Guest Post by Asthika Goonewardene at firstname.lastname@example.org
The year ahead in biotech is primed to be a stock-pickers' market. Fundamental growth among commercial biotechs in the U.S. is forecast to be similar to 2017, while non-U.S. stocks are poised for a slowdown. In this regard, Gilead is set for another challenging year, while Amgen and Vertex could surprise on commercial execution. The top potential clinical catalyst plays across BI's coverage include Celgene, Biogen, Incyte and Exelixis.
In the big picture, political threats to drug pricing may be reignited after a subdued 2017. Payer-driven pressure is expected to remain opportunistically rampant and pressure recent launches. It's unclear if 2018 will wake up M&A after a sleepy 2017, but licensing deals should carry on strong.
What's in Store for 2018?
Urgency To Fill Commercial Needs May Renew Biotech M&A Interest Something more in evidence at the start of 2018 vs. one year ago is biopharma companies with urgent needs to augment stagnant or eroding sales or over-reliance on a single asset. As it stands, the pressure is weighing on Gilead, Celgene, Merck & Co. and Sanofi to do deals. Johnson & Johnson and Roche are among other contenders, though the latter's late-2017 play for Ignyta may mean it takes a breather. While less urgently, many other big bio-pharma companies have re-emphasized deal interest. These potential buyers may look upon small and mid-cap biotech with advancing clinical assets. As with 2017, cash remains cheap, and valuations reasonable.
Commercial-Stage U.S. Biotech May Be in for an In-Line 2018
For 2018, analysts call for sales growth that's in-line with 2017 for U.S. mature and profitable growth biotechs, while EPS growth is pegged to be less volatile and more positive. Understandably, new-launch and post-launch biotechs have more variability. Non-U.S. mature biotechs collectively have more sales and EPS deceleration.
Elections, Pricing and Taxes Headline 2018 Pharma Policy Issues
The drug-pricing issue took a back seat to Obamacare in 2017, but it will likely re-emerge as a key political theme ahead of the 2018 U.S. midterm elections in November, when Democrats hope to regain control of Congress. Additionally, the ACA's tax on brand-name drugs will peak in 2018, while tax reform could spur a new wave of M&A activity.
Big Biotech Has Several 2018 Catalysts That May Move the Needle Clinical and regulatory catalysts play a critical role in biotech investment thesis, and even the big mature biotechs -- which account for about one-third of the Nasdaq biotech index -- have several in 2018 that could move the needle. Amgen: Amgen's 2018 event horizon is packed with regulatory events fitting for a company trying to change over its revenue mix and return to sales growth. The company's expected regulatory verdicts have a high probability of success, but what's key is the market's uptake. The biggest driver is likely to be commercial execution on Aimovig for migraine. Sales are conservatively forecast at $100 million in 2018, and while competition may be stiff, the opportunity may be large, and payers have near-term rationale to cover the drug.
Biogen: Biogen's 2018 diary isn't abundant with meaningful clinical or regulatory catalysts, but a positive result for one drug could have the biggest impact among mature biotech peers. Biogen's partner Eisai should have full 18-month data from a Phase II study in early Alzheimer's disease in 2H, and Biogen has rights to this asset. The study missed at 12 months, but wasn't stopped for futility. Given Alzheimer's development history, it's likely that analysts are attributing little probability of success.
Celgene has a very data-heavy 2018 in store, but this enviable position puts the drugmaker under pressure to deliver, given recent issues. Revlimid has two data points that may broaden its use into lymphoma. Expectations are mixed, yet an expert says these studies could show incremental benefit and may give some headline positivity. Consensus already calls for luspatercept peak sales of $1 billion, so expectations are already high. Positive ICONIC data would help liven up interest in the Jounce collaboration. Among others, Roche has three Phase III trials using Abraxane. Early data were promising, and Roche is better positioned vs. rivals, but estimates for Celgene don't appear to factor in much growth in this use. Celgene has ex-U.S. rights to Juno's JCAR17, and Transcend data may prove it the better CAR-T.
Gilead has a few clinical catalysts in store for 2018, of which the most potentially impactful is the first Phase III readout of its filgotinib development program. A strong result in Finch 2 will set the tone for the other filgotinib trials in arthritis, due later. Interim data from the selection study would also garner some interest. Filgotinib is commercially critical to Gilead, as it's one of the assets that could help reverse topline erosion that's plaguing the big biotech. NASH is a prevalent fatty liver disease, and Gilead may bolster its competitive position in 1H. Single agent data for GS9674, a FRX agonist, may be compared with Intercept's Ocaliva. Data on Gilead's doublets will be of particular interest, as these would be the first combination drug data in NASH.
Other notable biotech catalysts include:
Regeneron: Phase III ODYSSEY OUTCOMES trial, which if positive, could help liberate sales of its PCSK9 inhibitor Praluent
Vertex: Approval of Tez-Iva should be in the bag, but commercial execution across its cystic fibrosis franchise will be one to watch. Expectectations appear somewhat conservative, so good commercial execution may mean Vertex could beat consensus.
Incyte: All eyes are on the readout of its first Phase III trial, ECHO-301, of epacadostat plus Merck’s Keytruda. The street is quite skittish on calling this outcome, and rightfully so given its the first head-to-head study against a PD-1 agent. We may be wrong, but our feel is this has a good chance of going in Incyte’s favor, but only time will tell.
Looking back: 2017’s M&A Tumbleweed
Last year had all the makings of a busy time for biotech M&A. The valuations were more realistic, borrowing conditions favorable and potential candidates were producing good data and advancing their pipeline assets. But despite all this, and the many attendant deal rumors, transactions didn't materialize apace. Political uncertainties in Europe and the U.S. may have been factors, and while tax reform and cash repatriation were suggested as reasons to delay deals, biotech and pharma buyers had no borrowing issues. Bucking the state of M&A torpor were Takeda (acquiring Ariad), Gilead (Kite), and Roche (Ignyta). While the lack of 2017 activity is difficult to explain, that year is over, and 2018 has different forces at play.
But a slow M&A market in 2017 didn’t preclude licensing deal activity. Licensing deal volumes in 3Q were in-line with the prior-year period, with more than 100 deals struck for the seventh successive quarter. Average total values rose 58% to $696.8 million, with at least five pacts commanding total potential values of $1 billion or more, as upfront fees more than doubled to $126.5 million. As in prior periods, the majority of deals were in the pre-clinical phase, relating to discovery-technology platforms and cancer assets. The immuno-oncology revolution remains a driver.
While these licensing deals are still valuable to budding biotechs, a milestone and royalty structure doesn't necessarily play into valuation like an outright buyout does. Companies remain mostly focused on smaller deals, according to management teams.
For more insights or to meet at BTS 2018 contact: Asthika Goonewardene at email@example.com