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Biogen (BIIB): Failure of the Lou Gehrig’s Disease Drug

Biogen (NASDAQ:BIIB) experimental drug for a rare disease that destroys the brain and spinal cord nerve cells failed in a company study. Biogen says it is ending its research program for the drug, dexpramipexole.

The medicine was the in the late stages of testing for a treatment of amyotrophic lateral sclerosis, or ALS, which is also commonly known as Lou Gehrig’s disease. While some Wall Street analysts viewed the drug as a long shot, study results were highly anticipated and the failure is a disappointing development for a company that has won over a number of investors since CEO George Scangos came aboard in June 2010. Scangos is seen as a leader who brought a more clear direction to the big biotech.

In morning trading, shares of Biogen dropped 4% to $144.65. (They fell 6% in pre-market trading.) The stock is still up 28% over the past 12 months.

Mark Schoenebaum, ISI Group analyst , said:

The sentiment hit is clearly real and important for a high-flying company that really has done no wrong in years

But Schoenebaum and other Wall Street analysts are looking ahead for a much bigger catalyst in the stock, the upcoming Food and Drug Administration approval decision on BG12, a pill for multiple sclerosis that some analysts see as a potential blockbuster product. The FDA is expected to make a decision by March 28 (though a ruling can be made before that date). BG12 would compete with Novartis’ (NYSE:NVS) Gilenya, the first oral treatment for MS. Biogen’s drug is expected to take share from Gilenya, which was approved in 2010.

Schoenebaum previously estimated that Biogen’s ALS drug would peak at around $400 million in annual sales by the end of the decade. By comparison, a consensus of analysts predicts BG12 annual sales will soar to more than twice that amount by 2014 (if the drug is approved this year).

Joel Sendek, Stifel Nicolaus analyst, commented:

BG12 has the potential to easily beat consensus estimates of $350 million and $908 million in 2013 and 2014.