Biogen Idec (BIIB) stock has crumbled the last six months, losing a third of its value. With BIIB trading at just 15 times FY2016 EPS expectations, now might seem like now is a good time to buy.
However, investors, that might not be wise.
First off, Biogen is not a very well diversified company. Most of its drugs, including Tecfidera and Tysabri, are for multiple sclerosis.
However, none of Biogen’s drugs treat the disease itself, but rather target the deteriorating effects of the disease.
The problem is that Biogen has penetrated its market of treating side effects, and growth has recently become an issue. Over the last six quarters, year-over-year revenue growth has gone from 50% to the mid 30% range and now to 10.6% in its most recent quarter.
BIIB Faces Its First Real Threat in Treating MS
Even if sales for Biogen’s MS franchise are slowing, these are still imperative drugs for maintaining BIIB’s current market capitalization. Therefore, if something were to enter the market that acted as an actual cure, or a treatment for the disease itself, Biogen’s entire franchise could be at great risk.
That’s exactly what Roche’s ocrelizumab is doing — not only proving successful in treating the 15% of MS patients considered “hardest to treat” but also in treating the 85% of relapsing MS patients where Biogen’s drugs are most common.
Ocrelizumab recently exhibited a 46% and 47% reduction in annualized relapse rates versus standard of care in two Phase 3 trials. Further, the number of patients taking ocrelizumab who experienced adverse reactions was similar to placebo, a very favorable result for an effective MS drug.
With Roche aiming to submit its new drug application to the FDA next year for both primary progressive and relapsing forms of MS, ocrelizumab could cause headwinds for BIIB sooner rather than later. And ironically, ocrelizumab was once owned by Biogen, who then licensed the drug to Roche in exchange for U.S. royalties of roughly 20%.
If sales for ocrelizumab do top $5 billion, as many expect, it’ll be a nice payday for Biogen, but not big enough to counter its losses on drug sales that treat MS side effects.
Can BIIB Counter Lost MS Sales with New drugs?
All things considered, Biogen would have been wise to hold onto ocrelizumab, but since it did not, BIIB stock investors better hope that Biogen is successful in new treatment areas like Hemophilia A & B and Alzheimer’s disease.
Eloctate is one of Biogen’s newest drugs, and it treats Hemophilia A. Back when it first launched, four quarters ago, several analysts thought it could capture much of the $6 billion market opportunity for that disease. However, sales of just $90.6 million after four quarters in the market do not suggest it is a drug that will create several billions of dollars in annual sales any time soon
While Eloctate is a longer lasting and slightly more effective form of treatment over prior standard of care drugs, it appears that Biogen is having a difficult time in penetrating a Hemophilia market that’s owned by Baxter (BAX). For a company that needs to branch out into new treatment areas, this is rather alarming, especially in regards to Biogen’s Alzheimer’s disease candidate BIIB037.
In BIIB037’s latest trial of 166 patients, the candidate produced statistically significant changes to Clinical Dementia rating (CDR) and mini mental state exam (MMSE). These are two measures associated with successfully treating Alzheimer’s disease, and BIIB037 performed well in both areas at two different doses. Given that no company has successfully treated Alzheimer’s disease, this could be a $10 billion market that’s there for BIIB to take.
What About BIIB Stock?
However, big questions still remain, such as whether BIIB can succeed on a large scale outside of MS and whether the potential surrounding BIIB037 can counter any sales pressure to Biogen’s MS franchise.
Not to mention, Biogen must still test BIIB037 in much larger trials before it gains an FDA approval — it could be another four years before BIIB037 generates its first dollar in revenue. By that time, Roche’s ocrelizumab will have already been treating MS for several years.
Given these collective risks for Biogen’s MS franchise, the underwhelming performance of Eloctate, and the time it will take for BIIB037 to reach the market (if it is successful in larger trials), I am not sure how anyone could be bullish on BIIB stock right now.
At the very least, investors should be patient with BIIB. Wait for more data on BIIB037 and see how ocrelizumab performs in the free market and whether Eloctate can start to pick up momentum.
Right now, there are just too many questions, and depending on the answers, BIIB stock could go a lot lower.
As of this writing, Brian Nichols held no position in any of the aforementioned stocks.
