When it comes to the business of neurologic drug discovery and development, investors seek inspiration in results — which history has shown to be a tall task. For example, this past July, researchers at the Cleveland Clinic Lou Ruvo Center for Brain Health concluded that of the 244 drugs tested for Alzheimer’s disease (AD) from 2002-2012, only one was a success. This rather sobering statistic doesn’t scare the oldest independent biotechnology company in the world, Biogen Idec (NASDAQ: BIIB), from taking on neurological monsters like AD, or even amyotrophic lateral sclerosis (ALS) or Parkinson’s disease.
It's our view,” says Biogen Idec’s EVP of R&D, Doug Williams, Ph.D., “the science is starting to reach a tipping point in the area of neurodegenerative diseases.” Williams shared with me how the company intends to combine the scientific skills honed in delivering drugs for multiple sclerosis (MS) with the basic principles of prosperous investing (e.g., diversification, risk mitigation) — Biogen Idec’s strategy for success in neurology R&D.
IT ALL STARTS WITH PLAYING TO YOUR STRENGTHS
One of the key tenets to evaluating investment opportunities is to seek companies that play to their strengths. Biogen Idec’s unquestionable sweet spot lies in developing drugs for MS. “If you look at our current products of Avonex, Tysabri, Tecfidera, and Plegridy, they are all focused on relapsing forms of MS,” says Williams. “I think that's really the core strength of our R&D organization.” Of this there is no doubt.
Combined 2013 revenues of Avonex, Tysabri, and Tecfidera equaled $5.4 billion worldwide. That represents nearly a 39 percent share of the global MS market. But Biogen Idec’s dominance in the United States is even more striking. At the close of 2013, the company held a remarkable 42 percent share of the 400,000 Americans who suffer from MS. And you can expect these market share numbers to increase. Here’s why. For starters, because Tecfidera received FDA approval March 27, 2013, it contributed only three quarters of its potential sales revenue for the year. Its combination of efficacy, relative safety, and the convenience of being an oral pill netted the company over $1.2 billion for the first half of 2014, solidifying Tecfidera as Biogen Idec’s third MS blockbuster. Add to this the Aug. 15, 2014 FDA approval of Plegridy (Biogen Idec’s new interferon therapy given once every two weeks), which analysts anticipate achieving blockbuster status, and the fact that more than half of the world’s MS patients reside in Europe, an area where Tecfidera has only recently begun launching, and it is easy to discern Biogen Idec is definitely playing to its strength in MS R&D. “As I think about the way we've divided up the $1.5 billion we roughly spend on R&D every year — which should go up as our revenues increase — probably 70 percent of it is focused on neurology R&D,” Williams shares. “Roughly two-thirds of that is probably MS.” He adds that this high percentage of resources allocated to MS is a reflection of the company executing a lot of late-stage studies. “Those are the expensive ones to carry out,” he reminds.
Biogen Idec plans to build upon its strengths by extending its MS franchise. “We’re moving into therapies that do more than just slow down the progression of the disease; we’re trying to develop drugs that can reverse some of the damage by remylinating the CNS,” Williams shares. For example, Anti-LINGO-1 is Biogen Idec’s investigational monoclonal antibody currently in Phase 2 clinical development. It targets LINGO-1, a protein expressed selectively in the CNS known to negatively regulate axonal myelination and axonal regeneration. “We're also moving into secondary progressive multiple sclerosis [SPMS], which is a slightly different form of MS.” Although Tysabri is already approved for relapsing forms of MS, the company is involved in a Phase 3 clinical trial for SPMS, anticipating results sometime in 2015. The other area where Biogen Idec intends to build upon its strength is what Williams refers to as the concept of logical adjacencies, starting with MS.
APPLYING THE BASIC PRINCIPLES OF SUCCESSFUL INVESTING TO R&D
Biogen Idec seems to be following the old adage of “Invest in what you know” when it comes to R&D — much to the delight of analysts and shareholders. (The company is forecasting 38 to 41 percent sales growth for 2014 and non-GAAP EPS of around $13 as of its second quarter earnings call.) Unlike investors, who seek broad diversification into nonhighly correlated assets in order to reduce risk (i.e., fast food, technology, pharmaceutical companies, manufacturing, etc.), Biogen Idec is looking to diversify its R&D portfolio by expanding into highly correlated opportunities — the logical adjacencies to which Williams refers. This is a risk-reducing behavior as the company is building upon its R&D expertise in diseases which manifest themselves similarly. “We're not moving into the area of neuropsychiatric diseases at the moment,” he asserts. “We don't feel like that's really our sweet spot. Our belief is the maturity of the science is best in the areas of neurodegeneration, for example AD, Parkinson's disease, and ALS.” Makes sense, right? To be sure, all of the diseases Williams mentions represent a huge unmet medical need. But the statistics don’t lie. Most companies have tried and failed when it comes to developing drugs for AD. The most commonly prescribed treatment for Parkinson’s, levodopa (also called L-dopa), is a 45-yearold medication. When it comes to ALS, no currently available treatment halts or even slows its progression. My question to Biogen Idec’s head of R&D was, “Imagine I am a shareholder. Convince me why this is a good idea and how you are going to do it.” He replied, “This is just one aspect of a balanced portfolio of spending across R&D.”
Just as investors seek to have a balanced investment portfolio, Biogen Idec is seeking to have a diverse portfolio of products in its pipeline by investing not just in what they know, but what they know works. For example, this past March the FDA approved the company’s hemophilia B drug, Alprolix, and in June, Biogen Idec was granted FDA approval of its hemophilia A drug, Eloctate. While analysts don’t anticipate these to have the impact of Tecfidera, these two hemophilia drugs help diversify the company’s revenues away from MS and could eventually generate hundreds of millions in annual sales. “You could look at our hemophilia programs and see those are somewhat less risky in the sense that these drugs will address unmet medical needs, but the risk profile is different,” says Williams. “They're basically extending the half-life of the molecules, but we know the molecules themselves actually work.”
In addition to achieving balance and building on competencies, Williams also discussed the importance of learning from the failures of others. In particular, he explained why Alzheimer’s is number two in terms of relative R&D spend in the Biogen Idec neurology portfolio. “Yes, there have been a number of failures in Alzheimer’s,” he concedes referencing J&J’s Bapineuzumab and Lilly’s Solanezumab — both failing in Phase 3 studies. “But we've learned a lot from those failures. I think the current generation of studies we're conducting — and particularly those focused on the Beta-Amyloid (Aß) pathway, which is the dominant area of focus today for new Alzheimer's therapies, are much more intelligently designed as a result.” There is another advantage to taking the approach of being a fast follower (i.e., entered early but not first) into a market, as opposed to being a first mover (i.e., first to sell the product). Research has shown companies first to sell a product have nearly a 47 percent failure rate. Fast followers on the other hand, have only an 8 percent rate of failure. If you have a low tolerance for risk and limited resources, you would be wise to follow Biogen Idec’s example of studying the failures of others and then applying lessons learned before deciding to enter.
"The science is starting to reach a tipping point in the area of neurodegenerative diseases."
Doug Williams, Ph.D., EVP of R&D at Biogen Idec
A basic principle of investing is to be realistic about your tolerance for risk. “If you look at the way studies are being run now,” Williams states, “they're much more intelligently designed and have better end points. Furthermore, we're much more careful about the patients we’re enrolling.” He says Biogen Idec confirms patients actually have the target for their drug before being treated. The company decided to apply advanced imaging technologies to confirm patients being enrolled in Alzheimer’s studies were appropriate targets. “Everybody going into our studies is now imaged with an imaging reagent, Florbetapir (trade name Amyvid), which was approved for imaging Beta-Amyloid (Aß) in the brain,” he affirms. Good thing. As it turns out, imaging has revealed nearly 40 percent of the patients Biogen Idec has imaged with clinical signs and symptoms of AD don't actually have the Beta-Amyloid (Aß) target for their drug. “This has enriched our study populations by including only those who have the target.”
Another way to reduce risk in developing drugs for these neurological diseases is to partner and collaborate while also spearheading thought leadership. For example, in March, Biogen Idec announced a partnership to develop and commercialize two of Eisai’s clinical Alzheimer’s candidates, E2609 and BAN2401. As part of the partnership, Eisai has an option to jointly develop and commercialize two of Biogen Idec’s AD candidates, BIIB037 and an antitau monoclonal antibody. Regarding collaboration, Biogen Idec is participating in the Accelerating Medicines Partnership (AMP) — a venture among the NIH, 10 biopharmaceutical companies, and several nonprofit organizations. (For more about AMP check out the sidebar — R-AMP-ing Up Drug Discovery.) As for thought leadership, the company spearheaded the creation of the ALS Research Consortium long before the recent ALS Ice Bucket Challenge swept the globe. Ultimately, when it comes to investing in a drug R&D program, Williams would probably ascribe to focusing on and identifying diversification, balance, and risk. “We try to balance the portfolio across different diseases, different types of therapies, and different risk profiles.” Sounds like a pretty good R&D investment strategy to me.
R-AMP-ing Up Drug Discovery
In February the NIH announced the accelerating medicines partnership (AMP), a public-private partnership venture among the NIH, 10 biopharmaceutical companies, and several nonprofit organizations. Its goal is to increase the number of new diagnostics and therapies for patients, while reducing the time and cost of developing them. The $230 million AMP initiative will begin with three- to five-year pilot projects in three areas — Alzheimer’s disease (AD), type 2 diabetes, and autoimmune disorders of rheumatoid arthritis (RA) and systemic lupus erythematosus (lupus).
If you look at the list of companies involved, you will see a number of traditional Big Pharmas (e.g., J&J, Lilly, Merck, and Pfizer). But you will also see Biogen Idec. While securely in the top 50, the company is by far the smallest to get invited to the NIH AMP party. This doesn’t bother Biogen Idec’s EVP of R&D, Doug Williams, Ph.D., who shares how the company got asked to participate. “It was actually a direct contact from Francis Cuss [EVP and CSO], who runs R&D at Bristol-Meyers [Squibb] and called me to tell me about the program and see if we were interested in participating,” he divulges. But why was Biogen Idec selected? Williams believes it was partially because of the company’s visible interest in developing drugs for AD, but also a function of its demonstrated willingness to participate in public- private consortia (e.g., the ALS Research Consortium, spearheaded by Biogen Idec’s CSO, Spyro Artavanis-Tsakonas, Ph.D.).
Although Williams believes it was logical for Biogen Idec to be approached to participate in AMP, he felt it made even more sense for the company to get involved. “These diseases are bigger than any one company,” he says. “It's going to require a public-private partnership with a significant focus for us to succeed in the development of drugs in this space. We became interested in AMP because of our growing interest in Alzheimer's disease.” But the reason Biogen Idec decided to get involved is because “it [AMP] focused on two things important to us.” One is coming up with new biomarkers so researchers will know whether a drug is working earlier in the process, rather than having an expensive Phase 3 failure. “The second was the realization almost everyone who's in Alzheimer's disease today is focusing on the Beta-Amyloid (Aß) pathway,” he explains. “We need to move beyond this to find even better targets and broaden the approach to treating Alzheimer’s beyond just the Beta-Amyloid (Aß) hypothesis.” In addition, Williams believes the mechanisms that perpetuate and potentiate neurodegenerative syndromes may have commonalities. As such, there’s a possibility that a drug developed for something like Alzheimer’s could treat multiple neurodegenerative diseases.
According to Williams, there are plenty of considerations to take into account when becoming involved in public-private partnerships like AMP (e.g., how it’s structured, how intellectual property flows). His advice is not to let these types of potential roadblocks be reasons for not participating. “We’ve come to the conclusion that the real competition comes when you're developing the drug candidate, not when defining new pathways and targets.”
Taking The ALS Ice Bucket Plunge – Before It Was Cool To Do So.
Unless you have been living under a rock, you have most likely heard of the social media philanthropy craze – The Ice Bucket Challenge. When I began writing this article, the phenomenon had netted the ALS Association $41+ million in donations, a significant increase over the $2.1 million netted over the same period last year. Before I completed writing the article, donations surpassed the $100 million mark. However, you have to be impressed by people and companies which do the right thing before it is cool (no pun intended) to do so.
Back in 2012, Biogen Idec created the ALS Research Consortium. The brainchild of Spyro Artavanis-Tsakonas, Ph.D., the company’s chief scientific officer, the partnership brought together a group of handpicked investigators working on the various processes and pathways important in the pathogenesis of ALS. Each participating lab, which included researchers from Yale, Harvard, Columbia, and The Rockefeller University, was to undertake a three-year project. In addition, members would meet on a regular basis to provide updates and share information and insights emerging from their research. The initiative was an extension of a previous collaboration forged in July 2012, also championed by Biogen Idec, which brought together Duke University and the HudsonAlpha Institute for Biotechnology with an objective of sequencing the genomes of approximately 500 patients living with ALS within the first two years and ultimately, sequencing 1,000 ALS genomes within five years. While all of this sounds very impressive, what stunned me about Biogen Idec and Artavanis-Tsakonas, who is also a professor of cell biology at Harvard Medical School, is how the company was willing to go ahead with founding the ALS research consortium (announced Dec. 20, 2012) and commit more than $10 million over three years to fund research projects of its members, despite only two weeks later (Jan. 3, 2013) publicizing the Phase 3 failure of the only ALS compound in its pipeline, dexpramipexole — a candidate licensed from Knopp Biosciences for $80 million in up-front payments and up to $265 million in milestones. The founding of the ALS research consortium is another example of what makes for a prosperous investor, as well as a successful drug development researcher — not panicking during failures. Many people, when the price of a stock they own begins to drop, look to sell. However, this might be the best time to buy more. When it comes to creating thought leadership in drug R&D, don’t run from failures. Instead, seek to be more like Biogen Idec and invest in understanding why.