Whatever Tysabri Outcome, Biogen Idec Should Survive

Biogen Idec's key multiple sclerosis drug is in the news again, as the European Medicines Agency (EMEA) has started a safety review of Tysabri, citing more confirmed cases of a rare -- but potentially fatal -- viral infection of the brain, called progressive multifocal leukoencephalopathy (PML), previously linked to the drug. Assuming the EMEA does not order the withdrawal of Tysabri, but instead recommends a drug holiday after a determined period on therapy, what are the near and longer-term financial implications to Biogen?

The drug became available for the first time in Europe after receiving approval on June 29, 2006. As a total of 23 cases of PML have now been reported, the European Medicines Agency's Committee for Medicinal Products for Human Use, called CHMP, has begun a review to discuss any "additional measures necessary to ensure the safe use of Tysabri (natalizumab) and how to balance the risks to the patients against the benefits of treatment." Readers should note the language used by the advisory body to the EMEA: "to ensure the safe use of Tysabri." Ergo, in my opinion, at this time, talk of withdrawing the drug from worldwide markets is premature.

As most folks recall, Tysabri was withdrawn from the U.S. market back in February 2005 after being linked with three cases of cases of PML when administered in combination with interferon beta-1a, which like Tysabri is an immunosuppressive drug often used in the treatment of MS. In July 2006, after an extensive safety review indicated no new cases of PML in prior Tysabri users, the drug was re-launched in the U.S.

In the last quarter, Biogen derived about 25.8 percent and 72.3 percent of reported product sales of $802 million, respectively, from Tysabri and Avonex (interferon beta-1a).

Avonex remains the most prescribed treatment for relapsing forms of MS worldwide, with more than 135,000 patients on therapy and impressive 30-percent and 27-percent shares, respectively, of all "ABCR" therapeutic treatments in the U.S. and Europe. That said, notwithstanding price hikes, unit volume in the U.S. fell eight percent and sales were essentially flat in the last quarter.

Tysabri looked to be firing on all pistons, with comparable sales up a healthy 21 percent, according to the third-quarter 10-Q regulatory filing with the SEC. Chief operating officer Robert Hamm noted on the third-quarter earnings call that approximately 1,000 net new patients per month were added in the quarter, for a total of about 46,200 patients receiving therapy at the end of September -- a 30 percent year-over-year gain. In addition, during the last quarter -- and for the first time since early 2008 -- Copaxone ( glatiramer acetate) patients became the primary source of switches.

The growing importance of Tysabri is evident when reviewing sales trends of Rituxan (rituximab), an effective treatment for non-progressing, relapsed, or refractory cases of B-cell Non-Hodgkin's Lymphoma (NHL). In the U.S., Biogen co-promotes Rituxan with Genentech. For the third quarter, Biogen's share of sales jumped 5.8 percent to $203.3 million. The growing hole in the NHL franchise is located across the Atlantic, where royalty agreements prevail for a period of 11 years from the date of the first commercial sale of Rituxan on a country-by-country basis. For most European countries, the first commercial sales began in the second half of 1998, which means a significant drop-off in sales in coming quarters. For the nine months ended September 30, royalty sales declined 16.8 percent year-to-date to $209.5 million.

The royalty periods with respect to sales in France, Spain, Germany, and the United Kingdom expire in 2009. In Italy the royalty period ends in 2010. In other European countries not named, sales to Biogen will cease in 2012.

Whether or not Biogen can backstop market share and sales erosion(s) of two of its principal products -- Avonex and Rituxan -- in coming quarters with global gains in the recruitment of new Tysabri patients, who pay on average $28,500 per year for 13 infusions (compared with average cost of $16,600 for annual treatment of Avonex therapy) is now the subject of debate.

"These new cases are likely to alarm physicians whose comfort with the product had been increasing in recent months," said Sanford Bernstein analyst Geoffrey Porges.

Of growing concern, too, is talk that the risk of PML increases with the length of time a patient is on the drug. Hence, the debate on whether a drug holiday should be mandatory with long-term (greater than one year) use of Tysabri. If the labeling is changed to reflect that conclusion, the impact on near-term financial result, in my opinion, could be devastating. At September 30, about 13,400 patients receiving monthly Tysabri infusions (or approximately 29 percent of all patients taking the drug) had been on therapy for more than two years, according to COO Hamm.

Whatever the EMEA or FDA outcome regarding Tysabri, however, Biogen Idec will survive: the company ended the quarter with approximately $2.8 billion in cash and marketable securities, no significant debt maturing ($477 million in senior notes) until 2013, and a robust product pipeline, with more than 20 products in Phase 2 clinical trials and beyond (ranging from rheumatoid arthritis to cancer), including several potential additions to its MS franchise in Phase 3 trials (of interest, one lucrative drug in later-stage of development is the holy grail of MS therapy -- an oral formulation, fampridine-SR).