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Biogen's Bet on Alzheimer's
12/01/2017 5:00 am EST
Competitive launches and patent expirations have crimped the company’s growth recently, and Biogen’s management now faces the challenge of producing growth outside the core MS franchise. That kind of revenue cliff is not unusual for mature pharmaceutical companies. The challenge is always to find new ways to fill the hole.
Some of the lost revenue will be replaced by royalty income, as Biogen receives approximately a 20% royalty from U.S. sales of Genentech’s Ocrevus, the field’s newest blockbuster pill-form treatment.
Outside of MS, Biogen is enjoying rapid uptake of Spinraza, a gene therapy for spinal muscular atrophy. In partnership, the company is quietly building an interesting business in biosilimars — generic forms of approved biologic drugs. The partnership produced revenue of $101 million in the most recent quarter and looks like a potential $1 billion annual business or more someday.
No clear leader exists in the neurology space, and Biogen wants to assert itself to claim the top spot. To that end, the company has recently purchased assets targeting ischemic stroke and Parkinson’s disease. Management has signaled that investors should expect more business development activities of these kinds.
Biogen is also betting big that it can address the most devastating and inscrutable neurodegenerative disease of them all, Alzheimer’s disease. Its most advanced clinical asset is an antibody called aducanumab, which Biogen hopes can slow the progression of Alzheimer’s disease by reducing amyloid plaques in the brain.
Other drugs targeting amyloid plaques have failed, but Biogen thinks aducanumab is a more powerful, and potentially more effective, drug compared to anything previously tried. Alzheimer’s is a difficult disease to study because the obvious signs of the disease surface after significant brain damage has already occurred.
In 2015, aducanumab jumped from Phase 1 trials directly to Phase 3 under a special protocol assessment with the FDA. Since then, the company has reported some incremental Phase 1 data that it says supports the design of its much larger Phase 3 trials.
If aducanumab demonstrates clinical efficacy against Alzheimer’s, its commercial prospects could be staggeringly good. Almost half a million people will be diagnosed with the disease this year. A drug that made a positive difference for 25% of that population could easily produce annual revenue for its innovator over $10 billion, possibly twice that level.
If aducanumab succeeds, investors will make a lot of money. If it fizzles, it will be very difficult for Biogen to replace the blockbusters its MS portfolio stands to lose between now and 2020.
We model a middle ground, 6% compound EPS growth with a P/E range of 16.3 to 23.4. Our forecast low price is 248.4, a 20% decline. Our forecast high price is 511.3. The upside/downside ratio is 3.2 to 1.
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