Taking Advantage of Biogen’s ALS Drug Failure, Subsequent Weakness

Biogen Idec (NASDAQ:BIIB) announced on Thursday that its late-stage amyotrophic lateral sclerosis (ALS) treatment, dexpramipexole, failed to meet its primary endpoint in a Phase III trial, causing shares of the large biotech to gap down at the open. The sell-off, however, proved slightly overdone as the stock began to rebound in the late morning. We see this weakness as a buying opportunity in BIIB based on the company’s strong business and the upcoming FDA approval decision for multiple sclerosis treatment BG-12. The drug is largely expected to receive approval in March, and analysts anticipate sales of over $2B annually (read more in our previous report).

Following the Phase III failure, Biogen will cancel development of dexpramipexole altogether. The drug demonstrated mixed results in a previous Phase II trial that reported data in October, halting disease progression in some patients but failing to present a statistically significant benefit compared to placebo. Sales estimates for the therapy, had it reached approval, called for roughly $400M at peak, notable, but not a major dent in Biogen’s $6B projected 2013 revenue. ALS, also known as Lou Gehrig’s Disease, is not yet fully understood, and only one marginally effective treatment, Rilutek by Sanofi (NYSE:SNY), exists.

You can read more about Biogen Idec in our prior coverage. BIIB has been lagging behind its Big Four competitors in the last year in terms of cash deployment, but we suspect the strategy may be beneficial to shareholders in 2013. With a major value-driving event upcoming, any weakness on Thursday’s drug failure makes for a buying opportunity.

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