http://biz.yahoo.com/ts/010827/kansas_010827.html

Monday August 27, 7:52 am Eastern Time
Nadine Wong is the editor, publisher and co-founder of the monthly BioTech Sage Report. Wong writes a weekly column that appears on this page as part of her business relationship with TheStreet.com.

By Nadine Wong
Special to TheStreet.com

Who has the better drug to treat multiple sclerosis? Will it be Biogen (Nasdaq: BGEN - news) , with its Avonex drug, or might it be Serono (NYSE: SRA - news) , with its Rebif?

Sounds like a scene from "Survivor" as both companies recently claimed victory in a legal dispute over their competing multiple sclerosis drugs.

A War With No Clear Loser

Biogen is pleased that the court is prohibiting Serono from making comparative claims about the two drugs. According to a Biogen press release, "The court determined Serono's claims were false and misleading to doctors and people with MS, and presented the prospect of causing irreparable harm. Serono is now prohibited from publicizing misleading claims of the superiority for Rebif."

On the other hand, Serono maintains that the court only had prohibited the company from comparing Rebif to Avonex when promoting its product to the general public. "This decision by the Geneva court endorses Serono's clear right to communicate the evidence study to health care professionals," said Nathalie Joannes, Serono's general counsel, in a press release.

The stakes are huge in the MS market, and any victorious claim by either party could result in the loss or gain of market share.

Biogen's revenue is derived mainly from Avonex, which is the top MS drug in the U.S. with annual sales of $691.1 million. Avonex continues to penetrate the international MS markets, and it saw second-quarter sales of $70 million.

Serono Looks to Compete

Compare that with Rebif, whose 2000 annual sales clocked in at $254.2 million and continue to grow. Its second-quarter sales of $90.7 million helped Serono retain its market leadership outside the U.S. Serono is trying to draw significant sales away from Biogen by getting Rebif into the U.S. marketplace before Biogen's orphan status for Avonex expires in 2003. For a limited time, orphan drug status shields from competition drugs that treat relatively uncommon diseases. Biogen now has exclusive rights to market its MS drug in the U.S. For Serono to put an early end to the Biogen product's orphan drug status, it needs to prove that Rebif is more effective than Avonex.

Serono's investors should know that the Food and Drug Administration can still refuse to overturn Avonex's orphan drug status. Avonex was approved based on the time-to-disease progression, which gauges how effectively the drug slows down MS's progress.

Hence, it seems unlikely that the FDA would judge Serono's Rebif to be different and clinically superior to Avonex without data looking at a similar primary endpoint. In other words, Avonex underwent a two-year study because it was a new drug that needed proof of its safety and effectiveness before market entry. Rebif, however, is already a commercialized drug that just needs to show it's as effective as Avonex; therefore, Serono conducted a six-month head-to-head trial.

Market Impact

In the meantime, Serono's share price, which lately hovered around $23, may increase as some investors conclude that its six-month study confirms the benefits of higher and more frequent doses of Rebif. With that study, Serono hopes it can support Rebif's entry into the U.S. market before the expiration of Avonex's orphan drug status. Serono filed marketing approval for Rebif with the FDA this year. Even with positive data, Biogen will very likely continue disputing the clinical data endpoints, patient population and trial duration, as the companies persist in taking jabs at each other.

If Serono's Rebif gets a new superiority claim over Biogen's Avonex, FDA approval could come as early as the second quarter of 2002. Undoubtedly, Serono wants to sell Rebif in the billion-dollar U.S. market for MS drugs in 2002, a year before Avonex's marketing exclusivity automatically runs out.

If the FDA upholds Avonex's orphan drug status, Serono and its shareholders will be disappointed, and earnings growth will be delayed until 2003. By that time, Rebif will more than likely be launched in the U.S.

Beyond Avonex, Biogen's long-term growth should come from its pipeline. The company plans to file marketing approval for Amevive, its biological drug to treat psoriasis. With FDA approval, Amevive could be launched late next year. Biogen's earnings growth will depend on Avonex as well as a successful launch of Amevive. Biogen was lately trading near the $57 level.

So which company has the upper hand? Both have positives and negatives -- it all depends on which story appeals more to you.

Personally, I happen to favor Biogen's. Even if Serono has favorable results for Rebif in its six-month study, the FDA may remain steadfast and require 12-month data before approval is granted in the U.S. The original agreement with the FDA was that Serono was to provide 12 months of data, but because its six-month data looked very compelling, Serono hopes to 0get FDA approval sooner rather than later.

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