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Biogen Hedged Its Bet and Won Big

Brian Orelli, The Motley Fool

Sometimes a drugmaker's best move isn't developing a new drug but protecting sales of an established one.

Sales of Biogen's (NASDAQ: BIIB) top-selling multiple sclerosis drug Tecfidera brought in almost $4.3 billion last year, and sales are on pace to be even higher this year. Much of that sales volume was at risk with Alkermes (NASDAQ: ALKS) developing Vumerity, which was designed to have fewer side effects than Tecfidera.

Vumerity and Tecfidera are almost the same drug. The chemical name for Vumerity is diroximel fumarate, while Tecfidera is dimethyl fumarate. The base "fumarate" is the part that does the work, with both drugs breaking down into monomethyl fumarate.

Tecfidera is a great drug, reducing the rate of multiple sclerosis attacks, and it can be taken orally, while many of the older multiple sclerosis drugs have to be injected or infused -- hence the multibillion-dollar sales.

But Tecfidera causes gastrointestinal issues -- diarrhea and nausea -- that can make it unpleasant for some people to take.

Biogen saw Vumerity, which used to go by the moniker ALKS 8700, coming and decided to license the drug in 2017. Alkermes got $50 million up front, will get $150 million if the drug is approved in the U.S. before the end of 2021, and is eligible for royalties in the midteens.

Doctor with hand on patient's shoulder.

Image source: Getty Images.

Great call

At the time of the licensing deal, Biogen didn't know whether the slightly different chemical structure would actually reduce the gastrointestinal issues, but $200 million was a small price to pay to find out the answer.

It turns out the hedge was a good move. Today, Biogen and Alkermes released data from the Evolve-MS-2 study testing Vumerity and Tecfidera in a head-to-head matchup. The companies only released top-line results, saying that Vumerity beat Tecfidera on the primary endpoint of the number of days patients experienced gastrointestinal symptoms. The p-value was 0.0003, meaning the difference is substantially statistically significant.

The companies plan to present the data at a future medical meeting, which is why they want to hold back the actual primary endpoint results, but we can get an idea of the magnitude of the difference from the side effect profile. Vumerity caused diarrhea in 15.4% of patients, compared to 22.3% of patients taking Tecfidera. Nausea was also better, with 14.6% of Vumerity patients experiencing it, compared to 20.7% of patients taking Tecfidera. Gastrointestinal issues were bad enough that 4.8% of patients taking Tecfidera dropped out of the study over the side effects, compared to just 0.8% of patients taking Vumerity.

Opportunity

There's more to this story than Biogen picking off a potential competitor: Tecfidera is under attack from generic-drug makers who claim that the intellectual property on Tecfidera, including patents out to 2028, is not valid.

On a conference call earlier this month, Biogen's chief financial officer Jeffrey Capello said the company had "a lot of interest in, kind of, getting it resolved" but declined to comment further on the current situation. Reading between the lines, the company has probably settled with some generic-drug makers but doesn't want to disclose the details until it's resolved all the lawsuits.

In the meantime, before generics can hit the market, Biogen will try to switch patients from Tecfidera to Vumerity. It's unreasonable to expect the bulk of Tecfidera patients who don't have gastrointestinal issues to switch to Vumerity -- doctors generally don't like to change medications that are working without issues. But with the help of Biogen's marketing muscle, Vumerity should be able to capture newly diagnosed patients as well as the 20%-plus of patients with gastrointestinal issues. And because multiple sclerosis is a progressive disease with patients cycling off oral drugs onto stronger injected/infused medications, the fraction of patients on Vumerity should continue to rise over time.

Biogen has already submitted the marketing application for Vumerity to the Food and Drug Administration. Since the drug is so closely related to Tecfidera, Biogen and Alkermes are able to use the efficacy data for Tecfidera to get Vumerity approved under a regulatory pathway called 505(b)(2).

The FDA approval, which is scheduled for the fourth quarter of this year, will be based on the Evolve-MS-1 study, which only looked at the safety of Vumerity, but the new data from Evolve-MS-2 will help propel sales in the years ahead.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alkermes and Biogen. The Motley Fool has a disclosure policy.