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Uncertain future will certainly be a challenge for biopharma

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By Peter Winter
BioWorld Insight Editor

SAN FRANCISCO – You either love it or hate it. San Francisco's J.P. Morgan Healthcare Conference is upon us, bringing with it filled-to-capacity meeting rooms, pushing and shoving in crowded corridors as delegates try and make it to their next presentation or business meeting on time, and wall-to-wall receptions throughout the week. Factor in other interesting meetings such as Biotech Showcase and OneMedForum and you have the recipe for one crazy period that even veteran attendees need oxygen to help recover from the ordeal before staggering home for a rest.

Why do we inflict such punishment on ourselves? Well, where else can you have the chance to rub shoulders – literally – with leading biopharma executives and elite investors and bankers all in a short space of time. You just have to be there because it is also a great opportunity to take the industry's temperature and get a sense of where we are heading in the next 12 months.

There is no doubt that delegates will be filing into the start of the 35th annual J.P. Morgan Healthcare Conference, which opens Monday, in pensive mood. The biopharmaceutical sector has limped into the New Year after one of its worst performing 12 months during the past several years.

The BioWorld Drug Developers Index and BioWorld Biopharmaceutical Index closed down 15 percent and 18.5 percent, respectively, for 2016. In comparison, the general markets had a great year with the Dow Jones Industrial Average and the Nasdaq Composite index closing 2016 up 14 percent and 8.5 percent, respectively.

What to expect

After this very tough year, can we expect a dramatic turnaround in 2017 or more of the same? RBC Capital Markets analyst Michael Yee writes that he "is positive on biotech innovation and the potential for M&A but tepid on overall sector performance."

His observations are shared by many in the industry who believe that the sector's capital market performance will stay essentially flat this year.

There is no doubt that attendees will be paying close attention to the presentations of the major biopharmaceutical companies this week to learn how they are planning for the upcoming year given the prevailing political uncertainties surrounding health care and drug pricing.

Major catalysts will be needed to keep investors engaged; in addition, companies will need to continue to deliver on their financial forecasts. Many of the analysts are expecting this to be a year in which we will see major dealmaking. The top tier biopharmas are sitting on a great deal of cash and that can be deployed to add pipeline muscle to counteract the downward pricing pressures on their older drugs.

This is one of the conclusions of the EY M&A Outlook and Firepower Report 2017 launched today. The analysts observe that, "with new regulatory and tax environments expected following the changing geopolitical landscape, expectations are that the industry may roar past the $200 billion in global M&A deal volume seen in the last three years. (See next week's issue for a detailed review of the report's findings.)

The uptick in M&A will likely occur in the second quarter once biopharma company executives have had a chance to assess "the lay of the land" with the new administration. All in all, the sector faces a volatile near-term future as far as the capital markets are concerned. However, executives of both public and private companies will be hoping that capital flows as freely as it did in 2016.

Cash in the bank

With another $12.7 billion raised by biopharmaceutical companies in the fourth quarter, the same amount as in the third quarter, the industry tallied almost $38 billion from public and private financing transactions, enough to rank second behind the massive $68.6 billion generated in 2015. While biotech companies took a beating on the capital markets, this performance did not spill over to retard their ability to raise capital, particularly in the second half of the year. (See Table 1, right.)

With share price valuations taking a beating, public biotech companies only managed to bring in approximately $2.9 billion from follow-on financings in the fourth quarter, well short of the $9 billion raised in the third quarter. However, that amount was boosted by a giant-sized public offering of debt completed by Gilead Sciences Inc. in September, which involved the pricing of five tranches of senior unsecured notes totaling $5 billion.

Even though there was a considerable drop-off in follow-ons, those transactions did generate $21.1 billion, or 56 percent of the total financings for the year. (See Table 2, below.)

Drilling down into the Q416 transactions, 40 companies completed public offerings in the period. The largest amount was raised by gene therapy firm Cambridge, Mass.-based Bluebird Bio Inc., which priced an underwritten public offering for proceeds of approximately $250 million. The company was quick to lever an almost 14 percent jump in its shares (NASDAQ:BLUE) after disclosing interim data from an ongoing phase I trial with the anti-BCMA CAR T-cell candidate BB2121 for relapsed/refractory multiple myeloma (MM), in development with Celgene Corp., that showed a 100 percent overall response rate (ORR) in two high-dose cohorts, or six patients. A 78 percent ORR turned up in nine evaluable, heavily pre-treated patients out of 11 in four dose cohorts, as of the cutoff date around the middle of last month. Results were unveiled in Munich at the EORTC-NCI-AACR Molecular Targets and Cancer Therapeutics Symposium. (See BioWorld Today, Dec. 2, 2016.)

In the study, BB2121 patients received a conditioning regimen of cyclophosphamide and fludarabine, followed by an infusion of BB2121 anti-BCMA CAR T cells produced from each patient's own blood cells, which were modified using a lentiviral vector encoding the anti-BCMA CAR.

Tesaro Inc., of Waltham, Mass., fresh off raising $409 million from an underwritten public offering of common stock in the third quarter, went back to the market again to raise $236 million from a public offering in November. The previous month the company released full results of its phase III NOVA trial at the European Society for Medical Oncology conference. The data showed that once-daily PARP inhibitor niraparib significantly extended the time during which women with recurrent ovarian cancer were able to live with their disease before their tumors began to grow again. (See BioWorld Today, Oct. 11, 2016.)

Further good news was to follow in December when Tesaro announced that the FDA had granted priority review for the niraparib new drug application. The agency has established a PDUFA date of June 30, 2017, and is not currently planning to hold an advisory committee meeting to discuss the application.

A consensus forecast compiled by Cortellis Clinical Trials Intelligence, and based on four analysts' projections, points to potential global niraparib sales of $1.25 billion by 2021.

Investors were certainly impressed with the company's progress and that helped propel Tesaro into the third spot in the top 20 ranking of annual share price gain at 158 percent. (See BioWorld Insight, Jan. 3, 2017.)

European follow-on offerings were again few and far between in the fourth quarter and, like the third quarter, only two transactions were completed, including Copenhagen-based Ascendis Pharma A/S (Nasdaq:ASND), which priced a public offering of American depositary shares to gross $120 million, with the net proceeds being used to support the clinical development and regulatory approval of Transcon growth hormone, and to fund development of other Transcon product candidates. (See BioWorld Today, Jan. 9, 2017.)

Report card

It wasn't a banner year for the industry, and we give it an average rating with its capital market blues being offset by a great fundraising year. At the start of the year there were 356 public biopharma companies with a collective market cap of $854 billion. During the year, 23 companies were acquired, while 31 new firms graduated to the public ranks. As a result, the industry starts out 2017 with 364 public companies having a collective market cap of $740 billion.

At the end of 2016, there were 70 member companies of the billion-dollar market cap club, a 15 percent decrease year over year.

There was some positive news for the sector heading into the conference, with the BioWorld Biopharmaceutical Index up 7.6 percent and the BioWorld Drug Developers Index up 5 percent in the short number of trading days since the start of the year – well ahead of the performance of the general markets. It remains to be seen whether that upswing will hold firm by the end of the meeting; certainly everyone involved in the industry hopes so.