Delegates convening in San Francisco Monday for the 38th Annual J.P. Morgan Healthcare Conference and other related biotechnology conferences running at the same time will certainly be in a better frame of mind than just 12 months ago. Back then, the sector had just come off a terrible fourth quarter, with investors shying away from biopharma company equities big time.
This time around investors appear to have warmed to the biopharma sector, particularly in the final quarter of the year, with the BioWorld Biopharmaceutical Index increasing 23% in value during this period, which helped the group climb to a respectable 14% for the year after being underwater from April through to September.
Fueled by positive regulatory and clinical trial results from group members, the BioWorld Drug Developers index finished 2019 on a tear closing up a whopping 40% in value.
The general markets also rounded out the year on a positive note, with the Dow Jones Industrial Average and the Nasdaq Composite index recording annual increases of 22% and 35%, respectively. Both bellwether indices achieved major milestones, with the Dow breaking through the 28,000 threshold and the Nasdaq hitting the 9,000 level.
This is the most important week of the year for the biotechnology sector and, as we enter a new decade, conference attendees will be looking to presentations from industry executives at the various events for important clues as to what companies believe the year ahead might hold for them, and the strategies that will be needed to navigate what is likely to be another challenging 12 months given the impending 2020 election and current Middle East tensions.
Last year, the J.P. Morgan meeting opened with a bang in the wake of news that Bristol-Myers Squibb Co. bid $74 billion for Celgene Corp., a transaction that was destined to become the largest M&A in biopharma history when it closed late last year. Other M&A deal announcements quickly followed, including Eli Lilly and Co. announcing it was paying $235 per share in cash, or about $8 billion, for Loxo Oncology Inc. to bring aboard targeted cancer assets that include recently approved Vitrakvi (larotrectinib) and a pipeline of near-term candidates.
Can this year’s event top that? It certainly will be a different opening to the J.P. Morgan meeting in the absence of Celgene's usual historic placemark as the initial presenting company in the Grand Ballroom of the Westin St. Francis Hotel; that spot now falls to BMS. Welcome to the new decade, where change will be the watchword and dealmaking will accelerate.
M&As will target exciting areas
The trend certainly points in that direction, with Evercore ISI analyst Josh Schimmer citing the fact that, from a historical perspective, the month of “January is disproportionately represented both by number of deals and dollar value over the past 5 years.”
There is certainly consensus. With biotech entering 2020 on a high note, several industry analysts expect the momentum to be maintained, at least for the first few months. For example, in its 2020 Biotech Outlook report, analysts at RBC Capital Markets write that it “will be buoyed by continued M&A activity and improved sentiment following a recent string of favorable clinical, commercial, and regulatory catalysts; however, we believe things could level off by the spring, as drug pricing policy rhetoric picks up and BD activity potentially wanes.”
The key areas that will attract the most interest will be in oncology, neurology and gene therapy, they speculated.
Like RBC Capital Markets, Mizuho Securities analysts, in their 2020 Vision: Ride the Innovation Wave in SMID Biotechnology report, said they also expect the M&A activity, which has helped drive the sector, to continue this year. “New therapeutic modalities including gene therapy and RNA have shown encouraging data and potential to disrupt established standards of care across therapeutic areas. As a result, we expect continued interest in these new technologies from large pharma.”
SVB Leerink analyst Geoffrey Porges notes that for “the diversified biopharma [companies] we expect major themes of 2020 to be continued restructuring and associated M&A by large companies, tightening capital market liquidity for emerging companies and continuing anxiety about political risks to drug pricing.”
The speculation has already begun on the next biopharma to fall into the crosshairs of big pharma. Certainly, gene and cell therapy companies will be high on the list of targets. Sarepta Therapeutics Inc., however, is probably off the list following its major deal with Roche Holding AG. The Cambridge, Mass.-based company granted the pharma exclusive commercial rights outside the U.S. for SRP-9001 (AAVrh74.MHCK7.micro-dystrophin), its gene therapy for Duchenne muscular dystrophy. In exchange, Sarepta receives $1.15 billion up front and as an equity investment, plus up to $1.7 billion in regulatory and sales milestones and royalties on net sales, which are expected to be in the midteens. The two companies will equally share the global development expenses, while Sarepta retains all of SRP-9001’s rights in the U.S.
The deal pushed Sarepta’s shares (NASDAQ:SRPT) up 14% in December and helped the BioWorld Biopharmaceutical index close out the month up 1.9%.
Among the leading index gainers for the year is Vertex Pharmaceuticals Inc., whose shares (NASDAQ:VRTX) closed out 2019 up 32%. The increase reflects a positive year for company, where it received FDA approval, months ahead of its scheduled PDUFA date, for Trikafta (elexacaftor/tezacaftor/ivacaftor and ivacaftor) for the treatment of cystic fibrosis in people ages 12 and older who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator gene, the most common CF-causing mutation. The Boston-based company followed that up with third-quarter financials that reported product revenues that totaled $950 million, up 21% year over year.
Sector hits $1 trillion market cap
The biopharma industry begins 2020 sporting a milestone collective market cap for the 472 public companies tracked by BioWorld of $1.145 trillion. The sector has truly come of age with this landmark valuation, which comes despite the recent loss of Celgene’s $77 billion valuation.
The industry almost attained that collective valuation back in April 2015 when Biogen Inc. reached a $100 billion market cap valuation to join Amgen Inc. and Gilead Sciences Inc. as members of the exclusive club. Including those three companies, there were 87 companies, out of 318 public biopharmaceutical companies, that had market caps above $1 billion at that time.
Fast forward to today and a total of 120 companies have reached the $1 billion-plus market capitalization, with just Amgen and Beigene Ltd. members of the $100 billion valuation club. The top 20 companies by market cap represent 68% of the sector’s total valuation.