Does Biogen's Latest Win Make Its Shares a Buy?

By Markets Fool.com

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Image source: Biogen, Inc.

Biogen, Inc. (NASDAQ: BIIB) and partnerIonis Pharmaceuticals, Inc.(NASDAQ: IONS) reported this week that an interim look at a study evaluating the companies' nusinersen as a therapy for spinal muscular dystrophy (SMA) is effective enough that the trial has been stopped early and an application for approval is in the works. Can nusinersen be a big enough needle mover to warrant picking up shares in these companies?

First, some background

People with SMA lose motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Sadly, there are no treatments specifically approved to treat SMA and, ultimately, SMA can lead to paralysis in people with the most severe version of the disease.

SMA is caused by the lack of or inadequate production of survival motor neuron, a protein created by the SMN1 gene. Disease severity correlates with how little SMN is produced by this gene and people who don't produce any SMN are diagnosed as type 1 SMA patients. Type 1 patients typically don't survive beyond two years without the help of a respirator. Type 2 and type 3 patients produce some amounts of SMN protein, but they still face life-altering symptoms, too.

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Image source: Biogen, Inc.

Changing treatment

Nusinersen is an antisense oligonucleotide that increases SMN protein production by improving the activity of SMN2, a gene that's nearly identical to SMN1.

The drug has been awarded orphan drug status and fast-track designation by the Food and Drug Administration and that means that an approval could come more quickly than it normally would.

In the registration-ready phase 3 trial being conducted by Ionis Pharmaceuticals, nusinersen showed that type 1 infants who received the therapy experienced a statistically significant improvement in motor function compared to people who didn't receive it. The company didn't report the specific trial findings, but plans to report them soon at a future industry conference.

In addition to this trial, Ionis and Biogen are also conducting studies evaluating the use of nusinersen in type 2 patients and pre-symptomatic patients. If those trials are effective, then nusinersen could revolutionize patient treatment for all SMA patients.

Looking forward

The two companies are going to try to roll out this drug quickly globally. There's no insight yet into pricing, but drugs for rare diseases like SMA tend to cost a premium. Depending on how quickly these drugs receive approval by regulators, nusinersen sales could begin next year.

While awaiting official approvals, the companies are going to launch expanded access programs in various markets to help get the drug in patient hands sooner.

Overall, there are about 9,500 SMA patients across all types that could conceivably benefit from nusinersen and that patient pool has some industry watchers thinking nusinersen has low nine figure potential in year one post-launch and that it could haul in $2 billion in annual sales at its peak.

While Biogen's agreement with Ionis means that it will get the lion's share of nusinersen revenue, Ionis will receive tiered royalties up to the mid-teens and it could get up to $150 million in regulatory milestones as well.

Overall, nusinersen could move the needle for Biogen based on peak sales, but its impact earlier on may be small given Biogen's already a $66 billion market cap company with $11 billion in sales per year. The impact on Ionis could be greater. Currently,Ionis generates limited revenue from commercial drugs and its market cap is only $4.6 billion. If we assume hypothetical annual sales of $1 billion, then the royalties payable to Ionis would likely be about $150 million. While that's nothing to sneeze at, it's probably not enough on its own to justify its valuation. Therefore, this drug's success may be more valuable for adding validity to Ionis' research approach than the annual sales it produces.

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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him onTwitter where he goes by the handle@ebcapital to see more articles like this.The Motley Fool owns shares of and recommends Biogen and Ionis Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.