Wednesday, September 22, 2010

Biogen Idec, the MS market, and Gilenya

Multiple sclerosis (MS) is a disabling and eventually deadly disease in which the human immune system attacks otherwise healthy nervous tissues. It affects about 2.5 million people worldwide including about 400,000 in the U.S., where prevalence is much higher than the global average. Today the FDA announced it had approved Novartis's Gilenya (fingolimod) as the first oral treatment for MS.

Biogen Idec stock has sold at depressed prices for several years now, despite the company's high level of profitability. The long-term, main reason for this is that Tysabri (natalizumab), which is the most effective MS drug ever developed, has the unfortunate effect of allowing a virus that is resident (and normally harmless) in many people's brains to become active, causing progressive multifocal leukoencephalopathy (PML), which can be fatal. All Tysabri patients are now monitored for symptoms of PML, but there is no doubt that many doctors and patients have refused the drug because of the side effect.

The problem with Tysabri, and with MS drugs in general, is that the cure involves suppressing the immune system. Therapies less effective than Tysabri are not as good at suppressing the immune system; Biogen's Avonex is an example. Other partially effective treatments for MS include corticosteroids, interferons (Avonex is one), Copaxone (which requires once-a-day injection), and Novantrone (which has harmful side-effects on the heart, and is somewhat of a last resort).

Gilenya acts by keeping lymphocytes in lymph nodes, so that they do not attack the central nervous system in MS. But that means that, like all immune system suppressors, it is likely to occasionally prevent the immune system from doing its job of controlling infections. It seems to have a side effect of inducing basal-cell carcinomas as well as opportunistic infections. "Cases of serious eye problems (macular edema) have occurred in patients taking the drug and an ophthalmologic evaluation is recommended." In trials it reduces relapses of MS by over 50%, which is a good number, but not as effective as Tysabri's.

So what Gilenya has going for it is that it can be administered orally. Tysabri is given by infusion, a less convenient method to be sure.

Meanwhile Biogen Idec has an oral MS medication, BG-12, in Phase III trials. Data should be out in 2011. BG-12 Phase II data was reported in terms of decreasing lesions caused by MS, also stating that relapse rates decreased, and frequency of infection was low. It should be noted, however, that short-term studies have typically underestimated the effects of long-term immune system repression on infection rates and mortality.

Since BG-12 has a novel mechanism of action, which "defends against oxidative-stress induced neuronal death, protects the blood-brain barrier, and supports maintenance of myelin integrity," if it has good phase III results and is approved by the FDA, there will be reason for prescribing it apart from its oral administration.

For investors, in short today's reaction to the FDA approval of Gilenya is overblown. Biogen sells at a very attractive P/E. Biogen Idec's strong pipeline of potential therapies promise to expand its overall market share over time.

At this point, however, I would suggest that given its profitability, Biogen Idec should pay a dividend. I own Biogen (BIIB) stock and believe paying a dividend would compensate for the low P/E ratio while waiting to see if I am right that revenues and profits will indeed continue to ramp nicely in 2011 and 2012.

See also my Biogen Idec Analyst Conference Call summaries.

William P. Meyers

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