Analysts say Antegren could be key to merger's success
2:36 AM ET June 28, 2003
Executives at Biogen and Idec Pharmaceuticals boast that their proposed $6.3 billion merger brings together two biotech research powerhouses, each of which can claim credit for inventing a blockbuster drug.
But the success of the Biogen-Idec combination could ultimately depend, to a large extent, on an experimental disease treatment that wasn't discovered in the labs of either company.
Analysts and fund managers say a drug called Antegren, now being studied as a potential treatment for multiple sclerosis and Crohn's disease, appears to offer the best near-term hope for expanding profits and sales once the companies merge.
Biogen (BGEN: news, chart, profile) owns half the rights to Antegren thanks to a deal with Irish drugmaker Elan Corp. (ELN: news, chart, profile), which says the drug was discovered in its labs in South San Francisco, Calif.
"Antegren looks to be the key to making the merger successful," said analyst Patrick Flanigan at Adams, Harkness & Hill.
Cambridge, Mass.-based Biogen and San Diego-based Idec (IDPH: news, chart, profile) announced June 23 they would join forces in a stock swap valued at about $6.3 billion. The biotech bellwethers presented the deal as a merger of equals, but Idec will end up with majority control, albeit barely. Idec shareholders will own 50.5 percent of the new company to be called Biogen Idec. Biogen's shareholders would exchange their shares for 1.15 shares of Idec. The deal, which would create the third largest biotech firm behind No. 1 Amgen (AMGN: news, chart, profile) and No. 2 Genentech (DNA: news, chart, profile), is expected to close later this year.
The merged company would market two of the most successful biotech therapies ever: Biogen's Avonex, the No. 1 multiple sclerosis treatment, and Idec's Rituxan, the No. 1 anti-cancer drug.
But investors will want to see that Biogen Idec can grow beyond the old blockbuster drugs. Idec has a second anti-cancer drug, called Zevalin, but its commercial potential is far less than Rituxan's. Biogen's second product is Amevive, a new treatment for psoriasis, but analysts say it's not yet clear how much revenue that drug will generate.
That's where Antegren comes in. The antibody therapy would be the furthest along in clinical development of all of Biogen Idec's new experimental compounds, meaning Antegren has the best shot at becoming the next drug to reach the market.
The only other product in late-stage testing is Idec's Rituxan, which was first approved in 1997 as a treatment for non-Hodgkin's lymphoma. Idec is conducting studies to establish that Rituxan is also effective against rheumatoid arthritis. But even if Rituxan turns out to work against that disease, it will be another company that'll reap most of the benefits. Genentech is entitled to the bulk of Rituxan sales through a long-standing marketing agreement with Idec.
Passing the test
Before it can fatten profits, Antegren will first have to make it through late-stage, or Phase III, clinical testing. The drug is being studied in patients with the neurological illness multiple sclerosis and the gastrointestinal disorder Crohn's disease.
The companies, and their investors, will soon get a good idea of whether Antegren will be a successful treatment for Crohn's disease. Analyst Eric Schmidt at SG Cowen said he expects the late-stage results to be released within the next few weeks. Schmidt anticipates a positive outcome, but said a major disappointment might jeopardize the merger.
Burt Adelman, Biogen's head of research and development, downplays the risk that an Antegren setback would put the agreement at risk.
"This is a merger for the future, and it's not predicated on any one event," Adelman said in an interview with CBS MarketWatch. "It's a merger for the long term, not next quarter."
But Adelman did say the companies view Antegren as a highly significant potential product, and he said the drug's value is being ignored by Wall Street critics who have said Biogen Idec would lack promising new drugs in the pipeline.
"A lot of people have forgotten about Antegren," the R&D chief said.
Biogen and some investors are especially optimistic about Antegren in multiple sclerosis. Adelman said midstage results, published earlier this year in the New England Journal of Medicine, showed Antegren had "spectacular" effects in MS patients.
"If we can reproduce data in Phase III that we saw in Phase II, we'll have a blockbuster," Adelman said.
Biogen hasn't given specific sales projections for Antegren. But the biotech firm estimates that the market for multiple sclerosis therapies will reach $4 billion within two to three years. Avonex, Biogen's first MS drug, posted sales of more than $1 billion last year.
Multiple sclerosis affects about 1 million people worldwide. The severity of the neurological disorder varies, but MS can leave a person unable to walk.
And the opportunity for a new Crohn's disease therapy could also be substantial. Arnie Douville, manager of the American Century Life Sciences Fund, estimates Antegren could eventually generate about $300 million as a treatment for the bowel disease.
Crohn's disease, a chronic inflammation of the digestive tract, affects about 1 million people worldwide.
Ultimately, the versatile Antegren might be used to treat other diseases, as well, including rheumatoid arthritis, Douville said.
Antegren is designed to help block an abnormal immune system response that leads to autoimmune diseases. In an autoimmune illness -- a category that includes Crohn's disease, multiple sclerosis, psoriasis and rheumatoid arthritis -- the body's natural defenses go haywire and attack healthy tissue.
In addition, there's the possibility that Antegren could complement the effect of Avonex in multiple sclerosis, so that patients would get the best results by taking both drugs. An enhanced effect for an Avonex-Antegren combination would be ideal for Biogen and Idec because it would avoid the problem of the new MS drug stealing business from the flagship Avonex.
Not everybody is sold on the Antegren story. Analyst Michael King at Banc of America Securities, in a recent note to clients, pointed out that until the late-stage clinical testing results are revealed, a risk remains that Antegren could disappoint. King also said that even if the drug is successful its value would be limited because Biogen Idec would have to share about 50 percent of revenue from Antegren with partner Elan.
Dublin-based Elan is depending on Antegren as much as Biogen and Idec are, and the troubled pharmaceutical company badly needs a win. Its shares plunged on Thursday after Elan said it would delay filing its annual report, opening up the risk that the company could go into default on its heavy debt load. See full story.
In Friday trading, Biogen shed $1.71, or 4.1 percent, to $39.58; Idec fell $1.36, or 3.7 percent, to $35.29; and Elan slipped 14 cents, or 2.8 percent, to $4.95.
Elan's woes aren't expected to affect Biogen and Idec. Under the agreement, Biogen retains 50 percent ownership in Antegren regardless of what happens to Elan.
For Antegren, the next step will be the release of the results in late-stage testing in Crohn's disease. Analysts say it won't be long until the data are out, likely within a few weeks.
If all goes well, the companies could apply for clearance to market the drug as a Crohn's disease therapy at the end of this year or early in 2004, putting it on track for approval early in 2005.
Exactly when Antegren could be approved in multiple sclerosis is the subject of much speculation among investors. The companies late in 2002 began two late-stage clinical trials that are scheduled to run for two years. If the trials go to completion, a merged Biogen Idec and Elan wouldn't submit a marketing application for multiple sclerosis until mid-2005.
But some investors are hoping that results after one year will be strong enough to support an application early next year.
"We could see the FDA consider one-year data," said David Kaplan, an individual investor in Washington, who owns Elan shares partly because of his optimism about Antegren.
"We have to wait to see what the Phase III data look like, but there's been a lot of anecdotal evidence that it's very effective in MS," added Kaplan, who said he owns a sizable number of Elan shares, but declined to say exactly how many. "If Antegren works as well as is hoped, the whole market for multiple sclerosis therapy could expand significantly because there are people who aren't helped by the available therapies."
Biogen's Adelman is reluctant to feed expectations about an early Antegren filing, noting that the companies continue to plan on running the two-year trials to completion. But the R&D chief said an early filing is possible.
One thing about Antegren is certain: Investors are sure to scrutinize upcoming clinical trial results for what could be crucial insight into the future of biotech's latest megamerger.
"Antegren is seen as providing the crux for growth in the next few years,"
American Century's Douville said. "Is it a billion-dollar drug? We just
don't know yet."
Copyright © 2003, MarketWatch.com, Inc.