Biogen Bout
Bear Argument
By
David Langford
Biogen's scant pipeline and evaporating sales have scared investors off, and for good reason: The future of any pharmaceutical biotech company is nothing more than its pipeline and the funding for it, and Biogen simply hasn't delivered on the promise of its spent research dollars.
Now, I'm not saying that Biogen is necessarily doomed. It could bounce back -- stranger things have happened. But, hoo-boy, is that not the way to bet. It won't take long to explain why.
Biogen has exactly one drug on the market: AVONEX. It's for MS, and Biogen is trying to get creative with it -- AVONEX is in multiple clinical trials in the hope of getting it approved for, um, well, other forms of MS. Maybe in a few years some additional applications will come out of these efforts.
The best thing I can think of to say about AVONEX is that there is no better product on the market so far, as it offers MS sufferers a decline in the progression rate of the disease. Although substantially better than nothing, it is not a bona fide cure, which leaves it vulnerable to competition. There's always more competition on the way -- Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %>, for example, was just granted FDA approval in October to market Novantrone to treat advanced forms of MS, which will impinge on AVONEX's already slowing sales growth.
The good news on that front is that sales of AVONEX might hit $750 million this year. The bad news is that this isn't as much growth as had been priced into the stock. The shares have been sliced in half recently. What's more, Biogen will lose its patent on AVONEX in 2003. That isn't long when one begins to considers that it takes 12-15 years to develop a new drug. So, what will take the place of AVONEX, Biogen's only drug, as its patent goes to patent heaven? That's a very good question, and it's one on the minds of Biogen investors everywhere.
The only compound of note in the pipeline at this time is AMEVIVE, a drug that entered Phase III trials for psoriasis a year ago. That still puts it a couple of years away from hitting the market if it gets approved. That's it.
The good news in terms of revenue is that psoriasis is an even larger market than MS. It's just as underserved, too. So, AMEVIVE could be pretty big for Biogen. However, even a drug making it all the way to Phase III has just a 60% chance of making it to market. And, even if it does make it, it might only be partially approved. But never mind that. Let's take a closer look at who else might provide competition for Biogen, assuming AMEVIVE does see the light of day.
Genentech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> has a psoriasis drug in Phase III trials, too. This one is showing progress against the disease after a single treatment. Gee, that doesn't sound good for Biogen. Anybody else? Well, Johnson & Johnson's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> also working on a cure -- and it too has made it to Phase III trials. Is it safe? Does it work? I guess we'll find out soon -- it's already been launched in Brazil, Switzerland, the Netherlands, and Germany, with more launches in Latin America and Europe to follow. Anybody else? Well, yeah, there are plenty of other companies with their own psoriasis cures in Phase II trials.
So, here's the deal: For Biogen's AMEVIVE to save the company, it has got to receive FDA approval, and get to market fast. With any luck, this will be before AVONEX sales go "poof." Then it has to push all new competition from druggernauts Genentech and J&J out of the way to command a reasonable piece of that market. It then has to defend itself from all further competition coming from just about everybody else. Yeah, it could do all of that. I mean, it's not impossible, right?
Maybe. But, I have a better idea than risking the company -- and investors' money -- on that long shot. Biogen should get itself acquired while its stock price still has a little steam, and while it still has something, even if it isn't much, to offer. It might not get a high price, but it's better for investors than driving the company straight into the ground like an illegal lawn dart, which is right where it's going.
For more material, check out Tom Jacobs' article on why biotechs are going to have it rough unless they've got their own drug discovery platform. Also, check out the TMF Guide to Biotech Investing, which includes an overview of Biogen.
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