DNLI/BIIB: Biogen’s Alzheimer’s Pipeline Failure Could Drive Acquisitions in Complementary Therapies; Denali Therapeutics a Potential Frontrunner
Tue 03/26/2019 14:12 PM
Takeaways
Last week, Biogen and its Japanese pharma partner Eisai announced they would terminate the Phase 3 trials of their jointly developed drug aducanumab for early Alzheimer’s disease.
Biogen’s failure has raised investor concern around the company’s future growth strategy, fueling speculation that the company could pursue a big-ticket M&A transaction to expand its neuroscience franchise.
A recent Biogen presentation laid out the company’s vision in expanding its neuroscience portfolio. Alzheimer’s and Neuromuscular remains the company’s primary focus.
While the aducanumab failure is likely to spur investor calls for Biogen to move away from a high-risk Alzheimer’s strategy to diversify into other neuroscience areas, Biogen’s options appear limited and expensive.
Among the companies that have been floated around as potential targets for Biogen are: Sage Therapeutics, Sarepta Therapeutics, Neuroscience Biosciences and Ionis Pharmaceuticals. All four companies have at least one drug therapy in Phase 3 trials.
However, despite the strategic attractiveness such companies may offer Biogen, these targets come with a hefty price tag. As Figure 1 illustrates, all four companies have a market cap in the range of $8 to $10 billion.
According to Biogen’s latest 10-K, the company has a cash holding of roughly $4.9 billion. Some market participants argue that with a cash holding of that size and with additional capacity to raise new debt, Biogen could easily scoop up a mid-sized target from among the four.
However, Biogen’s decision this week to enter into a stock repurchase program to the tune of $5 billion, in addition to the $1.7 billion remaining under the program set in August 2018, may shrink the company’s appetite for a large-sized transaction.
That means that Biogen is more likely to stick to a conservative M&A strategy as it did in the past. Biogen historically opted for smaller acquisitions and licensures that give it access to early-stage pipeline assets. With the exception of the $3.25 billion Tysabri acquisition, Biogen’s takeovers since 2006 have remained fairly modest, with the most recent purchase of Nightstar Therapeutics for $800 million as the biggest of them all.
It is in this context that a company like Denali Therapeutics could emerge as a strategic acquisition target for Biogen in the near future because of the following reasons:
First, Denali’s market cap is roughly $2 billion, much less than the $8 to $10 billion market cap range enjoyed by companies that are on investors’ radars as potential acquisition targets by Biogen. Furthermore, the transaction would still be palatable to Biogen even after the company’s decision to enter into a new $5 billion stock repurchase program.
Second, Biogen’s and Eisai’s recent Alzheimer’s failure comes against the backdrop of a series of setbacks faced by the biotech industry, including Merck & Co., Eli Lilly, Pfizer and Roche, all of which unsuccessfully attempted to treat early-stage Alzheimer’s by targeting the “beta amyloid” protein.
There is extensive debate within the scientific community regarding whether researchers should focus on attacking the beta-amyloid protein as a strategy to treat Alzheimer’s. While some believe strongly that beta-amyloid is at the core of treating Alzheimer’s, others think it is another protein called “tau,” tangles of which are found in dying neurons.
Experts have also pointed out that while the beta-amyloid protein may be the trigger to Alzheimer’s, the cure may lie in addressing the brain’s innate immune system, which reacts with significant levels of neuroinflammation that is the main cause of real cell death, ultimately leading to dementia.
“The good thing about these failures associated with the beta-amyloid approach is that it’s going to blow the field wide open,” says Alex Thomé, Scientific Project Manager at the Center for Innovation in Brain Science at the University of Arizona. According to Thomé, cracking the code may involve a “combination approach,” where a protein-based beta-amyloid or tau strategy pursued by the likes of Biogen is going to be just one among the many adjunct therapies of the future.
It is in this context that other approaches to tackling Alzheimer’s may start to gain more traction among researchers and pharma companies focused on gaining a foothold in what could be a highly lucrative Alzheimer’s Disease, or AD, franchise in the future.
Smaller companies like Denali Therapeutics are developing drugs that target inflammation and other aspects of the brain to treat Alzheimer’s. Last year, Denali announced that it had dosed its first patient in a Phase I clinical trial of RIPK1 in healthy volunteers.
The company said it achieved proof of concept in nonhuman primates for its large molecule blood-brain barrier delivery platform. Denali’s compound, DNL747, is a selective and brain-penetrant molecule inhibitor being developed for Alzheimer’s and Amyotrophic lateral sclerosis, or Lou Gehrig’s disease. Earlier this year, Denali announced initiation of dosing in a Phase 1b clinical study of DNL747 in patients with Alzheimer’s disease. Denali is also partnering with Takeda Pharmaceuticals on an early-stage program targeting the “tau” protein.
“There are a constellation of things going wrong in case of Alzheimer’s and maybe what you really need is to stop the cells from dying, and targeting the RIPK1 protein could be a potential solution,” notes Thomé. RIPK1 is a critical signaling protein in the tumor necrosis factor receptor pathway and is a regulator of inflammation and cell death. Denali’s DNL747 targets this protein.
For Biogen, which has met with past success in acquiring early-stage assets, Denali could once again present a similar opportunity. Moreover, acquiring a company with cutting-edge blood-brain-barrier technology could be an invaluable asset for future development in the neuroscience space, even if the probability of Denali’s future success with its AD pipeline appears low at this juncture.
Although Denali already has a strategic collaboration agreement with Sanofi and Takeda to support clinical trials and commercialization of its AD therapies, the contractual agreements in and of itself should not present a major roadblock if other suitors such as Biogen make a play for Denali.
Despite the aducanumab failure, Biogen and development partner Eisai announced last week the launch of a global Phase 3 clinical trial, Clarity AD, to evaluate anti-amyloid beta protofibril monoclonal antibody BAN2401 in patients with early Alzheimer's disease. The fact that Biogen has not completely disbanded the anti-amyloid approach means the company is intent on taking a long, patient approach to the AD market.
A potential combination therefore with companies pursuing other complementary approaches to tackling Alzheimer’s such as Denali could prove to be successful strategic bet in the long term.
--Shrey Verma
- Biogen’s recent Alzheimer’s failure could lead the company to pursue acquisition of complementary therapies aimed at Alzheimer’s disease in a bid to support future growth strategy and expand its neuroscience franchise.
- The company’s decision this week to enter into a stock repurchase program to the tune of $5 billion may limit the company’s appetite for a large-sized transaction. In this context, a smaller company like Denali Therapeutics could emerge as a strategic frontrunner for a potential acquisition by Biogen in the near future.
- Denali Therapeutics is developing drugs that target inflammation and other aspects of the brain to treat Alzheimer’s, in contrast to the “anti-beta amyloid” approach taken by Biogen. For Biogen, a potential combination with companies pursuing other approaches to tackling Alzheimer’s, such as Denali, could prove to be successful strategic bet in the long term.
Last week, Biogen and its Japanese pharma partner Eisai announced they would terminate the Phase 3 trials of their jointly developed drug aducanumab for early Alzheimer’s disease.
Biogen’s failure has raised investor concern around the company’s future growth strategy, fueling speculation that the company could pursue a big-ticket M&A transaction to expand its neuroscience franchise.
A recent Biogen presentation laid out the company’s vision in expanding its neuroscience portfolio. Alzheimer’s and Neuromuscular remains the company’s primary focus.
While the aducanumab failure is likely to spur investor calls for Biogen to move away from a high-risk Alzheimer’s strategy to diversify into other neuroscience areas, Biogen’s options appear limited and expensive.
Among the companies that have been floated around as potential targets for Biogen are: Sage Therapeutics, Sarepta Therapeutics, Neuroscience Biosciences and Ionis Pharmaceuticals. All four companies have at least one drug therapy in Phase 3 trials.
However, despite the strategic attractiveness such companies may offer Biogen, these targets come with a hefty price tag. As Figure 1 illustrates, all four companies have a market cap in the range of $8 to $10 billion.
Figure 1: Companies’ Market Capitalization
According to Biogen’s latest 10-K, the company has a cash holding of roughly $4.9 billion. Some market participants argue that with a cash holding of that size and with additional capacity to raise new debt, Biogen could easily scoop up a mid-sized target from among the four.
However, Biogen’s decision this week to enter into a stock repurchase program to the tune of $5 billion, in addition to the $1.7 billion remaining under the program set in August 2018, may shrink the company’s appetite for a large-sized transaction.
That means that Biogen is more likely to stick to a conservative M&A strategy as it did in the past. Biogen historically opted for smaller acquisitions and licensures that give it access to early-stage pipeline assets. With the exception of the $3.25 billion Tysabri acquisition, Biogen’s takeovers since 2006 have remained fairly modest, with the most recent purchase of Nightstar Therapeutics for $800 million as the biggest of them all.
It is in this context that a company like Denali Therapeutics could emerge as a strategic acquisition target for Biogen in the near future because of the following reasons:
First, Denali’s market cap is roughly $2 billion, much less than the $8 to $10 billion market cap range enjoyed by companies that are on investors’ radars as potential acquisition targets by Biogen. Furthermore, the transaction would still be palatable to Biogen even after the company’s decision to enter into a new $5 billion stock repurchase program.
Second, Biogen’s and Eisai’s recent Alzheimer’s failure comes against the backdrop of a series of setbacks faced by the biotech industry, including Merck & Co., Eli Lilly, Pfizer and Roche, all of which unsuccessfully attempted to treat early-stage Alzheimer’s by targeting the “beta amyloid” protein.
There is extensive debate within the scientific community regarding whether researchers should focus on attacking the beta-amyloid protein as a strategy to treat Alzheimer’s. While some believe strongly that beta-amyloid is at the core of treating Alzheimer’s, others think it is another protein called “tau,” tangles of which are found in dying neurons.
Experts have also pointed out that while the beta-amyloid protein may be the trigger to Alzheimer’s, the cure may lie in addressing the brain’s innate immune system, which reacts with significant levels of neuroinflammation that is the main cause of real cell death, ultimately leading to dementia.
“The good thing about these failures associated with the beta-amyloid approach is that it’s going to blow the field wide open,” says Alex Thomé, Scientific Project Manager at the Center for Innovation in Brain Science at the University of Arizona. According to Thomé, cracking the code may involve a “combination approach,” where a protein-based beta-amyloid or tau strategy pursued by the likes of Biogen is going to be just one among the many adjunct therapies of the future.
It is in this context that other approaches to tackling Alzheimer’s may start to gain more traction among researchers and pharma companies focused on gaining a foothold in what could be a highly lucrative Alzheimer’s Disease, or AD, franchise in the future.
Smaller companies like Denali Therapeutics are developing drugs that target inflammation and other aspects of the brain to treat Alzheimer’s. Last year, Denali announced that it had dosed its first patient in a Phase I clinical trial of RIPK1 in healthy volunteers.
The company said it achieved proof of concept in nonhuman primates for its large molecule blood-brain barrier delivery platform. Denali’s compound, DNL747, is a selective and brain-penetrant molecule inhibitor being developed for Alzheimer’s and Amyotrophic lateral sclerosis, or Lou Gehrig’s disease. Earlier this year, Denali announced initiation of dosing in a Phase 1b clinical study of DNL747 in patients with Alzheimer’s disease. Denali is also partnering with Takeda Pharmaceuticals on an early-stage program targeting the “tau” protein.
“There are a constellation of things going wrong in case of Alzheimer’s and maybe what you really need is to stop the cells from dying, and targeting the RIPK1 protein could be a potential solution,” notes Thomé. RIPK1 is a critical signaling protein in the tumor necrosis factor receptor pathway and is a regulator of inflammation and cell death. Denali’s DNL747 targets this protein.
For Biogen, which has met with past success in acquiring early-stage assets, Denali could once again present a similar opportunity. Moreover, acquiring a company with cutting-edge blood-brain-barrier technology could be an invaluable asset for future development in the neuroscience space, even if the probability of Denali’s future success with its AD pipeline appears low at this juncture.
Although Denali already has a strategic collaboration agreement with Sanofi and Takeda to support clinical trials and commercialization of its AD therapies, the contractual agreements in and of itself should not present a major roadblock if other suitors such as Biogen make a play for Denali.
Despite the aducanumab failure, Biogen and development partner Eisai announced last week the launch of a global Phase 3 clinical trial, Clarity AD, to evaluate anti-amyloid beta protofibril monoclonal antibody BAN2401 in patients with early Alzheimer's disease. The fact that Biogen has not completely disbanded the anti-amyloid approach means the company is intent on taking a long, patient approach to the AD market.
A potential combination therefore with companies pursuing other complementary approaches to tackling Alzheimer’s such as Denali could prove to be successful strategic bet in the long term.
--Shrey Verma
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