Biogen (BIIB) president and CEO Christopher A. Viehbacher offered investors cold comfort about his company on Tuesday in a statement announcing second-quarter results: “Biogen’s business is in transition. Accordingly, we have taken a bottom-up view to shift our resources to the areas of greatest value creation.”

With those words, Biogen unveiled its latest cost-cutting measure—highlighted by the elimination of approximately 1,000 jobs. That will amount to 11.5% of its workforce, which numbered 8,725 jobs at the end of last year, according to its latest Environmental, Social, and Governance (ESG) report.

The job cuts were part of Biogen’s new “Fit for Growth” initiative, which Biogen has projected will generate approximately $1 billion in gross operating expense savings. However, about $300 million will be reinvested into product launches and R&D programs, so Fit for Growth will ultimately generate approximately $700 million in net operating expense savings by 2025, Biogen estimated.

Biogen is struggling to recoup declining sales in its largest product category of multiple sclerosis drugs. Product revenue for MS drugs fell 15% year-over-year during the second quarter, from $1.427 billion to $1.209 billion. For the first six months of this year, product revenue skidded 17% from January-June 2022, from $2.821 billion to $2.335 billion.

Leading the decline was Tecfidera® (dimethyl fumarate), whose product revenues fell 36% during Q2, to $254.2 million from $397.9 million a year earlier. For the first six months of 2023, Tecfidera product revenues slid 34.5%, to $528.7 million from $807.8 million.

Biogen’s net income shrunk 44% year-over-year during the second quarter, slipping from $1.059 billion to $593.3 million. The company’s total revenue fell 5% from Q2 2022, going from $2.589 billion to $2.456 billion. However, the company more than doubled its “other revenue” including from contract manufacturing and royalties, from $97.9 million to $197.5 million.

The company is pinning its hopes for a turnaround to a significant extent on the Alzheimer’s disease drug Leqembi® (lecanemab), co-developed with Eisai. The FDA granted the drug accelerated approval in January and full approval on July 6. Leqembi has been projected to be a blockbuster by GlobalData Healthcare, which estimates the drug will generate total sales of $12.9 billion between this year and 2028.

Another new drug Biogen hopes will replenish its coffers is Qalsody™ (tofersen), an antisense oligonucleotide indicated for the treatment of amyotrophic lateral sclerosis (ALS) in adults with a mutation in the superoxide dismutase 1 (SOD1) gene. Biogen won FDA approval for Qalsody in April.

Biogen also said an ongoing restructuring of its pipeline is “substantially complete” and will enable the company to show “a sharper focus on high potential opportunities.”

“While we will be making significant investments in our newly prioritized pipeline and new product launches, we will also need to invest less in other areas which are no longer growing,” Viehbacher stated. “With these changes, I believe that Biogen will be better positioned to maximize its growth opportunities going forward.”

Unfazed investors

The cost cuts didn’t appear to wow investors, or scare them off too much either. Biogen shares fell 2% from an even $277 a share to $270.31. The mini stock selloff continued into Wednesday, when Biogen shares slid another 2%, to $265.25—and into early trading Thursday, as the stock dipped an additional 1%, to $262.79. The share price showed no significant uptick Friday, when Biogen announced it had agreed to acquire Reata Pharmaceuticals for approximately $7.3 billion.

Shares of Biogen have plummeted 37% since June 2021, when they closed at $414.71 soon after the FDA approved Alzheimer’s drug Aduhelm® (aducanumab-avwa), which like Leqembi was co-developed with Eisai. Aduhelm’s failure to gain reimbursement from the Centers and Medicaid and Medicare Services triggered Biogen’s initial rounds of cost-cutting as well as the departure of Viehbacher’s predecessor as CEO, Michel Vounatsos.

Interestingly, this week’s drop-off in Biogen shares is about the same as the company experienced in February, when Viehbacher took a go-slow approach and balked at announcing job cuts and other expense reductions.

Brian P. Skorney, CFA, a senior research analyst with Baird, wrote in a research note that the stock drop-off reflected Viehbacher’s “considerable silence” during Biogen’s quarterly earnings call about zuranolone—an apparent retreat from earlier public optimism by the company that the FDA will approve its treatment for postpartum depression (PPD) and major depressive disorder (MDD).

Zuranolone—co-developed with Sage Therapeutics—is under FDA review, with a target action date of August 5 under the Prescription Drug User Fee Act (PDUFA). Biogen’s most recent Form 10-Q quarterly report filing omits that date—“which maybe suggests they have more information already than Street thinks,” Jefferies analyst Michael Yee speculated in a research note.

“Management has previously expressed high hopes for the program as a greatly undervalued asset and an integral component of the return to growth story, but it wasn’t mentioned a single time in the press release and was broadly avoided during prepared remarks,” Skorney observed. “While management suggested the minimal commentary was due to the PDUFA being right around the corner, we weren’t encouraged by the tonal inconsistency from prior optimism.”

Skorney predicted the FDA will approve zuranolone for PPD but instead issue a complete response letter for MDD, because the drug has shown stronger durability of benefit data in the former indication: “We have been generally skeptical around zuranolone’s differentiation from benzodiazepines in terms of efficacy and addictive potential, and we continue to view Leqembi as the much more crucial upside driver for the stock.”

Two potential missteps

Zuranolone may represent the second misstep for Viehbacher since he succeeded Vounatsos as Biogen CEO in November 2022, according to Skorney.

The first occurred last month, when shareholders elected Susan K. Langer, the President of stealth mode startup Souffle Therapeutics and a former Biogen executive from 2013 to 2019, to Biogen’s board. Langer was nominated to the seat by Alexander J. Denner, PhD, a former Biogen board member who did not stand for re-election—and who, according to STAT News, is a romantic partner of Denner and the mother of his child.

Despite the relationship, Langer was ultimately elected to Biogen’s board, though two other directors—William D. Jones and Richard C. Mulligan, PhD—have since joined Denner in opting not to stand for re-election to their board seats. The election of Langer “understandably left a sour taste in the mouths of investors hoping Biogen would escape its legacy of less-than-ideal business practices by steering clear of a seemingly completely avoidable situation mired in nepotism claim,” Skorney observed.

However, Skorney offered some praise, and a caution, about Fit for Growth and Biogen’s overall focus on cutting expenses.

“We see this as an encouraging sign of management’s focus on prudent financial decision-making,” Skorney added. “But we would also like to see management fortify the pipeline in addition to leaning out the base business.”

Another possible explanation for why investors didn’t rush to sell their shares: Biogen has been in cost-cutting mode since December 2021, when it announced a $500 million round of expense reductions.

In May 2022 as Biogen reeled from far lower-than-expected sales for the controversial  Aduhelm, the company announced a second $500 million cost-cutting round. Indeed Biogen’s headcount at the end of 2022 was already 11% below the 9,832 jobs reported by the company a year earlier.

Analysts’ mixed responses

Analysts, however, showed mixed responses to Biogen’s latest cost-cutting effort, with three Wall Street stock watchers lowering their 12-month price targets on the company’s shares.

Evan David Seigerman, a managing director and senior research analyst at BMO Capital Markets, offered the largest price reduction though he only cut his firm’s target by about 3%, from $357 to $347. Seigerman maintained BMO Capital’s “Outperform” rating on Biogen.

Joining Seigerman in lowering their price targets on Biogen shares:

  • Paul Matteis, a managing director and co-head of the Biotech Research Team at Stifel, down 1% from $324 to $320, but maintaining a “Buy” rating.
  • Laura Chico, PhD, senior vice president, Equity Research at Wedbush Securities, down just 0.4% from $269 to $268, but maintaining a “Neutral” rating.

Another three analysts, however, raised their price targets on Biogen stock. The largest increase at 11% came from Brian Abrahams, a Managing Director and Co-Head of Biotechnology Research at RBC Capital Markets, who went from $341 to $379. Abrahams maintained RBC Capital’s “Outperform” rating on the stock.

Also joining Abrahams in raising their price targets:

  • Matthew Harrison, a managing director and head of Biotech Industry Research at Morgan Stanley, from $355 to $363, up 2%, and maintaining an “Overweight” rating.
  • Ami Fadia, a team member specializing in biotechnology at Needham & Co., from $320 to $323, up 1%, and maintaining a “Buy” rating.

Leaders & laggards

  • BioCardia (BCDA) shares plummeted 47% on Monday, from $1.98 to $1.10, after the company paused its Phase III pivotal CardiAMP® Cell Therapy Heart Failure Trial (NCT02438306), pending a one-year follow-up outcomes analysis for patients that have been treated and those that have been enrolled but not yet treated. The move followed a pre-specified data review by the trial’s independent Data Safety Monitoring Board. The board said it acted based on an analysis of the trial data, the primary Finkelstein Schoenfeld (FS) composite endpoint assessment and a supplemental analysis presented on July 19, “unrelated to any emergent safety events.”
  • Humanigen (HGEN) shares cratered 74% on Tuesday, from 19 to four cents, after the company acknowledged that it was “exploring all restructuring options, which may include commencing a bankruptcy or other insolvency proceeding sometime in the third quarter.” Humanigen said its shares would be delisted from the Nasdaq Capital Market, with trading switching to the OTC Pink Sheets as of Wednesday, because it did not expect to comply with requirements for a $1 minimum bid price per share and $35 million market value by August 21. The company added that it failed to negotiate a proposed business combination, and complete another strategic or equity financing transaction in the first half of 2023. Humanigen also disclosed it was no longer in compliance with Nasdaq rules requiring a majority of independent directors, and an audit committee consisting of at least three independent directors, followed the resignations of board members John Hohneker, MD, Cheryl Buxton, and Kevin Xie.
  • Mersana Therapeutics (MRSN) shares nosedived 73% on Thursday, from $3.91 to $1.07, after the company announced a 50% workforce reduction—more than 100 jobs, based on the 228 reported as of December 31, 2022—and pipeline reprioritization after its ovarian cancer candidate upifitamab rilsodotin (UpRi, formerly XMT-1536) failed the registrational UPLIFT portion of a Phase Ib/II trial (NCT03319628). UpRi missed UPLIFT’s primary endpoint of investigator-assessed objective response rate (ORR) in a population positive for the sodium-dependent phosphate transport protein NaPi2b, which is targeted by the antibody-drug conjugate. Mersana shares, however, rebounded somewhat in early Friday trading, rising 25% to $1.34 as of 10:30 a.m. ET.
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