Biotechnology company Biogen (Nasdaq: BIIB), one of the largest and most intriguing companies in life sciences today, took a gamble several years ago by going against the trend and focusing on neurological and psychiatric diseases, even though these are considered a drug graveyard. The bulk of new drugs developed for diseases such as Alzheimer's Disease, stroke, Parkinson's Disease, and schizophrenia have been abject flops, despite the enormous investment in them. They are also a great opportunity, however, and Biogen decided to go for it. If it succeeds in even some of the enormous challenges it has taken on, it will make a huge difference in the world, and will of course profit greatly.
Brain and mental diseases exact huge public cost and the health system is starved of solutions. A study published in 2017 in the "Annals of Neurology" estimated the cost of neurological diseases in the US alone at $800 billion a year. Nine diseases account for most of this amount: Alzheimer's Disease and other dementia mistakenly diagnosed as Alzheimer's Disease, back pain (classified as a neurological disease because the problem is usually the pain, not the back itself), stroke, head injuries, migraine headaches, epilepsy, multiple sclerosis, spinal column injuries, and Parkinson's Disease.
As of now, it appears that the decision to buck the market trend by abandoning cancer and cardiological diseases and focusing on neurology and psychiatric diseases has paid off. Biogen's revenue from its leading products in these sectors totaled $3.12 billion in 2017 and the company posted a $5.2 billion profit. Biogen's leading products are Tysabri and Tecfidera for treatment of multiple sclerosis, in which Biogen of course competes with Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), and in 2017 the company launched another promising product, the only one currently in the market, for treatment of SMA, a rare children's disease. Revenue from the product totaled $884 million in the first year after launch.
Michel Vounatsos was appointed CEO of Biogen two years ago, replacing George Scangos, the company's legendary manager who set its strategic direction. Vounatsos himself has marked two new strategic directions: expansion of activity in neurology and psychiatry and geographic expansion. Since Vounatsos's appointment, Biogen has become more active in acquisitions.
In one of his first in-depth interviews anywhere, Vounatsos hints at another strategic direction: expanding activity in medical devices. "Up until now, Biogen has focused solely on drugs. When I was appointed 18 months ago, investors asked what the next thing for us would be and how we were going to diversify the company's products. My answer came six months later when I said that we would continue focusing on the brain because we were creating asymmetry of knowledge in this area. It was clear to every potential partner of every type - small companies, doctors, patients organizations - that we were the most prominent partner in the sector," Vounatsos says. "We expanded the number of areas within brain sciences in which we deal. Up until now, we have focused on multiple sclerosis, neuroimmunology, Alzheimer's Disease, and other dementia. The other four are now nerve pain, neurology of the rear part of the eye, stroke, and psychiatric diseases."
When Vounatsos became CEO, national attention in the US was focused on the issue of prices for drugs, the company's leading market. With this prevailing mood, Biogen launched Spinraza, its drug for treatment of SMA, a progressive disease that causes muscle weakness resulting from nerve degeneration. In the past, it was clear to drug companies that if they brought a product to market that generated a drastic change in a serious disease, especially if a rare disease was involved, they would be able to charge almost any price they wanted per patient. Today, public discourse has changed, but Biogen has managed to successfully launch a drug that is not cheap - actually, one of the most expensive in the world, costing $650,000-750,000 a year in the first year and $370,000 a year afterwards - in the hope that there will be many such drugs.
"The subject of price is interesting and is not new," Vounatsos says. "Sprinraza halts the development of the disease in some patients. How can you assess a change like this in money terms? In the end, however, there's no choice. Economics requires putting a price on it. We put a lot of thought into pricing the product and we added to the equation the saving for the health system in treating children after they become disabled at a young age, as well as the fact that the price enables us to invest in Alzheimer's Disease and in other rare diseases. We feel that it is our duty to invest a huge amount of capital in Alzheimer's Disease, Parkinson's Disease, and ALS."
In countries where it is difficult to pay such prices, Biogen has resorted to models of pricing for success. "We want to show these countries that we are part of the solution for health system costs, not part of the problem. I think that the market will continue to develop in this direction because the current model cannot continue to exist and provide a real answer for everyone. I'm confident that if we continue to innovate, the market will continue to reward us. This is true for Biogen and for the biotech and pharma industry. A lot has been said about innovation crisis in the pharma industry, which is investing more money for fewer results. I think that this crisis was an imaginary one; it was created because products were delayed for years by the FDA. In recent years there has been improvement in the innovation graph in comparison with budgets. The productivity of innovation is increasing." Vounatsos reveals another element of his strategy: making sure that the company remains simple in its organizational structure, and not too big. It will probably not make a huge acquisition in the near future. "We want to retain a biotech enterprise culture, not a big pharma culture. It's pretty amazing to see how fast companies can become cumbersome and slow," Vounatsos comments.
In Israel, Biogen has been represented for the past 22 years by Medison Pharma, its strategic partner in Israel. "I decided to communicate my appreciation and support for local representatives by visiting them, and it's a pleasure. We take into account that the US represents 50-55% of the orders and eight global markets constitute 90% of the industry. With the drug for SMA, for example, which has such a specific target, it may make economic sense to focus it on eight geographic regions," Vounatsos explains.
"Globes": What was your impression on your visit to Israel?
Vounatsos: "I'd heard a lot about Israel, but there's no doubt that, following my visit, my impression of the country has changed completely. The spirit of this community, the drive for innovation, is extraordinary. I've been traveling all over the world since I was born, and Israel is unusual in its spirit, world outlook, and appreciation for innovation, especially disruptive innovation that destabilizes the existing situation. The combination of an interesting theater of innovation and medicine that complies with all the Western rules is an even more extraordinary advantage. You have something very special here. You can be proud of yourselves."
If that is the case, then there is a chance of collaborative ventures.
"Our approach to innovation matches your approach, so we're definitely looking for partnerships with companies seeking a breakthrough in brain science." Biogene has already begun a strategic partnership with the Parkinson's Disease in the new innovation center at the Tel Aviv Sourasky Medical Center (Ichilov Hospital), managed by Prof. Nir Giladi and Prof. Avi Orr-Urtreger. Biogen invested in the Israel Biotech Fund (IBF), founded by general partners Prof. David Sidransky, Ido Zairi, and Dr. Yuval Cabilly, in which Medison is also an investor. "We want to be closer to the innovation centers in Israel. I very much enjoyed the ability of Israelis to analyze information; their capabilities in artificial intelligence are very exciting. At the same time, in the end, the advantage is in your world outlook - innovation with a real desire to help the consumer," Vounatsos says. "Treatment using medication and treatment using medical devices are being combined with each other, especially in neurology. This is a movement that no-one can stop. Up until now, we were more of a neuro-biological company than a neuro-technological company, but we want to expand," he declares. "Initially, we want to operate in brain imaging and advanced analysis of medical information, among other things for the sake of a better understanding of the genetics of brain development and brain activity. In these areas, I can see us bringing Israeli innovation to the entire world. No other company is better suited to do this."
In the past, did you feel that Biogen had a certain restriction in operating in Israel in multiple sclerosis because of Teva?
"I respect Teva. It's a good company that has had many challenges. We're all in this sphere for the same reason and there's enough need in the market for everyone. There are so many innovative capabilities in Israel besides Teva that there's no reason not to operate here."
The only current hope for Alzheimer's Disease
All eyes in the market are trained on Biogen's leading trial for treatment of Alzheimer's Disease. The company's Aducanumab drug is currently in Phase III clinical trials. In 2015, when the results of the company's first and smaller trial came in, it made a very big splash in the field. In February 2018, Biogen announced that it was expanding the trial following an assessment by an external audit committee. This is usually a bad sign because it means that with the size of the current trial, it will be difficult to show significant differences between the control and trial groups. Nevertheless, despite concern, the market is hopeful. This is the only Alzheimer's hope right now. Until not long ago, Biogen had two products for Alzheimer's Disease in trials. Aducanumab is the more advanced and had the more impressive preliminary results, but the company has made a simultaneous gamble on another product, BAN2401. It failed late last year, like most of the drugs in this area. Other than these two drugs, the company has several more drugs for Alzheimer's in early stages.
"My dream is that our industry will be able to offer a drug treatment for what is the number one worry in many countries. Every patient has three carers carrying him on their back. It's both an economic and a social burden. My dream is that the pharmaceutical formulation and technology will provide a combined solution for the Alzeimer's Disease patient," Vounatsos says.
When are the trial results expected?
"We're being careful not to disclose that. The last patient will enter the trial this summer." The market believes that following the change in the number of patients, the trial results will arrive in late 2019 or early 2020.
Biogen believes that a drug treatment will be more successful the earlier in the development of the disease that intervention takes place, possibly even before the appearance of clinical symptoms when only initial signs appear that the disease is developing. This approach has many ethical consequences. How effective does a drug for Alzheimer's Disease have to be and how much time does it have to delay the onset of the disease for us to agree to accept a diagnosis that we will soon contract it when we are still at the peak of our lives? What will happen if the drug helps only some patients? The others will remain with the diagnosis with no solution for it. If the drug can add many more healthy years for some patients, this price appears reasonable. "We have a lot to learn about the form of treatment that patients are interested in and the effect of the stigma of Alzheimer's Disease on the way the treatment should be offered," Vounatsos admits. "I believe that as soon as there are effective treatments, the stigma will be weakened, as happened with diseases such as tuberculosis and HIV. Today, when Alzheimer's Disease is diagnosed, it means that the deterioration will begin soon and lead inevitably to death. We believe that the disease begins working 20-25 years before the initial symptoms appear. Diagnosis of a disease due to appear in another 20-25 years, when something can be done in the meantime to delay it, is not experienced at the psychological and social levels like a disease leading to rapid and inevitable deterioration."
"Also gambling on a treatment for stroke"
As if investment in treatments for Alzheimer's Disease were not risky enough, Biogen is now aiming at a no less risky market as measured by the past failure rate - stroke. The decision to gamble on this market is completely attributable to Vounatsos. The opportunity is an enormous one, but most companies are not willing to touch it with a 10-foot pole.
Biogen also has other exciting products in the pipeline for treatment of Parkinson's Disease, an area in which the main progress in recent years resulted from medical devices and improved formulations of existing drugs, not new drugs; schizophrenia, in which most drugs are not able to provide a solution for the gradual damage caused by the disease; trigeminal neuralgia, which causes severe pain in part of the face; a drug for degenerative ophthalmological diseases; a drug for back pain related to spinal column damage; a drug for Lupus; and several more drugs in clinical trials testing efficacy.
"We won't make stupid investments"
Vounatsos received Biogen in a rather challenging state. The company was on the verge of launching its exciting SMA product, but many investors said that its pipeline of products relied too much on the Alzheimer's Disease product and some investment analysts spoke of the company as a target for acquisition. Vounatsos was less well known in the capital market at the time. His appointment was received with positive feelings, but without exceptional enthusiasm. One of the first tasks that he had to face was the announcement about adding more patients to the Alzheimer's Disease clinical trial. To his credit, it should be pointed out that the company's share price did not dive following the announcement; it has been rising ever since and is currently 5.8% higher than it was before he became CEO.
The gains are mainly a result of the successful launch of the SMA product, the acquisitions made by Vounatsos, and probably also the general feeling he exudes that he knows where to lead the company. The feeling is that even if the Alzheimer's Disease product fails, it will not be the end of the world for Biogen. One step that pleased the market was the purchase of an option for rights to several products being developed by Ionis, a company whose technological platform brought Biogen the product for SMA and two other products that are already in clinical trial. Biogen paid $1 billion for 65% of Ionis and $375 million more for the development and marketing rights to several specific products. Ionis has technology for RNA-based drugs that are likely to be ground-breaking. The optimists have in mind Roche Genentech: Genentech's antibodies technology became a growth engine for pharmaceutical giant Roche. Relations between Roche and Genentech began with cooperation on a small scale, after which an agreement was signed similar to the one signed by Ionis and Biogen, and eventually led to an acquisition.
"We're always trying to support our supply of products through acquisition and licensing products," Vounatsos says. "Michael Ehlers, our EVP R&D, is doing wonderful work in promoting our products and capabilities, so that the contribution to our value comes from both outside and inside, and Daniel Karp is leading corporate development, including acquisitions. At the same time, we won't make stupid investments, because the pricing of young companies right now is a little high. We're stable and we have over 10% growth and cash, so there's no reason to take a risk."
Published by Globes [online], Israel business news - www.globes-online.com - on July 15, 2018
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