Consider This Before You Buy Biogen

Biogen (NASDAQ: BIIB) is the leading maker of medicine used to treat multiple sclerosis. However, new drugs from Roche Holdings (NASDAQOTH: RHHBY) and Celgene Corp. (NASDAQ: CELG) threaten its dominance and add pressure to the company to diversify itself.

A new threat emerges to Biogen

In March, Roche Holdings earned an FDA green light to begin marketing Ocrevus, a new MS therapy approved for use both in relapsing multiple sclerosis (RMS) and primary progressive multiple sclerosis (PPMS).

When the FDA approved this breakthrough-status therapy drug, it became the first drug to notch approval that's shown efficacy in both RMS and PPMS. Ocrevus' potential to help patients across the MS spectrum is welcome because MS can result in progressively worse symptoms, including muscle weakness, blurred vision, and numbness.

There are about 2.3 million people living with MS globally, and typically, MS is diagnosed when patients are in their 20s and 30s. A chronic illness, MS requires a lifetime of treatment, and the large patient pool and lifelong treatment translates into billions of dollars in annual sales.

Teva Pharmaceutical's Copaxone is the most-prescribed MS therapy, yet it's Biogen that holds the crown for taking in the largest amount in MS drug sales. Biogen markets the top-selling oral MS drug, Tecfidera, as well as the commonly used MS drugs, Avonex, Tysabri, and Plegridy. In 2016, Tecfidera's market share was 19%, and it's sales totaled nearly $4 billion. Tysabri's market share was 9.4%, and its sales were $2 billion. Overall, Biogen's MS sales were $8.7 billion in 2016.

Ocrevus, however, threatens those sales. An intravenous infusion therapy that only needs to be taken once every six months, Ocrevus has a dosing advantage that's attractive to many patients who currently get injected biweekly or monthly with Biogen's drugs. Ocrevus works in both PPMS and RMS patients, or roughly 90% of MS patients, and that's something Biogen's drugs can't claim.

its safety profile is also attractive. Biogen's Tysabri and Tecfidera have been associated with a rare brain disease called progressive multifocal leukoencephalopathy (PML), and so far, there haven't been any PML cases reported in Ocrevus patients.

In addition, Ocrevus is cheaper than Biogen's drugs. Overall, MS drug prices have increased 400% over the past 12 years, and they can cost tens of thousands of dollars per year. Instead of charging premium prices, however, Ocrevus hit the market with a price that's about 25% lower than its competitors. Two annual infusions will set insurers back $65,000 per year, before discounts, and that's far less expensive than other competing MS therapies.

Ocrevus' balance of efficacy, safety, and price is turning it into a top seller. In Q2 2017, its first quarter on the market, Ocrevus sales were nearly $200 million. That makes it hard to imagine Ocrevus won't be a multibillion-dollar blockbuster drug. If so, then a good chunk of its sales will probably come at Biogen's expense. Peak sales estimates should always be viewed with skepticism, but industry watchers think Ocrevus sales could eclipse $4 billion per year by 2022.

Another threat fast approaching

Celgene's ozanimod has delivered Avonex-beating performance in two separate phase 3 trials, and that has Celgene planning to file for ozanimod's FDA approval later this year. If Celgene hits its filing goal, then ozanimod could begin competing against Biogen for MS market share as soon as next year.

Unlike, Ocrevus, ozanimod is an oral drug taken daily like Tecfidera. The convenience of oral drugs has made them the fastest growing MS drug over the past five years, and currently, Tecfidera is the market-share leading oral MS drug.

In its trials, ozanimod, a selective SP1 inhibitor, not only delivered top-notch efficacy, but it also did so with arguably best-in-class safety that could make it the preferred choice for patients newly diagnosed with RMS. The safety results suggest that ozanimod could be a better option than Tecfidera and Gilenya, another oral MS drug with $3 billion in sales last year. Gilenya targets SP1 with less selectivity than ozanimod, and Gilenya is associated with cardiovascular risks and kidney toxicity that haven't yet been associated with ozanimod.

Gilenya's market share would probably be at greatest risk following an ozanimod green light, however, if doctors' real-world experience with ozanimod proves positive, than Tecfiera could also lose ground, especially if Celgene prices it at a discount as Roche did with Ocrevus.

Eyes on the future

Ocrevus doesn't leave Biogen totally out in the cold. Because Roche licensed Ocrevus from Biogen, it pays Biogen royalties equal to about 30% of its sales. However, that only insulates Biogen partially from the threat to its market share.

Add the risk of ozanimod into the mix, and you've got a lot of uncertainty associated with Biogen's current product lineup, which increases the stakes for Biogen's R&D team. Biogen continues to invest big money into developing new drugs, and efforts to expand itself beyond MS into other indications, such as Alzheimer's disease, could pan out. However, that's not a certainty, because 99% of Alzheimer's disease drugs that have been studied in clinical trials have failed to make it to market.

Overall, Biogen remains a biotechnology leader, but it's got some question marks that should make investors cautious.

10 stocks we like better than BiogenWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Biogen wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

David Gardner has no position in any of the stocks mentioned. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. Tom Gardner has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Biogen and Celgene. The Motley Fool has a disclosure policy.