Biotech Values

[drbio45]

Teva Pharmaceutical (TEVA): Uh Oh - Laquinimod Competitor BG-12 Shows Competitive/Superior Data


Rating HOLD
Price Target $53.00
Price $49.17
Key Takeaway
Biogen announced more specific efficacy data for its Phase III oral MS drug BG-12 that appear superior to that for laquinimod, and this is dampening market enthusiasm for Teva's highest profile pipeline drug. The stock is down >6% today, which we think is probably an overreaction. That said, given overall market concerns on Copaxone and now potentially laquinimod, we remain at Hold.


A shot across the bow. During its 4Q earnings call this morning, Biogen (BIIB, $86.57, Buy) announced data for BG-12, its Ph.3 oral drug for MS, with efficacy data that on the surface appear superior to that for Teva's Ph.3 oral drug laquinimod. As a reminder, BIIB had press released last Monday (ironically, the same day that Teva announced the ALLEGRO Ph.3 data for laquinimod vs. placebo) that BG-12 had hit statistical significance in its DEFINE trial vs. placebo, but specific details around efficacy and safety were not included. The headline efficacy data for BG-12 from BIIB's call today were: ARR reduction vs. placebo of 53% (vs. 23% for laquinimod) and EDSS reduction vs. placebo of 38% (vs. 36% for laquinimod). On first blush, these efficacy data look strong and very competitive to Novartis' (NOVN.VX, CHF51.05, Buy) Gilenya, which is currently the only FDA approved oral pill for MS. Gilenya has similar efficacy data, but carries multiple warnings on its label (for potential cardiovascular, ocular, lung function, liver issues), and this has been viewed as the opportunity for laquinimod -- to come in as a safer oral option. Feedback we had gathered from neurologists while we were at last week's AAN meeting had suggested that despite lower ARR efficacy data for laquinimod, its safety profile along with its once daily oral dosing could make it a potential winner. In our view, today's BG-12 data now throws this in question, with BG-12 potentially stepping up ahead of laquinimod.



Several things to keep in mind. Whereas BG-12's efficacy data look stronger compared to laquinimod, we remind investors that it's always difficult to compare drugs across clinical trials without the benefit of having a true-head-to-head study comparing any two drugs, with differences on efficacy sometimes attributable to differences in clinical trial design and patient populations studied. We also note that there are several differentiating factors between laquinimod and BG-12. First, as it relates to dosing, laquinimod is given once daily, whereas BG-12 is given twice daily or three times daily. Feedback from physicians at AAN on dosing was somewhat mixed, but overall, it was generally viewed that once daily is always preferred. Also, on safety and tolerability, laquinimod seems very clean, suffering from just mild and transient elevations in liver enzymes, and some increases in back pain and abdominal pain. BG-12 shows flushing and GI side effects, and while this appears manageable, without more specific numbers and data, it's difficult for us to draw conclusions at this time. We'd expect to get a more definitive picture on the profiles of laquinimod and BG-12 later this year with data expected from the second of each's Ph.3 clinical trials -- BRAVO for laquinimod (vs. Biogen's Avonex) and CONFIRM for BG-12 (interestingly, vs. Teva's Copaxone).



What to do with the stock? For those bullish on Teva, laquinimod has been viewed as a potential multibillion dollar product that could be a potential successor to Copaxone, which generated >$3BN in sales in 2010 (~20% of Teva's total revenue but perhaps 35-40% of profits), but this new data for BG-12 could put a big dent into this. We'd agree that Teva's valuation at current levels is cheap (~9X PE versus ~12X PE for the peer group). However, in the bigger picture, given continued market uncertainty over the fate of Copaxone -- not only on the competitive front in the MS marketplace but also the risk of potential generics (especially given a September patent trial ) -- and now big questions on the competitiveness of laquinimod, we don't see a particularly strong reason to step up in a major way at these levels.


Corey Davis, Ph.D. *, Equity Analyst
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Graig Suvannavejh, Ph.D. *, Equity Associate
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Oren G. Livnat *, Equity Associate
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* Jefferies & Company, Inc.