Category Archives: S1P

Biogen Idec, multiple sclerosis, and the anti-Lingo story

It’s AAN conference week, and we were looking around, trying to get caught up on multiple sclerosis after a few months dedicated to oncology. We stumbled across this analyst report, and just had to comment.

Credit Suisse (CS) recently released a deep-dive report on Biogen Idec’s (Nasdaq: BIIB) anti-Lingo antibody program, assigning between $5-10BB (billion) USD of the total relapsing/remitting Multiple Sclerosis (rrMS) market share to the program by 2020. The program is currently in Phase 2. This analysis, in part, supports CS’s current price target for BIIB stock at $400, leveraging presumed growth due to the view on continued success of the anti-Lingo program. In other words, positive news on this program will help support inflated multiples through 2018, when pivotal trials may actually read out. The analysis seems ill considered, misses key aspects of BIIB corporate strategy, and places undo pressure on an early Phase 2 program. Further, intense focus on the anti-Lingo antibody program in turn places pressure on two early phase clinical trials, one due to read out in 2H14. The implication is that the base case for the price target could be undermined if the very early clinical development of the anti-Lingo program falters. That’s an unfair burden for a single high-risk program to bear.

Let’s dive in. Our focus will be on the science, but we’ll first set the stage. Our driving goal when looking at any biotech company or program is to bet the science, not the hype.

Two years ago the company set an internal goal of “400 in 5″, essentially promising to drive EPS in support of a sustained stock price of $400 USD by 2017. They came close during the biotech bubble that burst earlier this year. The stock is holding its’ own at around $320 USD. The “400 in 5″ goal is in place irrespective of the success or failure of the anti-Lingo program, which cannot read out pivotal clinical trials until at least mid-2018. With that in mind we can deconstruct the CS analysis, and create our own. Importantly, our analysis drastically de-risks the impact of the anti-Lingo program on the trajectory of BIIB growth, while leaving room for very attractive upside if this program hits.

The CS analysis correctly estimates that oral MS drugs will take over an increasing % of market share running from 2014 through 2020. No argument there, and BIIB will take the bulk of this market with Tecfidera, per multiple analysts. But CS believes that the “pipeline focus” is on the anti-Lingo antibody program to will help drive the stock price as the program matures. A few comments:

1) Analyst and/or investor focus on the anti-Lingo program is a sign of pipeline weakness, not strength. Where, one might ask, is the rest of the pipeline?

2) The program is very high-risk (and thus high return) for multiple reasons beyond the inherent weakness of being in Phase 2.

3) Management recognizes the oversized risk of the program, and will not tether stock performance to this program, instead they will act to de-risk the pipeline and performance.

Let’s look at these points one by one. First, the portfolio and pipeline. We agree that top-line growth will continue to be robust, driven by Tecfidera in the expanding orals segment of the market. We believe that the Daclizumab program is likely to succeed (the data being shown at AAN this week is very good) but it seems likely that this drug will compete for the declining injectable biologics market share with Tysabri. Maybe not, if it is successfully positioned for JC virus antibody positive patients, and can hold off the orals. Ocrelizumab may successfully evolve into the successor for Rituxan, an anti-CD20 antibody pulled from the MS market by Genentech/Roche because of exposure to generics competition. STX-100, an excellent program for fibrosis, is emerging into a rapidly evolving IPF treatment landscape (pirfenidone, nintedanib), and we’ll see if the company can eventually steer this drug into other indications, such as systemic sclerosis. The hemophilia biologics Eloctate and Alprolix are approved and launch-ready, with a consensus view that these will pull in 500MM over the first full year of sales, rising to 1BB by 2018. That’s already baked into the current forecasts.  The rest of the programs are as high risk as the anti-Lingo program, so let’s be conservative and assume half or more of these programs eventually fail. Point #2 is that the anti-Lingo program is high risk and can fail for a variety of reasons. At least three can be articulated. First, the therapeutic hypothesis, that axonal regeneration can be induced by a therapeutic in the setting of MS, has never been demonstrated. So there is an inherent biology risk. Second, the preclinical data package supports the hypothesis that blocking Lingo will improve myelin sheath regeneration and axonal function after insult or injury. However the preclinical package using MS animal models is very weak. Finally, the technical hypothesis, that sufficient quantity of antibody can be delivered across the blood-brain barrier in a robust and reproducible manner, patient to patient, has not been demonstrated. So there is an inherent technical risk. It’s also critical to note that the optic neuritis trial, the first Phase 2 to read out, perhaps addresses the therapeutic hypothesis (we could debate this, but won’t) but simply fails to address the technical hypothesis. Focusing investor attention on a Phase 2 readout in optic neuritis as a surrogate for efficacy in MS is a shell game that will go bad quickly if that Phase 2 trials comes in with negative results.

So we agree with CS that anti-Lingo antibody might work in rrMS, and it might not. We disagree that this program should be the focus of interest in the pipeline. We disagree outright with a few of their more outlandish predictions, including the statement that anti-Lingo “has potential in SPMS” the progressive and untreated form of the disease. There is no support for this statement. And while we agree that anti-Lingo is likely to be used in combination with other BIIB MS drugs, trials supporting such use are a very long way away. There is no basis to evaluate such a statement at this time. Finally, instead of concluding that pipeline focus on the anti-Lingo program is a positive, as CS does, we see this as a sign of a fundamentally weak BIIB pipeline.

Should we be surprised? Let’s consider that BIIB has not successfully developed a novel internal program since Avonex and Amevive, well over 15 years ago (yes there is Peligry, but that’s just pegylated-interferon, still, they did develop it). What else? Rituxan came from Idec. Tysabri came from Elan. Tecfidera came from Fumapharm. Daclizumab came from PDL Biopharma/Abbvie. Ocrelizumab came from Genentech/Roche. Long acting Factors XIII and XI came from Syntonix Pharmaceuticals. STX-100 is a BIIB moelcule but had to leave for 5 years in order to be successfully developed by Stromedix. In the meantime the Immunology Department has produced no drugs since it’s inception in the mid-80s, well over 20 years ago. The oncology experiment (BIIB San Diego) produced no drugs. The BIIB hemophilia group will produce no new drugs (more on this below). The medicinal chemistry effort has produced no drugs (although we think they will). The BIIB neurology research group has produced no drugs outside of the interferon space, although they are getting closer (anti-Lingo, BIIB037). So why is this company even competitive, indeed dominant, in MS?

The answer is simple and compelling. BIIB excels in the development of in-licensed, clinical stage MS programs. Look at what they’ve brought in and then brought to registration: Tysabri is the single best MS drug available (nothing else is even close); Tecfidera is the single best oral MS drug, and again it’s not even close; Daclizumab will present an extraordinary efficacy/safety profile, and so on. Let’s also consider that while BIIB was accumulating and developing these assets, their competition was developing cladribine, alemtuzumab (campath), lemtrada, aubagio and other hideous potions. Even Novartis came razor close to missing with Gilenya, a nicely efficacious drug that has a challenging toxicity history

Perhaps anti-Lingo antibody will join the BIIB parade of success in MS, but company management is not counting on it. When management set a goal of “400 in 5″ in 2012, they meant it, which means they cannot wait for anti-Lingo or any other early Phase 2 program to mature. This is our final point from above, that management will de-risk the pipeline. This means they have 2 choices, and they have been excellent at executing on either or both of these choices:

1) Buy a late clinical stage MS asset/company.

2) Cut costs in order to manage EPS aggressively.

A third possible outcome of course is that they will do both. A very interesting question is: what attractive MS asset/company could BIIB buy? There are some very compelling answers, and maybe we’ll share these, but not today. A less interesting question, because the answer is so obvious, is where to cut. Let’s go back to those hemophilia drugs, brought in on a wave of enthusiasm for the much broader hematology space. What happened? When costs needed to be trimmed a “strategic review” quickly revealed that hematology was not so attractive after all. So the hemophilia R&D group was slashed, and only the clinical programs retained. Note further that those Factor XIII and Factor XI drugs are utlilizing very valuable and expensive bio-manufacturing capacity for the company. What might happen here? BIIB could sell the programs for 10-20x annual sales to Bayer or Novo Nordisk and keep the manufacturing rights for 5 years or more. We’re just guessing, but we also think it’s a very good bet.

The other obvious target is the Immunology group. A possible hint here is that a new department has been formed, carrying the name Remodeling and Repair or something similar. The department is built around the very interesting Phase 2 fibrosis program STX-100, mentioned above. A simple decision would be to move the few Immunology clinical assets (the anti-TWEAK and anti-CD40L antibodies) under this new department, and jettison the Immunology Research efforts. Such a move would mimic what was done in the hematology space, and would further move the company further away from basic Research, which historically has failed to move therapeutics forward, and further toward Development: in-licensing, clinical execution, regulatory execution and bio-manufacturing, the company’s true core competencies.

Will BIIB do any of these things? We have no idea. But we have watched this company for a long time, and if top-line results fail to drive EPS to the goals promised, the company will act decisively to control the bottom line. Personally, we expect to see an acquisition in short order, rather than further cuts. Just to reinforce what we said at the beginning: the proposed corporate strategy fundamentally de-risks the impact on the anti-Lingo program on the company fortunes, leaving intact the potential for a large upside if that program performs well in the clinic.

disclosures: PDR was a senior member of BIIB’s Immunology department for a long time, and retains both positive and negative biases. PDR is also long BIIB stock.

stay tuned

Inflammation, autoimmunity & oncology drug development questions for 2014: Multiple Sclerosis

In thinking where Multiple Sclerosis (MS) treatment is heading, and what critical question to ask, it bears quickly reviewing advances made in the past year. I’ll be brief however, as this subject has been extensively covered. 2013 saw the approval of multiple new therapies for relapsing and remitting MS (rrMS), the common form of this disease. BG-12 was approved under the name Tecfidera in March in the US, and more recently in the EU. This is an oral drug from Biogen Idec with a decent efficacy profile and tolerable side effects. This drug is widely seen as having blockbuster potential (greater than 1BB in annual sales) and has been taking market share from Novartis’ Gilenya, an oral drug approved in 2010 and having similar efficacy as Tecfidera but a more difficult toxicity profile. Tecfidera may also be taking patients who would otherwise go onto Tysabri, Biogen’s flagship MS therapy and considered to be the most efficacious MS drug. Tysabri also has toxicity issues that complicate its use, especially for longer than 2 years. Since both Tecfidera and Tysabri are part of Biogen’s portfolio this is seen as a net positive (thinking of investors here who, like myself, are BIIB long).

Sanofi won approval in the EU and (eventually) the UK for its reformulated version of terifluonimide, the active metabolite of leflunomide, an old immunosuppressive drug developed for RA among other indications. The drug was approved under the name Aubagio in the US in 2012. It is hard to guess where this drug will end up in the MS medicine chest. Early estimates had Aubagio hitting 500MM-700MM USD a year in worldwide sales by 2015-2016. Currently Aubagio is running at about 120MM Euros for 2013 (165MM USD) and its prescription trajectory was impacted by the Tecfidera launch (much like Gilenya). On the other hand this is a once a day oral with a pretty clean toxicity profile and a positive impact on relapse rate, so it may be a good choice for relatively mild MS patients who are coming off of a beta-interferon therapy or off Copaxone and need something more potent. At the moment Aubagio trails the other oral MS drugs.

Sanofi’s more potent rrMS therapy hit a wall in the US just a few days ago. Lemtrada was rejected by the FDA, shutting this drug out of the US market for now. Lemtrada was approved in the EU earlier in 2013. This is yet another old drug, the anti-CD52 mAb once known as Campath or alemtuzumab. Sanofi/Genzyme pulled this drug from the lymphoma market, anticipating more value in MS. This appears to have been a poor bet but Sanofi had smartly hedged this bet when it acquired Genzyme, by creating warrants whose value was tied to Lemtrada approval and sales milestones. Those warrants have dropped in value form $24 to under $1 at last check.

I admit to some ignorance as to why this drug hit such a snag with the FDA. I’ve been told that the doses used for MS therapy are much lower than those that had been used to treat lymphoma, and the side effect profile was tolerable. On the other hand the FDA briefing documents used language regarding safety that was very negative, similar to what we heard a few years ago regarding cladrabine, an oral drug from EMD Serono with truly nasty toxicity. There were also questions regarding the design of Aubagio’s Phase 3 trials, which clouded the efficacy claims.

For much more on these drugs please see my earlier post on MS orals (here).

So where are we now? The array of drugs available to neurologists to treat MS is remarkable and the arrival of Tecfidera may provide long-term protection for many patients. The trio of Tecfidera, Gilenya and Aubagio means that there are real choices for patients who can benefit from oral therapy. Finally, more severe patients can turn to Tysabri for even greater efficacy, assuming that the toxicity is managed, particularly in regards to PML, a demyelinating disease caused by JC virus infection in the CNS. Biogen has done a good job of risk mitigation for PML. I predicted some time ago that we would see PML associated with the use of Gilenya as well (here) and to date have happily been proven wrong.

Ok, questions for 2014:

  1. Will novel pathogenic pathways underlying rrMS be discovered and will these yield useful therapeutic targets? Large scale GWAS and epigenetic analyses of MS have been published recently and it will be interesting to see if new therapeutic approaches will emerge from these data.
  2. What will the next generation of S1P antagonists yield? Gilenya is in this class but acts promiscuously on S1P receptors. Will more specific S1P antagonists bring equivalent efficacy with less toxicity? This is a very active area and we will begin to see advanced clinical development soon. BAF312 (siponimod, Novartis) and ONO-4641 (ONO Pharma) are in late Phase 2. These are S1P selective modulators and showed benefit in Phase 2. These drugs still cause cardiovascular abnormalities however.
  3. What will the next generation of NRF2 modulators yield? Tecfidera acts in part as an NRF2 agonist, eliciting potent anti-oxidative and anti-inflammatory effects. Can a specific NRF2 agonist provide next generation drugs for rrMS? I’ll note in passing that antagonism of the NRF2 regulatory protein Keap1 is also an attractive drug development option.
  4. Drugs available to date provide benefit primarily by preventing lesion growth, new lesion formation (aka relapse) or both. Will we see drugs developed that promote the repair of damaged tissue, more specifically, promote remyelination of nerve axons before they are completely destroyed? We are beginning to see a real focus on repair mechanisms, and a therapeutic that could stop disease and promote repair would be transformative.
  5. Finally, what about progressive MS? As far as I know, no tested drug has improved outcomes in progressive MS (please correct me if I’m wrong here). In progressive MS there are no remissions and relapses, its just chronic progressive destruction of the CNS. Lemtrada had been touted as one drug that might help here (however, without clinical evidence), will there be others? Notably, siponimod is listed on clintrials.gov as recruiting for Phase 3 in secondary progressive MS (SPMS), and ONO-4641 is listed as recruiting for Phase 3 in both rrMS and SPMS.

MS is a disease whose treatment has drastically changed patient’s lives in the past 20 years. I was at Biogen in 1996 when Avonex was approved, and treatment options at that time were ineffective and did not prevent disease relapse. Avonex and other beta-interferons marked the beginning of a radical transformation in the treatment of MS. We’ve come a very long way in 20 years. I think we still have a long way to go.