheimer’s disease readout in 2020, have analysts speculating whether M&A is in the group’s near-term future – although at a $62bn market capitalization only a few players could afford a takeout (see tables below).
A look at Biogen’s forecast puts its issues in plain view. Its big seller, Tecfidera, which burst onto the multiple sclerosis space in 2013 as a pill that had fewer safety concerns than Novartis’ (NYSE:NVS) Gilenya, is hitting a plateau. Bullish sales forecasts of over $6bn in 2020 have been trimmed, and the EvalutePharma consensus now sees $4.7bn in 2022.
Part of the reason is the advance of Roche’s (OTCQX:RHHBY) Ocrevus, which if it achieves FDA approval later this year looks to be neck and neck with Tecfidera in MS by 2022, with $4.4bn in sales. This is not all bad for Biogen, of course – ironically, Ocrevus was a discovery of a Biogen predecessor company, Idec Pharmaceuticals, and its royalty stream constitutes Biogen’s 10th-biggest seller in 2022.
Ocrevus, a biological, is infused only once every six months, so arguably could compete well against Tecfidera in the relapsing form of the disease, but of course the primary progressive form is where competition will be less intense.
Relying on Alzheimer's
Of Biogen's top 10 sellers in 2022, only two are currently in clinical development, and both are speculative. Aducanumab is an antibody blocking beta-amyloid accumulation in the brain, an approach that has yet to see success in treating Alzheimer’s; nusinersen is a spinal muscle atrophy treatment relying on RNA antisense, a mechanism of action that has struggled to make headway.
The net present value (NPV) of these two products, as calculated from EvaluatePharma’s consensus of sellside forecasts, accounts for 16% of the group’s share price – at 11%, aducanumab is bigger than everything but Tecfidera and Tysabri.
As a sign of this Biogen’s shares have shrunk 30% since phase I data for aducanumab showed mixed efficacy a year ago today, 22% in the immediate aftermath (Glimmers of support, but no Alzheimer’s breakthrough, July 23, 2015). Its phase III program comprises two trials and 2,700 patients undergoing 78 weeks of treatment, with readout expected in early 2020.
In its quarterly results call yesterday, Biogen's R&D chief, Michael Ehlers, said additional safety data from a phase Ib trial will be reported later this year. However, a bigger share catalyst around aducanumab might be data from Lilly’s Expedition 3 trial of the similarly acting antibody solanezumab, which are expected later this year.
Totaling the NPV of all Biogen’s marketed and R&D products equals 97% of its market capitalisation, so bad news for aducanuamb, whether from its own development or for external projects, will lead to further share falls. And nusinersen likewise needs to perform in the clinic.
In the relative equivalence of its forecast valuation and market capitalization Biogen is unique among its biotech peers. Investors have not ascribed as much value as the sellside to the marketed and R&D projects of Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG) and Shire (NASDAQ:SHPG), while the reverse is true of Gilead Sciences. Gilead is looking at shrinking sales as its hepatitis C franchise fades, while the other companies will continue to grow sales – if only at single-digit rates in the cases of Amgen and Biogen.
Being in charge of a publicly traded company can be a case of investors constantly asking, “What have you done for me lately?” In the case of Biogen, careful management of its MS franchise does not appear to be enough. Filling the pipeline or a strategic rethink could be more to shareholders’ liking.
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