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Better Together, or Apart? Biogen, Bioverativ Head Down Separate Paths

Xconomy Boston — 

Biogen, one of the largest biotechnology companies in the world, was at a crossroads in 2016. An experimental drug for the memory-robbing scourge, Alzheimer’s disease, had shown signs of promise. That meant long, expensive, and risky Phase 3 trials lay ahead for Biogen to see if the early signals were more than a mirage.

So Biogen (NASDAQ: BIIB) went for it. In May, it decided to focus exclusively on tough neurological diseases like Alzheimer’s, Parkinson’s, and ALS—fields littered with expensive drug-development failures—and bundle up a stable, growing hemophilia business and spin it into a new company. That company, named Bioverativ (NASDAQ: BIVV), has officially launched this morning and will begin trading on the Nasdaq tomorrow. (Biogen shareholders get one Bioverativ share for every two Biogen shares they own; Biogen will not own any of Bioverativ’s stock going forward.)

Large companies spin off businesses for a number of reasons, but invariably it comes down to the belief that the two separated parts will be worth more than the original whole. To prove that, Biogen has to turn around the slowing revenue growth for its core multiple sclerosis franchise, overcome reimbursement challenges to meet the lofty financial projections for its recently approved spinal muscular atrophy drug nusinersen (Spinraza), and hit on the big bet it’s made on the Alzheimer’s drug, aducanumab (data are expected in 2019). For its part, Bioverativ has to prove it can build a sustainable business around a few FDA approved hemophilia drugs, despite all the competition quickly advancing through clinical testing.

“The test,” says Bioverativ CEO John Cox, “is going to be 2 or 3 years from now when you look back and [ask]: Did both of these companies do better independently?”

Biogen

Former CEO George Scangos left Biogen in January after a six-year stint that had its share of ups and downs. Scangos successfully navigated Biogen through a long-running battle with activist investor Carl Icahn and altered the company’s strategic course. He also oversaw the launch of an oral multiple sclerosis drug called dimethyl fumarate (Tecfidera) that won FDA approval in 2013 and became Biogen’s top-selling product, generating about $4 billion in 2016. In 2012, his team struck a deal to co-develop nusinersen with Ionis Pharmaceuticals (NASDAQ: IONS) and bought worldwide rights to it last August; in December the drug became the first ever approved treatment for spinal muscular atrophy, a rare genetic disease.

By design, Biogen under Scangos amassed a risky, neuroscience-focused pipeline including a group of experimental Alzheimer’s drugs in mid-and-late stage testing. Under his watch, Biogen has restructured and cut a number of jobs to support its risk-heavy investments, halting preclinical work in a variety of other areas. In the meantime, its share price has been on a rollercoaster—from less than $50 when Scangos joined to highs of over $475 in March 2015 to the roughly $275 it trades at today—as Wall Street grew frustrated at Biogen’s hesitance to pull the trigger on a transformative acquisition that can offset its risk.

“We want to work in those areas where others aren’t, where if you know if you’re successful it’s a really big deal,” says R&D chief Michael Ehlers. “That means that as a company, we have to be comfortable with the risk that’s associated with that.”

Scangos viewed Biogen’s hemophilia business—acquired through a $120 million buyout of Syntonix Pharmaceuticals in 2007—as an outlier. At a conference last February, he said he toyed with the idea of divesting the assets when he joined Biogen in 2010. But he ultimately kept them, and the deal turned out very well for Biogen: Syntonix yielded two FDA approved drugs known as Eloctate and Alprolix—regular infusions of which help hemophilia A and B patients avoid dangerous bleeds. The two drugs generated about $560 million in 2015.

Even so, Scangos said last February, they “still have no strategic alignment with the rest of what we’re doing.” Bioverativ’s Cox, a longtime Biogen manufacturing executive, says that Biogen had to make some decisions about how to allocate its capital. Some $1 billion or more could be needed for aducanumab’s Phase 3 trials alone. Though the hemophilia products are profitable, they were a small part of Biogen and didn’t really “move the needle,” he says. Despite rumors Biogen was shopping the business, no deal ever materialized, and the Bioverativ spin-out was formally announced last May.

Given that the hemophilia products offered some financial stability and growth for Biogen, there was some apprehension from analysts when Biogen decided to toss them aside. At the time of the spin-out, for instance, Leerink Partners biotech analyst Geoffrey Porges called it a “somewhat surprising move,” noting the hemophilia products were fast-growing drugs “buffering…the negative headwinds” facing the rest of Biogen’s business and the company would “more or less tread water” until the aducanumab data in 2019. RBC Capital Markets’ Micahel Yee predicted “some head-scratching amongst investors” who “want more growth and diversification, not less.” Others disagree.

“To me, it’s a rational split,” says Jonathan Gertler, CEO of biotech consulting firm Back Bay Life Science Advisors. Biogen removed the “distraction” of a hemophilia business that the company couldn’t spend the time or resources trying to defend or bolster. “That’s not something that’s core to Biogen,” he says.

What is, Ehlers says, is investing in more drugs like nusinersen—RNA-based drugs administered via infusions into the spine. Biogen believes it has a leg up on the industry developing drugs this way—as opposed to, say, antibody drugs or small molecules—because of the work it’s done with Ionis on nusinersen. Ehlers says Biogen might be able to use the same method to treat several severe neurological diseases. These efforts are early. Just one such program—a Phase 1 study for the notoriously tough to treat ALS—is in human clinical testing. But Ehlers says multiple, similar-type programs could follow; it’s a clear area of R&D investment for Biogen going forward. “It just opens up the mind to all kinds of things that weren’t previously addressable,” he says.

New CEO Michel Vounatsos added on a conference call last week that Biogen has a “renewed prioritization on business development activities,” suggesting more deals are coming now that the Bioverativ spinoff is complete. “We need to do a little bit of buildup in the early clinical portfolio,” Ehlers says.

Bioverativ

Cox ran Biogen’s hemophilia manufacturing and commercial operations when Eloctate and Alprolix were approved in 2014. When Biogen’s board decided to spin out Bioverativ, he had the choice of either running Biogen’s technical operations or being the CEO of a new, smaller company. Over the years, he’d become more and more familiar with hemophilia as a disease. Shortly after Biogen acquired Syntonix, for example, Cox remembers attending a National Hemophilia Foundation event. A parent confronted him at the booth Biogen had set up. “She said, ‘I hear you’re the manufacturing guy,” Cox recalls. “Well I’ve got two boys who have hemophilia. Why should I trust you?”

Bioverativ CEO John Cox

Hemophilia patients, a majority of whom are male, often have to be infused with replacement clotting factors multiple times a week, depending how severe their disease is, to protect them from bleeds that can cause joint or organ damage. The selling point of Eloctate and Alprolix is that they don’t have to be given as often as conventional clotting factors. Cox says patients on Alprolix or Eloctate typically get down to two or fewer infusions per week. But for children, the responsibility of administering the drug still often falls to their parents. Uninterrupted drug supply is critical, and that’s what Cox was in charge of. “You had mothers that cared so much about these boys,“ he says. “It really draws you in.”

Biogen’s two hemophilia products grew from $134.4 million in revenue in 2014 to $560 million in 2015 and remain on the upswing, generating nearly $850 million last year. “People were embracing [them],” Cox says. So he took the Bioverativ job. He now assumes the challenge of building a business anchored by Eloctate and Alprolix despite emerging competition and other challenges.

The good news for Bioverativ is it has $325 million in cash in the bank, no debt, two products already on the market, and a track record of $108 million profit for its products in 2015. That gives Bioverativ a head start trying to round out an identity as a developer of drugs not just for hemophilia, but a variety of blood diseases, starting with sickle cell disease and beta thalassemia via a partnership Biogen forged with Sangamo Biosciences (NASDAQ: SGMO) in 2014. It’s developing a longer-lasting version of Eloctate—BIVV001, for hemophilia A—that should start clinical testing this year. Bioverativ also has the wherewithal to add assets that might help in the near term. Cox confirms Bioverativ is looking for deals, but declined to give further details.

But Bioverativ will likely have to be aggressive. Gene therapies for hemophilia are working their way through clinical testing and, while questions remain, they offer at least the potential for long-lasting, if not permanent, treatment. There are also a slew of competing clotting factor replacement therapies from Shire, Bayer, Novo Nordisk, and others on the market.

Kimberly Haugstad, the president and CEO of the nonprofit Hemophilia Federation of America, also says that she’s started to see insurers—who have become more and more emboldened to fight drug prices—implementing “step therapy” measures in hemophilia. That means patients might have to fail a lower-cost therapy first before getting reimbursed for a more expensive, longer-lasting treatment like Bioverativ’s two drugs.

“We have not seen this before and it is extremely worrisome for us,” she says.

Cox downplays the competitive threats. Despite the early promise, there’s a lot to be worked out with gene therapy, he says. At this point, no one knows how long it’ll last, or whether it’ll work in much of the population. There have been variable results for gene therapies in clinical trials and immune system reactions to some treatments. Patients, he says, just want to get a dose of clotting factor once a week or less and know they’re protected from bleeding episodes.

Haugstad, however, says that every hemophilia patient’s situation is different, and even if patients get frequent infusions to protect them, they’re not stress free. People always have to consider what daily activities are safe, be prepared for emergencies, and stay on top of whether their therapy is being insured. “If you’re asking me what patients really want,” she says, “we dream of a life without any needle sticks or worry of a spontaneous bleed.”

Add it all up and Bioverativ has some work to do. “If this company rests on its hemophilia revenues,” Gertler says, “it won’t be a success.”