PropThink: Biogen Idec's BG-12 PDUFA Delay is a Buying Opportunity
By Ivan Deryugin
The biotechnology sector can be broken up, at its simplest, into two distinct groups: the Big 4, and every other company. The Big 4 are Amgen (NASDAQ: AMGN), Celgene (NASDAQ: CELG), Gilead Sciences (NASDAQ: GILD), and Biogen Idec (NASDAQ: BIIB). Many investors view the Big 4 as stable investments, with the tradeoff being that they have few meaningful growth drivers. The past several years, however, have been defined by these companies disproving that assertion. Gilead, for example, is poised to dominate the hepatitis C market when GS-7977 is approved. And Biogen Idec is poised to cement its grip on the MS market when BG-12 is approved. However, a recent FDA action to extend the review process of BG-12 has sparked a miniature selloff in shares of Biogen, a selloff that is unwarranted.
Since October 17, shares of Biogen are down almost 7%, underperforming the S&P 500, which is down almost 3%. The FDA announced on October 18 that it would be taking an additional 3 months to review Biogen Idec's NDA for BG-12, and it declined to provide detailed reasoning. This PDUFA delay to sometime in March caused investors to assume that there were safety issues, due in large part to the fact that Abbot Laboratories (NYSE: ABT) was forced to halt trials of its kidney cancer drug bardoxolone. BG-12 and bardoxolone share some chemical similarities, so it is likely that investors feared that the FDA discovered safety issued with BG-12. Biogen denied that this was the reason for the FDA's review extension, arguing that BG-12 and bardoxolone have distinct pharmacological profiles, and that the safety of BG-12 has been well established in multiple trials. Biogen Idec is likely correct in its assessment. Abbot's drug was not rejected, but rather halted in Phase III tests when safety issues were discovered. BG-12 went through Phase III testing with no safety issues presented.
Furthermore, there is historical precedent for the FDA's decision. Novartis (NYSE: NVS) also experience this 3-month extension with its Gilenya filing, as did Sanofi (NYSE: SNY) and its Aubagio filing. Both drugs were approved after their respective 3-month extensions. The complexity of these approval filings is likely what triggered the 3-month extensions. Given the importance of BG-12 to the future growth of Biogen (Merrill Lynch, for example, values BG-12 at $41 per share, or 23.16% of its $177 price target), the company's Q3 earnings conference call was filled with questions regarding the PDUFA extension. George Scangos, Biogen's CEO, took a good deal of time to address this issue. On the call, he said:
"Why am I not surprised that's the first question? [Did Biogen Idec receive a reason from the FDA for the review delay?] Okay, look, technically, the answer to your question is, yes, it is a major amendment. But let's understand what the term - major amendment is kind of a term of art. So in the normal review of an FDA - of an NDA, the FDA asks questions of the sponsor and to which the sponsor, in this case us, response in writing. So the FDA has the ability to determine that any of those responses can be classified as a major amendment. And so by doing so, the FDA extends the PDUFA date for 3 months, and as far as we know, there is no other mechanism by which the FDA can extend the PDUFA date by 3 months. So the fact that a response is classified as a major amendment doesn't necessarily mean that there are problems with the application or the drug. It can mean only that the FDA believes it needs more time to review the application, the answers to the questions, and will not be able to meet the original PDUFA date. And we believe that's the case with our application. And as you know, Eric, a 3-month extension has been applied to a lot of other compounds, including recent approvals in MS. So we believe we're on track, and we have a 3-month delay."
This delay, while unexpected, is not without precedent, and it is unlikely to have any major effects on BG-12. This is the third time the FDA has requested an extension to review a new MS drug, and the chances of this third time being different from the first two is small. BG-12's safety has been well established in many trials, as has its efficacy. And if and when BG-12 is finally approved, it may very well spark a second catalyst that will send Biogen Idec's stock higher. That catalyst is capital deployment. Continue reading this article by clicking here.
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