What's Worrying Me About Biogen

Biogen Inc. (NASDAQ: BIIB) recently reported its first-quarter financial results, and while the company remains the market share leader in multiple sclerosis (MS) treatment, there are signs that its dominance could be waning.

An increasingly competitive market

MS is a central nervous system disorder that can cause muscle weakness, blurred vision, and numbness. Patients are typically diagnosed with MS while they're in their 20s or 30s, and there currently isn't a cure.


Roughly 10,000 new cases of MS are diagnosed in the U.S. every year, and the total patient population worldwide is about 2.5 million. Because MS is a chronic condition, patients receive treatment for it throughout their lifetime, and that translates into a lot of prescriptions written annually for MS drugs. Currently, the MS market is worth about $20 billion per year, and Biogen is the largest player, with about a 38% market share.

Altogether, Biogen markets $3 billion blockbuster MS drugs, including the company's best seller, Tecfidera, an oral MS drug that posted first-quarter sales of $958 million.Its other drugs include Avonex and Tysabri, which generated sales last quarter of $537 million and $545 million, respectively, and it also markets Plegridy, a long-lasting formulation of Avonex that brought in first-quarter sales of $112 million.

The bright spot in Biogen's first-quarter results is that sales of Tysabri increased 14% year over year.Biogen's other drugs, however, didn't perform nearly as well. Tecfidera's sales were up only 1% and Avonex's sales fell 5%.

Lackluster top-line growth for Tecfidera is particularly concerning. In the past, Biogen's sales have benefited from both increasing volume and higher prices. Recently, pushback on pricing has crimped Biogen's pricing power, making it more reliant on new prescriptions. Those new prescriptions, though, are getting harder to come by.

Oral MS drugs are unquestionably the best in terms of treatment choices, but Tecfidera's not the only oral option. Novartis sells Gilenya and Sanofi sells Aubagio, and based on sales growth last quarter, Tecfidera appears to be losing ground to them. For perspective, Gilenya sales increased 3.4% to $722 million and Aubagio's revenue grew 29.7% to $371 million in Q1.

In discussing its first-quarter performance, Biogen estimated that lower inventory levels in the U.S. weighed down Tecfidera's sales. It also indicated that demand could be feeling some negative impact from the recent Food and Drug Administration approval of Roche's Ocrevus, the only approved medicine for treating both relapsing and primary progressive MS. Biogen's management admitted that there could have been some warehousing of patients ahead of Ocrevus' approval in late March. If so, then Ocrevus' toll on Biogen's market share could get bigger as its launch gains momentum.

Some headwinds for Biogen's MS market share due to Ocrevus will be offset by the fact that Roche owes Biogen royalties on Ocrevus sales. However, those royalties cap out at 30%, so they won't make up all the potential damage.

Importantly, Ocrevus isn't the only new drug that could dent Biogen's MS dominance. Recently,Celgene (NASDAQ: CELG)reported compelling phase 3 data for its oral MS drug, ozanimod, and results from a second confirmatory phase 3 trial are expected soon. If results are good, then Celgene could file for ozanimod's approval later this year, clearing the way for an FDA OK by the end of 2018. Because ozanimod is an oral drug that works similarly to Gilenya (but is more selective), ozanimod could have billion-dollar blockbuster potential.

Looking ahead

It's not all bleak for Biogen. The company recently launched Spinraza, the first FDA-approved therapy for spinal muscular atrophy, and $47 million in Q1 sales suggests it's off to a fast start. The company's also got some intriguing drugs in the pipeline, including treatments for Alzheimer's disease. However, Spinraza's growth may end up simply offsetting sliding MS revenue, and Alzheimer's disease drugs have a high clinical trial failure rate, so it's too early to bank on them.

Overall, growing competition makes me think this could be a tough couple of years to be a Biogen investor.

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Todd Campbell owns shares of Celgene.His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Biogen and Celgene. The Motley Fool has a disclosure policy.