New York City, New York – (StockNewsDesk) – 08/17/2014 — Biogen Idec, Inc., one of the largest biotech companies in the world, gained approval for its new multiple sclerosis treatment by the Federal Drug Administration on Friday.
The drug, Plegridy, is designed for patients experiencing a relapse form of MS or RMS. This form of MS is less common with less research, but Biogen is attempting to reach this market with its new offering. It is estimated that 2.3 million people suffer from MS globally, while the number is around 400,000 in the US.
There are no concrete figures on the number of RMS globally, but in the US, researchers estimate nearly 150,000 sufferers. Of course, many who suffer from MS can eventually experience some form of relapse. Both sets of patients experience similar symptoms with differing degrees of acuteness, from numbness in the limbs to vision loss or, in the worst cases, paralysis.
MS attacks the nervous system. Medical research on the nervous system has only made progress in the last decade, but Biogen is one of the leaders in the fight against MS. They have collaborated with and sponsored research at the university level. Their previous breakthrough drug, Avonex, was one of the first effective treatments for MS.
Plegridy represents an improvement over Avonex, as it needs to be taken only once every two weeks, rather than once a week. Another difference is that the drug can be injected subcutaneously instead of intramuscularly. Intramuscular injection once a week is painful for anyone but even more so for MS patients.
The company has been touting Plegridy’s effectiveness and safety results from its clinical trial involving more than 1,500 patients. The drug has also been approved by the European Union. The company has created a better version of Avonex that provides relief to many MS patients, and it looks to be the company’s new blockbuster drug.
While Avonex produces nearly $3 billion of revenue a year for Biogen, Wall Street analysts are expecting Plegridy to eventually bring in over $5 billion a year. Due to the ease of use and less frequent injections for Plegridy, the expectation is that it will take market share from other drugs.
Stock Price Impact
In the short term, the approval of Plegridy has had little impact on Biogen’s stock price, as it was up less than 1% after hours. There are a few reasons for this muted reaction. First, there was little doubt amongst biotech investors that this drug would be approved, since it was basically the same class of drug as Avonex, which has proven successful and safe. The only issue is whether the drug could be effectively transmitted subcutaneously. In the trial, the company was able to do so adequately.
However, while the company is touting the benefits of subcutaneous and less frequent injections, analysts are less enthusiastic. They don’t see this drug as a huge advance from the previous generation in terms of helping patients and don’t believe the convenience factor will drive people to the drug. Instead, more cynical analysts believe that Biogen sees Avonex going off patent, so they are tweaking the delivery mechanism and drug to create a MS treatment that they will have a patent on.
Therefore, much of the revenue coming from the new drug will simply be coming from Avonex. Of course, this is a necessary step, but they are not growing revenue or entering new markets, simply taking steps to ensure that they don’t lose existing revenue to cheaper generics. As a result, the stock price has not been very responsive to this good news.
Here is the six month daily chart of Biogen and the biotech ETF:
For the most part, both have been moving in the same direction with similar magnitudes. Following the sell off in the spring, both are almost back to new highs. Some of the leaders in the biotech group, such as Gilead, are already making new 52 week highs. There is a lot of risk buying Biogen at these levels, it looks like buyers are exhausted. Even the FDA approval of this drug didn’t lead to a lot of buyers. A good risk/reward trade would be to short Biogen at current levels on this good news with a stop loss at its recent highs.