September 16, 2011 / 1:35 PM / 6 years ago

Analysis: Biogen investors place bets ahead of MS drug trial

BOSTON (Reuters) - Over the past year, Biogen Idec Inc has given investors little to complain about. The biotechnology company, operating under new management, has restructured its operations, reported promising clinical trial data and seen its shares rise 72 percent.

The question is: can it hang onto its gains?

Much depends on the results, to be released within weeks, of a second, late-stage clinical trial of its experimental multiple sclerosis drug, BG-12.

Results from the first trial, known as DEFINE, were unexpectedly strong. If data from the second trial, known as CONFIRM, are similarly positive, Biogen’s shares could rise as much as 10 percent, analysts say. If it falls short of expectations, they could fall as much as 20 percent, according to some estimates.

Multiple sclerosis is a chronic, often disabling disease that attacks the central nervous system and can lead to numbness, loss of vision and paralysis. BG-12 is designed to treat relapsing-remitting MS, in which flare-ups are followed by periods of remission. About 85 percent of people with MS are initially diagnosed with this form of the disease.

Results of the DEFINE trial showed BG-12 cut the annualized relapse rate by 53 percent at two years versus those treated with a placebo. That compares favorably with the efficacy of a drug made by Novartis AG, Gilenya, that has shown a reduction in annualized relapse rates of about 54 percent.

Unlike most MS drugs, which are given by injection or infusion. Gilenya and BG-12 are both taken orally. Gilenya, given once a day, was approved in 2010. BG-12 will probably be given twice a day, but may have a more benign safety profile. That could help it gain an edge in the market if approved.

“Gilenya has the advantage of first-arrival and once-daily administration, but there is still some anxiety about the possibility of safety issues yet to emerge,” said Harry Tracy, a pharmaceutical industry consultant and publisher of NeuroPerspective, a monthly publication focusing on central nervous system disorders.

“Neurologists are going to be reluctant to switch people off injectables, but over the next few years, I expect Gilenya and BG-12 to become the preferred first drug options to be tried with newly diagnosed patients,” he said.

Some analysts expect BG-12 to generate more than $1 billion in annual sales.

“In our view, the biggest threat to BG-12 becoming a blockbuster is an unforeseen safety issue,” said Eric Schmidt, an analyst at Cowen and Company in a recent research note. He expects, however, that the CONFIRM safety profile will “remain essentially clean.”

TRIAL DESIGN

The design of the CONFIRM trial is similar to that of DEFINE. DEFINE had 1,200 patients while CONFIRM has 1,400. The studies were run more or less contemporaneously and were conducted in similar geographies with the same entry criteria.

The main difference is that CONFIRM has a third arm -- a group of patients taking Copaxone, a drug made by Teva Pharmaceutical Industries. In a pivotal trial, Copaxone, which was approved in the United States 15 ago, was shown to reduce the annualized relapse rate by 29 percent. Analysts expect that rate to have improved over the years, potentially confounding results from CONFIRM.

“We expect comparator Copaxone to perform better than expected,” said Jim Birchenough, an analyst at BMO Capital Markets, who advised clients in a recent research note to sell Biogen shares in advance of the results.

“We believe commercial expectations for Biogen Idec’s multiple sclerosis franchise, in particular for BG-12, have been overestimated and that risk to upcoming CONFIRM data has been underestimated.”

Weston, Massachusetts-based Biogen also makes the multiple sclerosis drugs Avonex and Tysabri.

Biogen’s shares have risen 72 percent over the past 12 months and have roughly doubled since George Scangos took over as chief executive in July last year. By April this year, shortly before news emerged that results of the BG-12 trial were positive, they had risen to about $73, helped in part by a restructuring program. By the end of June they touched$109.52.

The stock has fallen back since then and was trading at about $99.40 on Thursday. The decline partly reflects concerns among some investors that CONFIRM may not live up to the promise of DEFINE.

Michael Yee, an analyst at RBC Capital Markets, said most analysts are expecting ”generally good data“ from CONFIRM though perhaps not as strong the 53 percent relapse rate reduction reported in DEFINE.”

“People expect a mid-40s percent reduction in annualized relapse rate,” he said. “If the number comes in above that consensus, the stock could go $10 higher.”

The best case scenario, to which he assigns a 20 percent probability, would be for the drug to show a relapse rate of 50 percent or higher versus placebo, and for Copaxone to show a relapse rate of 30 to 35 percent.

The most likely scenario, he says, and one to which he ascribes a 60-70 percent probability, is for BG-12 to show a relapse rate of between 40 and 49 percent versus placebo and for Copaxone to show a relapse reduction of 35 to 40 percent.

Yee assigns a 10 percent probability of BG-12 showing surprisingly negative data, but if it did, the stock could drop to below BG-12 levels, he said.

Douglas Williams, Biogen’s head of research and development, feels “confident going into the study, or as confident as you can feel without the data in your back pocket.”

Options traders are sounding an optimistic note too.

Traders have been purchasing Biogen calls -- which give investors the right to buy stock at a fixed price up to a certain date -- at a greater pace than puts, which give investors the right to sell at a preset price.

“This suggests there are some bullish bets coming in on Biogen ahead of the event,” said Ryan Detrick, senior technical analyst at Schaeffer’s Investment Research.

Over the past 10 trading days, investors have bought 1.94 calls for every put as a new position on three U.S. options exchanges, according to Schaeffer's. That ratio is greater than 72 percent of the readings over the past year. (For a related graphic click on r.reuters.com/pus73s)

Biogen hopes to file for approval of BG-12 early next year.

Additional reporting by Doris Frankel in Chicago, editing by Dave Zimmerman

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