Biogen Idec May Take Hits
In MS Drug's Post-Approval Data
By DAVID ARMSTRONG
Staff Reporter of THE WALL STREET JOURNAL
November 19, 2004; Page C1
The Food and Drug Administration is widely expected to approve Biogen Idec's new drug for multiple sclerosis before the end of this month. That isn't necessarily good news for Biogen shareholders.
The highly anticipated approval of the drug, Antegren, will bring the release of data from clinical trials that the company hasn't made public. Those details, some analysts warn, may serve only to hurt Biogen's stock after months of enthusiastic buying. Shares of the Cambridge, Mass., biotechnology concern have risen more than 30% since Feb. 18, the day Biogen said it was applying early for Antegren approval, based on expedited-treatment status granted by the FDA.
The excitement over Antegren has bumped up the company's market value by $4.5 billion to $19.2 billion -- a figure some analysts say assumes the rosiest of assumptions for the new drug. The company's stock is trading at a multiple of analysts' 2005 earnings forecasts that is 30% richer than the average of its major biotech peers, according to Adam Walsh, an analyst with Jefferies & Co.
"Most of the good news is already in the stock," says Mr. Walsh, who has a "hold" on Biogen. "God forbid if there are any marginal data or side-effect concerns when they actually disclose the full data. It will be difficult to maintain current valuation."
A bigger financial concern is that Antegren may work too well in treating MS, a chronic disease that affects the central nervous system and can result in the loss of muscular coordination, and steal business from another Biogen drug, Avonex, the leading MS drug. With $1.2 billion in sales last year, Avonex has been a racehorse in an otherwise mediocre stable of Biogen products, and accounts for 65% of its revenue.
Biogen keeps all the Avonex sales and profits. That won't be the case with Antegren. The company has to split the profits from Antegren 50-50 with its partner, Elan of Ireland. Several analysts predict Antegren will have annual sales of over $2 billion within several years.
That leaves the company in the tricky position of trying to make Antegren the bestseller in MS therapy without siphoning revenue from Avonex, which currently has 42% of all MS drug sales in the U.S., says IMS Health, which tracks prescription-drug sales.
In the hope of minimizing any cannibalization, Biogen is conducting a clinical trial to see whether Antegren works better when taken in combination with Avonex. While the company submitted to the FDA the first year of results from that study, it hasn't disclosed any of the data publicly.
"It makes you think that data isn't as good or open to interpretation," said Eric Schmidt, an analyst at SG Cowen Securities who has a "neutral" rating on the stock. At least partial results from the study of Antegren and Avonex in combination are expected to be disclosed when the FDA rules.
Biogen and Elan surprised investors last week by releasing some of the data from a second clinical trail comparing Antegren with a placebo. That data showed Antegren reduced the rate of relapses in MS patients by 66% compared with the placebo. That rate was almost double the reduction rate reported by the four MS drugs already on the market, including Avonex. The other drugs are Rebif from Serono SA; Copaxone from Teva Pharmaceutical Industries Ltd., and Schering AG's Betaseron.
Elan shares have climbed 9% since the study results were released. In trading yesterday on the New York Stock Exchange, Elan's American depositary receipts were at $29.50, up 20 cents. Biogen was at $57.52, up 46 cents, on Nasdaq.
Jeffrey Reich, a portfolio manager at Merlin BioMed Group in New York, says he finds it hard to believe that the use of Antegren and Avonex together could be significantly better than Antegren alone in reducing relapses. Dr. Reich has owned Biogen shares in the past, but currently has no position in the company. He worries the current valuation leaves no margin for bad news. "When these things get priced for perfection, it doesn't leave much room for reality," he says.
While there is little dispute that Antegren likely represents an improvement over many existing MS therapies, the drug faces other hurdles in winning widespread acceptance. Antegren requires patients to make a trip to the doctor's office for a monthly intravenous infusion, unlike the current best-selling MS drugs, which can be administered with a shot at home. Both companies have been working to identify locations doctors can send their patients for an infusion.
Antegren is also expected to be priced at a premium, which may be a sticking point with some insurers. Current therapies range in price from $14,000 to $16,000 a year. Antegren, according to analysts, is likely to cost more than $20,000 a year.
"There are some real issues that have to be overcome to enable patients to easily get the drug," acknowledges Burt Adelman, Biogen's executive vice president for development. Mr. Adelman says he is nonetheless confident the drug will be a success. Another issue, for now, that could slow adoption of the new drug is absence of data showing whether Antegren slows progression of the chronic disease. Those trial results are expected next year and are based on two years of treatment.
Elan Chief Executive Kelly Martin says both companies have spent much of the past several months focusing on the logistical challenges of launching the new MS drug. He says issues such as pricing and infusion capacity won't pose significant impediments to the Antegren launch.
He does caution that Antegren will take time to reach blockbuster status. He says patients will want to discuss switching to Antegren with their doctors and some practitioners may be reluctant to try it if their patients are experiencing any kind of success with current therapies.
"It will happen in a very progressive, steady way, but a lot has to happen,' Mr. Martin says. "There are 450,000 patients globally who are on treatment or were on treatment. Moving several hundred thousand people will take time."
Biogen recently warned investors not to expect 20% earnings growth next year. The company said it was sticking to its estimate of 20% compound annual growth from 2003 through 2007, but said 2005 would fall short of that figure because of the upfront costs of launching Antegren.
"I used to say the time to own was going into a launch," said Jason Kantor, an analyst with WR Hambrecht, who has a "hold" rating on the stock. "I would be very cautious of this stock because expectations are quite high and there is a lot more punishment for underperformance then reward for outperformance."
Write to David Armstrong at david.armstrong@wsj.com |
