Biogen Earnings: Ocrevus Quandary Needs A Stronger Response

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(Bloomberg Gadfly) -- Biogen Inc. is in one of the strangest situations in the pharmaceutical industry.

It's getting a small cut of the sales of another company's booming multiple sclerosis drug, but that drug is also competing directly with its own critical MS franchise. Biogen's first-quarter earnings report on Tuesday highlighted just how untenable this is and how much more aggressive management needs to be about pursuing new assets.

 

Biogen and Roche Holding AG co-developed the MS drug Ocrevus in its early stages. They agreed in 2010 that Roche would shoulder the full cost of developing and marketing the drug, and that Biogen would exchange its 30 percent interest in the medicine for royalty payments. The medicine ended up producing stellar trial results in difficult-to-treat patients and has had an explosive launch. In less than three quarters on the market, it managed $870 million in sales. It's projected to approach $2 billion this year. Biogen gets a 13.5 percent royalty on Ocrevus sales up to $900 million and a 24 percent royalty if annual net sales exceed that. 

Biogen has received about $236 million in Ocrevus royalties so far, which are pure profit. But even as it began to get that nice boost, sales of its own portfolio of MS drugs were beginning to slow. Ocrevus's continuing sales growth will accelerate that decline. 

Excluding the Ocrevus royalty, Biogen's $2.024 billion in MS sales in the latest quarter was the lowest since at least 2014, and the sales trends aren't pretty. That Ocrevus royalty will jump as that drug's sales pass $900 million. But the royalty only gets one bump, while the market share Biogen's own drugs lose to Ocrevus is likely gone forever. 

Market-share loss isn't the only problem. 

Volume growth has been slowing for Biogen's MS franchise for years. The company has often made up for that with price hikes. The per-pill price of Biogen's best-selling drug Tecfidera has jumped by nearly 50 percent since 2013. Ocrevus's list price is $65,000 -- high, but cheaper than many older MS drugs, including some of Biogen's. Biogen will likely need to offer bigger discounts to pharmacy benefit managers and insurers to entice them to pay for its medicines. The fact that a cheaper generic version of Teva Pharmaceutical Industries Ltd.'s MS drug Copaxone is now available won't help either. It's going to get harder and harder for Biogen to price-hike its way out of trouble.

Biogen's biggest bright spot in the face of its MS issues has been the rapid launch of the spinal muscular atrophy treatment Spinraza, which generated $364 million in sales in its fifth full quarter on the market. But that success story comes with asterisks.

Novartis AG just purchased AveXis Inc., which is working on a promising Spinraza rival. Novartis will give it extra momentum, capital, and commercial know-how to speed that drug to market.

And sales of Spinraza are structurally inclined to level off: Patients start by taking a lot of the drug in a short time, then graduate to an infrequent dosing schedule. That dynamic contributed to a quarter in which sales were short of analyst expectations and grew by just $1 million sequentially.

Biogen tried to remedy some of these worries last week by paying Ionis Pharmaceuticals Inc. -- the original developer of Spinraza -- $1 billion for an equity stake and access to more of its drug candidates. 

But that's a relatively cheap deal, and Ionis's lightning may not strike twice. Biogen is going to have to do a lot more to break out of its quandary.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

©2018 Bloomberg L.P.

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