2023-04-06 11:51:32 ET
Summary
- Ionis and Biogen have been partnering on antisense drug development for a decade.
- The two companies won approval for $1.8bn (in 2022) Spinraza, indicated for Spinal Muscular Atrophy.
- Tofersen, indicated for ALS, is not expected to generate peak revenues much higher than $300m.
- Nevertheless, Ionis and Biogen also have Alzheimer's, Parkinson's, and another ALS drug in their dual development pipeline.
- I argue that Tofersen's approval - which seems likely - could kick off a fruitful period for both companies - if both hit their approval targets their stock ought to be capable of significant growth.
Investment Overview
Ionis Pharmaceuticals ( IONS ) and Biogen ( BIIB ) have been collaboration partners since 2012. According to a statement in Ionis' 2022 10K submission:
We and Biogen are currently developing numerous investigational medicines to treat neurodegenerative diseases under our collaborations, including medicines in development to treat people with ALS, SMA, AS, Alzheimer’s disease and Parkinson’s disease.
In addition to these medicines, our collaborations with Biogen include a substantial pipeline that addresses a broad range of neurological diseases. From inception through December 31, 2022, we have generated more than $3.5 billion in payments from our Biogen collaborations.
The two companies have successfully commercialized SPINRAZA for treatment of patients with Spinal Muscular Atrophy ("SMA"), which earned $1.8bn of revenues for Biogen in 2022 - >20% of the pharma's total product revenues - and $242m of royalty revenues for Ionis - accounting for >40% of all revenues.
Over the past five years, Biogen's share price is up by less than 10%, and Ionis's down by more than 10%. Over the past year Biogen's share price has risen by 35%, however, while Ionis has more or less trodden water - its stock is down 5% overall. Neither company is a dividend payer.
Ionis' commercial revenues come from Spinraza royalties plus a smaller contribution from sales of its two other approved candidates TEGSEDI and WAYLIVRA, approved for Hereditary Transthyretin Amyloidosis-Polyneuropathy ("ATTRv-PN"), and genetically confirmed familial chylomicronemia syndrome ("FCS"), respectively.
The company also earns revenues from licensing deals, milestone payments from other drug development collaborations, and collaborative agreements, and these earnings can fluctuate significantly, for example in 2019 the company earned $490m via licensing deals for two of its candidates - Pelacarsen to Swiss pharma giant Novartis ( NVS ), and Vupanorsen to US-based Pfizer ( PFE ), bringing its total revenues for that year to >$1bn.
Times have been harder since, as Ionis has earned revenues of $729m, $811m, and $587m in 2020, 2021 and 2022, respectively, and reported net income in those three years of $(479.7m), $(28.6m) and $(270m). The company still has a healthy cash balance of ~$2bn, however, and management's long-term ambition is to wean the company off of collaborative revenues and become a free-standing, commercially profitable pharmaceutical company.
For its part, Biogen already is a commercially successful company that drives exceptional profitability, but patent expiries of some of its key products within its multiple sclerosis ("MS") therapy franchise, such as Tecfidera and Fumarate and monoclonal antibody Rituxan - indicated for blood cancers and arthritis and marketed by Roche (RHHBY) with Biogen receiving royalties - has seen the company's revenues decline substantially over the past few years.
On April 25 Biogen and Ionis are set to find out whether the US Food and Drug Administration ("FDA") will approve their therapy Tofersen to treat patients with superoxide dismutase 1 amyotrophic lateral sclerosis, or SOD1-ALS. The drug has endured a difficult time in the clinic, failing a Phase 3 study, and it's not thought to have a peak sales potential of >$300m, however the FDA's decision could have far-reaching implications for both Ionis and Biogen.
In the remainder of this post I will provide some context around the approval decision and how it could help kickstart a more promising period in the market for Ionis and Biogen - two companies trying to provide shareholder value whilst developing drugs in some of the most challenging classes, CNS and gene therapies respectively, that are targeting some of the hardest to treat patient populations.
Tofersen - Development To Date
The reason that Tofersen's peak expectations are low is because - as Biogen's Interim Head of Research and Development Priya Singhal explained on the company's Q422 earnings call:
ALS is a devastating progressive neurodegenerative disease. SOD1-ALS is an ultra-rare genetic form that affects approximately 330 individuals in the U.S.
She went on discuss the apparently expected approval schedule for Tofersen as follows:
While the VALOR Phase III study of tofersen in SOD1-ALS did not hit the primary endpoint, we have published our 12-month data from both VALOR and its open-label extension in the New England Journal of Medicine last year.
In these results, we observed a sustained reduction in neurofilament, which is a marker of axonal injury and neurodegeneration in individuals who initiated to person earlier. We also observed a slower decline in measures of clinical and respiratory function as well as strength and quality of life.
With the PDUFA action date of April 25, 2023, Biogen has the potential to deliver rapidly targeted therapy to people suffering from SOD1-ALS. FDA recently announced the March 22, 2023, date for the advisory community meeting for tofersen. EMA has accepted the marketing authorization application for tofersen for review in the European Union.
With just a few weeks to go until the PDUFA date the Advisory Committee has already met - according to an Ionis press release :
On the question, "Is the available evidence sufficient to conclude that a reduction in plasma neurofilament light chain ("NFL") concentration in tofersen-treated patients is reasonably likely to predict clinical benefit of tofersen for treatment of patients with SOD1-ALS?", the committee voted unanimously yes (9 yes to 0 no) for consideration of a potential accelerated approval.
On the second question, "Does the clinical data from the placebo-controlled study and available long-term extension study results, with additional supporting results from the effects on relevant biomarkers (i.e., changes in plasma NfL concentration and/or reductions in SOD1), provide substantial evidence of the effectiveness of tofersen in the treatment of patients with SOD1-ALS?", the committee voted 3 (yes), 5 (no) and 1 (abstain) for consideration of a potential traditional approval.
That's a clear win for Biogen on the biomarker front but not so much on the efficacy front. The evidence that Tofersen works is summarized by Ionis in its 10K submission as:
The tofersen NDA and MAA included results from a Phase 1 study in healthy volunteers, a Phase 1/2 study evaluating ascending dose levels, the Phase 3 VALOR study, and the Phase 3 OLE study, as well as 12-month integrated results from VALOR and the Phase 3 OLE study.
The 12-month integrated data show that earlier initiation of tofersen, compared to delayed initiation, slowed declines in clinical function, respiratory function, muscle strength and quality of life and build on the results previously observed in the initial readout.
The 12-month data compare patients with early initiation of tofersen (at the start of VALOR) to those who had a delayed initiation of tofersen (six months later, in the OLE).
Ionis also states that "early survival data suggest a lower risk of death or permanent ventilation ("PV") and death with earlier initiation of tofersen, " and adds that in its latest 12-month results:
Tofersen reduced total cerebrospinal fluid, or CSF, SOD1 protein and plasma neurofilament levels in both early- and delayed-start groups as follows:
33% and 21% reduction in SOD1 protein, the intended target for tofersen, respectively
51% and 41% reduction in plasma neurofilament, a marker of neuron injury, respectively
Tofersen had a favorable safety and tolerability profile supportive of continued development
Tofersen Approval - Immaterial To Top Line But Significant Nonetheless
As we know, Tofersen missed its primary endpoint in the Phase III VALOR trial, which was statistically significant change from baseline to week 28 in the Revised Amyotrophic Lateral Sclerosis Functional Rating Scale (ALSFRS-R).
As numerous analysts and market commentators have pointed out, however, Biogen does not necessarily let a Phase 3 failure stand in the way of eventual FDA approval. The company's controversial Alzheimer's drug Aduhelm was approved by the FDA despite 2 Phase 3 studies being halted after a futility analysis concluded the trials would not be successful, and despite an FDA AdComm voting against approval.
Biogen will pursue the same path of Accelerated Approval for Tofersen, arguing that the biomarker data from the VALOR study were encouraging enough to be used as a surrogate endpoint for approval. We know the AdComm agrees that Tofersen reduces plasma NFL and that plasma NFL is a biomarker for clinical benefit in ALS patients, so Tofersen on that basis seems likely to win approval.
Financially speaking, the commercialization of Tofersen will have a negative impact on the top line revenues of both Biogen and Ionis, and both companies have much more lucrative near-term opportunities.
In Biogen's case, together with partner Eisai, it has won accelerated approval for a second Alzheimer's drug, Leqembi, which has a similar mechanism of action to Aduhelm (removal of amyloid beta plaque) but returned some positive data from its pivotal trial, generating a 27% improvement vs. placebo in its primary endpoint measure of Clinical Dementia Rating-Sum of Boxes.
Leqembi has been forecast by some analysts to be a double-digit billion selling asset eventually, while others have forecast revenues of ~$3bn by 2028, and Eisai itself is aiming for ~$7.5bn of revenues by 2030. Biogen's share of revenues from Leqembi is 50%, meaning that the drug is likely to be responsible for nearly one quarter of Biogen's total revenues by 2030, based on product and pipeline revenue forecasting I originally compiled last year, but have updated to include FY22 figures.
As shown above, my forecasts are based on Biogen successfully commercializing another 14 or so products by 2030, within its Depression, Biosimilars and "New Market opportunities" divisions, and this based loosely around management's discussion of its own future product launches and sales revenues discussed in a previous post.
Using a discounted cash flow analysis I established a price target for Biogen stock of ~$250, a figure which has already been surpassed - and a price target of $363 using EBITDA multiple analysis, for an average target of $306. The previous model only forecast for $1.5bn of Leqembi revenues by 2030, however, and with this updated model I have used a figure of $3.75bn, and that has lifted my overall price target further for Biogen, to ~$320 per share.
Although these should be considered ballpark figures and assumptions only, the outlook for Biogen, provided it can protect its MS division from too much generic competition, make a success out of Leqembi and its depression franchise, augment its biosimilars division and succeed with it new market opportunities - is broadly positive.
There are a lot of "ifs and buts" here but also some conservatism built into these projections - central nervous system diseases are hard to treat but those drugs that are successful can often win label expansions, e.g. in the case of Sage Therapeutics ( SAGE ) partnered Zuralonone, from postpartum depression into major depressive disorder, a significantly larger market.
Turning to Ionis, the company is pinning its success on a handful of new product launches, be they partnered with Biogen, Novartis, or GSK, or proprietary.
Ionis believes that Eplontersen can "change the standard of care for patients with TTR amyloidosis ," and rates the drug as a multi-billion dollar peak seller and has already submitted its NDA to the FDA, based on a Phase 3 study which showed that, according to Ionis' 2022 10K :
Eplontersen achieved an 81.2% (p<0.0001) mean reduction in the co-primary endpoint of serum TTR concentration compared to baseline, demonstrating reduced TTR protein production. Eplontersen also demonstrated a significant treatment effect on the co-primary endpoint of modified Neuropathy Impairment Score +7, or mNIS+7, a measure of neuropathic disease progression, with a statistically significant difference in mean change from baseline versus the external placebo group (p<0.0001).
Ionis believes it can extract blockbuster (>$1bn per annum) revenues from Olezarsen in Familial chylomicronemia syndrome ("FCS") and severe hypertriglyceridemia ("SHTG") and Phase 3 data from studies targeting these patient populations will arrive in 2023 and 2024, respectively. Donidalorsen is Ionis' tilt at the hereditary angioedema market, and Phase 3 data is expected next year - if approved, peak sales could rise to ~$500m per annum, Ionis believes.
The above slide shows how Ionis believes it can grow annual revenues by winning as many as 15 approvals for seven different drugs before the end of the decade, and should Ionis be successful, it doesn't seem unreasonable to expect peak sales of ~$2bn for Eplontersen, ~$1bn for Olexarsen, ~$500m for Donidalorsen, and let's say an additional ~$500m from its partnered assets royalties.
$4bn of peak sales potential by 2030 is an attractive thought when we consider that Ionis' market cap today is just $5.2bn. If we use a pharmaceutical rule of thumb that a commercial stage pharma should trade at ~5x revenues, arguably, Ionis deserves a >$20bn valuation. Even if we discount that by 50% owing to risks of trial failures and the time value of money, we are still looking at a double-digit billion market cap and a triple-digit upside opportunity.
How Tofersen Approval Can Kick Start A Bull Run for Ionis and Biogen
As mentioned above, both Ionis, developing its antisense oligonucleotide technology, and Biogen, targeting some of the hardest to treat neurodegenerative disease - have faced and will continue to face some extremely tough challenges to prove their drugs work, that they ought to be approved, and then establishing a presence in its target markets and meeting peak revenue expectations.
Tofersen may not be the drug that either company sees as a major breadwinner going forward, but both would see an approval as a very useful validation of their technology and approach that perhaps makes agencies in the US and Europe more receptive to future approval shots.
For example, Biogen and Ionis are collaborating on an Alzheimer's therapy, IONIS-MAPT, and according to Ionis:
In December 2022, Biogen initiated a Phase 2 clinical study of IONIS-MAPT Rx in patients with mild cognitive impairment or mild dementia due to AD. The study is a randomized, double-blinded, placebo-controlled, dose-escalation study in approximately 735 patients designed to assess the efficacy, safety and tolerability of IONIS-MAPT Rx administered intrathecally. The primary endpoint is the change from baseline to week 76 on the Clinical Dementia Rating scale Sum of Boxes, or CDR-SB.
Biogen and Ionis are also working together on a Parkinson's Disease drug, ION859, with an 80-patients Phase 2 study underway, and a Multiple System Atrophy therapy, ION464, at the Phase 1/2 stage, and a second ALS therapy, ION541, and a therapy for Angelman Syndrome ("AS").
As such, if the Biogen / Ionis developed Tofersen wins approval at the end of the month, it may give a lift to the entire 10-year, $1bn+ collaboration between the two companies.
This is a partnership that already has launched a blockbuster drug - Spinraza, and even if Tofersen is an unlikely blockbuster (although the Open Label extension study may enable the drug to expand its label into a pre-symptomatic patient population), the next several therapies within the partnership target much larger markets.
Conclusion - Tofersen Approval May Not Be A Major Upside Catalyst Per Se, But It Could Be A Good Omen
Analysts believe Tofersen has a strong chance of approval when its PDUFA date arrives April 25, despite missing Phase 3 endpoints and despite some serious neurological adverse events experienced by patients in the Tofersen cohort but not in the placebo arm.
Biogen's reputation for gaining approval for drugs that apparently present questionable safety and efficacy profiles is not undeserved, while Ionis has struggled to develop antisense therapies that work or address larger patient populations due to fragile nature of RNA and the difficulty of delivering it inside target cells.
The Tofersen approval decision will certainly have a whiff of controversy to it, whatever the FDA decides to do, but in my view if an Accelerated Approval is granted it could prove a win of major long-term significance to both Biogen and Ionis.
An approval will help cement a partnership that has multiple other therapies entering late-stage studies, and provide a validation of the work being done on these antisense therapeutics which could have far reaching implications - gene therapies may be challenging to develop, but their ability to deliver a "one and done," permanent or "functional cure" for disease means they will always demand attention and may one day deliver billions in revenues for their developers.
Meanwhile, Biogen will hope that Leqembi succeeds where Aduhelm could not, in the commercial market, potentially more than offsetting losses within its MS division, and Ionis will hope to secure several more approvals for potential blockbuster assets this year and next.
Given all of the above, I make this an intriguing period in the development of both Biogen and Ionis, with Tofersen serving as a useful bellwether for how each company may perform in the next 2-3 years.
If the FDA approves Tofersen at the end of this month, it may hint at the fact these two companies are finally beginning to click into gear, and that the bullish price and market valuation forecasts I mapped out above may be achievable.
For further details see:
Ionis And Biogen: Tofersen PDUFA Looms - Positive Outcome May Kick Off Bull Run For Both Stocks