New Biogen Inc (NASDAQ:BIIB) CEO Michel Vounatsos must not have been paying much attention to American media or politics over the past year and a half. That, or he has more guts than the average U.S. corporate chief, most of which have at least superficially responded to pressure from Washington to dial back on the greed-driven decisions.
Why’s that? Even before he officially took the helm (though after he was named the next chief executive officer), Bioegen unveiled a new spinal disease drug that costs a jaw-dropping $125,000 per dose, or $750,000 for a full first-year treatment.
The pricing flies right in the face of all the human-decency and be-reasonable arguments both sides of the political aisle have been making since 2015.
That’s why any owners of BIIB stock may not want to get too excited about the drug’s revenue prospects just yet.
It Costs How Much?
Those weren’t misprints. Spinraza, for spinal muscular atrophy, will cost $125,000 per injection. The first year regiment is six injections, translating into a cost of $750,000. Subsequent years only require three injections, totaling payers a “mere” $375,000 per year.
With 25,000 spinal muscular atrophy patients in the U.S. alone, owners of BIIB stock may be understandably stoked. That’s a total addressable market worth $9.4 billion in recurring revenue not factoring in any approvals in foreign markets. Spinraza would only ever be administered for a fraction of them. But even a fraction of $9 billion would be a windfall for the $62 billion company that has only generated $11.4 billion worth of revenue over the course of the past four reported quarters. Leerink analyst Geoffrey Porges expects Spinraza revenue to reach $2 billion by 2020.
Company spokesperson Matt Fearer explained that the frothy pricing was based on “a number of important factors, including its clinical value, its impact to patients and the healthcare system as a whole, and the need for Biogen to fund further research and development to make the next innovation possible.” Fearer added that the price tag “is fairly in line with other therapies for rare orphan diseases.”
A 2015 report from EvaluatePharma determined that the average annual cost for treatments of a rare disease is $111,820.
How Much Is Too Much?
The large price tag took some observers by shock — even those who were expecting a big number. Jefferies analyst Brian Abrahams commented the cost of Spinraza was “even a bit higher than recently-increasing expectations.” Porges conceded, “The sticker-shock presented in the media could turn Spinraza into the Sovaldi of rare disease drugs [and could be] the straw that breaks the camel’s back in terms of the U.S. market’s tolerance for rare disease drug pricing.”
If that’s the case, then the advent of Spinraza might not be the lottery ticket many BIIB investors are hoping it will be.
That very likely is the case, particularly under a new presidential regime. Just last week during a press conference, President-elect Donald Trump upended the entire healthcare sector (again) by simply saying of the government-backed purchase of pharmaceuticals, “We’re going to start bidding and were going to save billions of dollars over a period of time.”
Still, the company and the drug’s supporters note that in many if not most cases, the cost is justified.
There is no other treatment for spinal muscular atrophy, and it’s debilitating. Type 1, usually diagnosed within a few months of birth, takes most patients’ lives before they reach 2 years old. Type 2 is generally more survivable, though still often ends up with the patient needing a wheelchair to achieve mobility.
Spinraza offers a significant fighting chance for many to sidestep the affliction’s absolute worst impact.
Bottom Line for BIIB Stock
Good news for Biogen stock holders: BIIB is widely expected to successfully impose the intended price of Spinraza, which will primarily be funded by insurers that are hesitant to be perceived as “that insurer” that doesn’t care about kids.
But it’s not a slam dunk for Biogen. Insurers have indeed balked at the large price tag for a new Duchenne muscular dystrophy. A willingness to push back against one drug’s cost implies a willingness to push back against another.
That said, even if insurers do acquiesce and add Spinraza to their formulary lists, Biogen may have made itself a slightly bigger regulatory/pricing-standard target. That’s not a list any biopharma company wants to be on.
In light of the drug’s benefit, it’s not fair, but fairness has nothing to do with it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
