Biogen’s (NASDAQ:BIIB) win against the hedge fund manager Kyle Bass should, subject to appeal, secure its multiple sclerosis blockbuster Tecfidera until 2028. It also spells good news for another challenger, Forward Pharma (NASDAQ:FWP).
This is because Forward is widely expected to be awarded a 10% royalty on revenues, and the more Tecfidera sells the more Forward will get without needing to do any R&D of its own. A separate problem, however, is the advent of novel multiple sclerosis drugs, which EvaluatePharma consensus reveals are steadily eating into the sellside’s Tecfidera forecasts.
Less than two years ago analysts were on average expecting Tecfidera to bring in sales of $6.8bn in 2020, EvaluatePharma’s archived forecasts reveal. The 2020 number now stands at $4.5bn, according to expectations from banks taken after Biogen settled with Forward at the start of this year.
That settlement saw Biogen hand across $1.25bn to Forward in an apparent acknowledgment that the Danish company was first to file patents on Tecfidera’s active ingredient, dimethyl fumarate (Biogen windfall reveals Europe's best capitalised and most mispriced biotech, January 17, 2017).
The issue of royalties will be determined at separate interference proceedings by the same three-judge panel that ruled on Mr. Bass’s challenge, and a verdict is expected imminently. However, analysts generally expect Biogen to have to pay Forward a 10% royalty between 2021 and 2028.
Inter partes review
The case Biogen won yesterday concerned an inter partes review by Mr. Bass’s Coalition for Affordable Drugs challenging the validity of ‘514, the Biogen US patent that is also subject to the interference proceedings with Forward.
Mr. Bass can of course appeal, a process that could take another 18 months to be resolved, but on the face of it yesterday’s ruling secured Tecfidera until the 2028 expiry of the ‘514 patent. Until now EvaluatePharma consensus showed Tecfidera peaking in 2021, with generics obliterating revenues from 2023.
This is expected to take place against the backdrop of a shifting market in which drugs like Avonex, Gilenya and Tysabri continue to play important roles, and which could soon see the entry of one of the biggest disrupters, Roche’s (OTCQX:RHHBY) expected blockbuster Ocrevus.
Bernstein analysts said additional US Tecfidera sales of $3bn a year in 2023-27, at a 75% operating margin and 25% tax and subject to 6% cost of capital, amounted to $3.7bn of extra NPV for Biogen. Clearly, a 10% royalty on this would thus be worth $370m of clean profit to Forward – not insignificant for a group capitalized at just $1.2bn.
Bernstein expected Biogen to climb 3-5% on a victory against Mr. Bass, but in the event, during a very volatile trading session yesterday, the stock closed up just 0.4%. Forward shares were off 2%.
The analysts cautioned that the ‘514 patent was still susceptible to additional generic filers on the grounds of obviousness, writing that “while the risk of 2023 generic entry is reduced, it is not eliminated”. A yet separate litigation between Biogen and Forward relates to EU patents, but is not expected to yield an initial verdict for another year, and will likely also go to appeal.
It is clear that for Biogen, launching Tecfidera opened up an unexpectedly large can of worms, though at least the group can for now say it has avoided the worst-case scenario.
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