Out With the Old, In With the New in Treating MS

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Hidden beneath all the numbers and metrics in Biogen Idec's (NASDAQ: BIIB) recent earnings report  is a key confirmation of a shifting market in the treatment of multiple sclerosis. This alteration could yield billions of dollars for companies positioned to take advantage of it. 

What Happened

On July 25, Biogen reported second-quarter financial results. Earnings of $2.30 per share and revenue of $1.7 billion both trumped estimates, while the company's higher guidance fueled investors' optimism regarding the company's future.  However, neither development could steal the report's spotlight away from the unexpected success of the company’s new multiple sclerosis oral drug, Tecfidera. The drug generated sales of $192 million in the quarter, more than double what the Street expected.

A Coming Revolution in MS Treatment 

Contrary to most current multiple sclerosis treatments , Tecfidera is a pill, not an injection. The treatments which currently dominate this $14.4 billion global market -- Avonex (Biogen), Copaxone (Teva), Tysabri (Biogen), Rebif (Pfizer & EMD Sereno) -- are all injections. 

However, a 2010 Thomson Reuters market analysis report expressed a view shared by other prominent market analysts: “Oral drugs will soon revolutionize the treatment of multiple sclerosis. Until recently, the only disease-modifying agents available were the interferons, a highly competitive drug class, but with the disadvantage of administration by injection.”

The Kings Could Fall

A shift away from the traditional injection treatments of MS would have a monumental impact on some of the largest players in the pharmaceutical industry.

Avonex and Tysabri combined to account for more than $4 billion in revenue generation in 2012, representing 73% of Biogen's overall company revenue.

For Teva Pharmaceuticals (NYSE: TEVA), Copaxone generated nearly $4 billion in revenue in 2012, which accounted for nearly 20% of overall company revenue.

EMD Sereno largely controls Rebif, but Pfizer (NYSE: PFE) also is marginally influenced by the drug, which it includes in its alliance revenues. In 2012, this segment generated $3.49 billion in revenue for Pfizer , accounting for nearly 6% of overall company revenue. Pfizer’s collaboration agreement with EMD Sereno will either expire in 2013 or 2015, depending on the outcome of pending litigation between the two companies concerning the interpretation of the agreement. If the agreement extends to 2015, Rebif will generate hundreds of millions more in revenue for Pfizer, making the drug potentially substantial to Pfizer's future. 

Capitalizing on the News

Oral treatments are the future of the MS market. While health complications  with certain oral treatments have recently arisen, the problems in these up-and-coming drugs are likely to be worked out over time. 

In correspondence with a recent report released by Research and Markets, the consensus displays the global multiple sclerosis market growing from $14.4 billion currently to $16.6 billion by 2017. The report primarily credits this growth to the “entry of new pipeline therapies, satisfying the unmet needs of convenient administration.”

Future Trailblazers

Biogen’s position is complicated. If Tecfidera succeeds, its cornerstone products, Avonex and Tysabri, likely will lose revenue, since they are both injections.  Recent quarters have already seen Tecifdera eating into Avonex's and Tysabri's growth. However, with strong traditional offerings and one of the leading treatments of tomorrow, Biogen is positioned to benefit from the growth in the industry, no matter which treatment people choose.

Aubagio is another popular oral treatment. The treatment is owned by Sanofi (NYSE: SNY), and it launched in October 2012 in the United States.   Aubagio generated $26.5 million in revenue in the first quarter of 2012, a meager amount compared to the $10.64 billion produced by the company in the quarter. However, the drug is on track to produce revenue in the hundreds of millions in 2013, and has the potential to reach billions as the drug launches globally. 

Gilenya, owned by Novartis (NYSE: NVS), is a leading oral treatment for MS. Gilenya produced $486 million in the second quarter. The strong performance was fueled by continued strong data which supported its efficacy. Gilenya only accounted for 3% of overall revenue for the company in the quarter, however the drug has become more vital to the company over the past year, growing 66% year over year in revenue in the second quarter. 

Tecfidera, Aubagio, and Gilenya all are innovative offerings in the treatment of MS, and should continue to growth exponentially. All have the potential to become blockbuster drugs, presenting incredible upside for their parent companies

The Foolish Bottom Line

Biogen posted an impressive second-quarter report. However, even an upside surprise of 100% could not have overshadowed the performance of Tecfidera.

Tecfidera is not a drug-specific story; it represents the coming wave of oral treatments for multiple sclerosis. This trend will substantially grow the global MS market, and place companies such as Novartis, Biogen, and Sanofi in a position to capitalize on explosive growth.

While this change will not happen overnight, and could span over the course of several years, countless organizations and research firms are certain it is coming. Investors should track the growing adoption of oral treatments by MS patients, as well as the deterioration of injection treatments and their revenue generation.

Biogen by far appears the most attractive as an overall investment. The company's exposure to the MS market is massive, and it should serve the company well into the future. With premier oral and injection treatments, Biogen is likely to gain market share, and prosper into the future.   

Ryan Guenette has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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