Biogen, up for an aducanumab decision in days, could be ripe for activist incursion if it's handed a rejection: report

More than a decade ago, Biogen withstood an activist incursion from billionaire investor Carl Icahn. The Massachusetts biotech could face a similar challenge if its Alzheimer's disease drug aducanumab fails to win FDA approval.

All eyes are on Biogen as it approaches its date with destiny.

By June 7, the FDA is set to rule on Biogen’s aducanumab. If approved, it would become the first treatment for Alzheimer’s disease to hit the market in nearly two decades.     

But if it is rejected, the verdict could have far-reaching implications for the Massachusetts-based company. In fact, it could hasten an activist incursion, according to a report from Insightia.

In its Activitst Insight Vulnerability study, Insightia placed Biogen in the 93rd percentile in a ranking of companies most vulnerable to activist investor pressure over the next nine months. Compared to its peers, Biogen's stock has underperformed, the firm says.

Analyst Iuri Struta contends in the study that Biogen’s lack of preparation for a patent cliff for three key multiple sclerosis drugs—Tysabri, Tecfidera, and Vumerity—has left it exposed.

“Uncertainty over what will be the company’s next revenue driver has dented investor confidence,” Struta wrote.

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The numbers Struta cites as reflective of a drop in investor confidence are Biogen's market capitalization trading at just 11 times its profits and 7.7 times its EBITDA (earnings before interest, taxes, depreciation and amortization). The median figures for Biogen’s industry peers are 22.2 and 15.8 respectively. 

Meanwhile, sales figures show a company in free fall. For the first time in decades, Biogen’s annual revenue fell in 2020 and did so in precipitous fashion, dropping from $14.4 billion in 2019 to $13.4 billion. The trend accelerated in the first quarter of this year, with revenue decreasing by 24%, much of it chalked up to a 26% drop in sales of MS drugs, which had begun to decline even before the coronavirus pandemic.

According to Struta, aducanumab is the “only real hope of avoiding a plunge over the patent cliff.”

The drug is designed to break down amyloid plaque buildup that is thought to worsen Alzheimer’s disease. Aside from aducanumab, Biogen and its development partner Eisai are working on another Alzheimer’s treatment, which has finished enrolling patients in a late-stage trial.

Beside these efforts, Insightia says, Biogen hasn’t done enough to sustain sales until 2024, the year CEO Michel Vounatsos targets for Biogen’s early-stage assets to reach the market. 

“An activist investor could question whether the management team is executing poorly or following the wrong strategy,” Struta writes.

Further, an activist could “demand the company spend more money on late-stage assets that could help smooth the upcoming loss of revenues," he added.

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Since Vounatsos took over in 2017, Biogen has made just one acquisition, an $800 million purchase of Nightstar Therapeutics, which has brought promising drugs but nothing to address the immediate future, Insightia points out.

But rather than being an acquirer, Insightia sees a potential alternative for Biogen: It could sell itself or merge with a rival. Recent megadeals such as AbbVie’s acquisition of Allergan, Bristol Myers Squibb’s merger with Celgene and AstraZeneca’s buyout of Alexion are examples of the industry’s shifting landscape, the report says.

If an activist stare-down comes about, it won’t be the first time for Biogen. More than a decade ago, billionaire investor Carl Icahn sparred with the company over the same issues, claiming poor management and underperformance relative to peers. 

Icahn first urged Biogen to sell, then argued that it would be better off split in two, with one firm focused on oncology, the other on neurology. Icahn maneuvered to place three of his nominees on the board before abandoning a proxy fight in a 2010 settlement. 

Soon after, Biogen’s fortunes rose with approvals for MS drugs Tecfidera and Vumerity. But 2015 brought a reversal in the momentum, according to Insightia, and Biogen’s failure to respond has again left the company exposed. Tecfidera has now succumbed to U.S. generics, denting sales.

RELATED: Icahn claims two Biogen seats, slams CEO

Ahead of the FDA's decision on aducanuamb, Brian Abrahams of RBC Capital Markets has warned investors to be ready, not only for a dramatic move in Biogen stock, but also for moves in the stock of other companies that sell Alzheimer’s treatments and even companies that may be takeover targets for Biogen, including Eisai.

“The FDA’s upcoming decision on aducanumab is not only binary for Biogen but also likely to reverberate throughout the biopharma sector, influencing overall sentiment on the space, perceptions on regulatory flexibility and business development dynamics,” Abrahams wrote. “With sector sentiment negative, the adu decision has potential to rapidly turn perceptions around or conversely, to double down on recent apathy.”