Biotech investors had every reason to feel bullish heading into the new decade. The sector had turned around in 2019 and was riding a wave of a very strong fourth-quarter performance, with the BioWorld Biopharmaceutical Index closing up 14% for the year after being underwater from April through to September. Unfortunately, those great expectations were quickly erased during J.P. Morgan Healthcare conference week (Jan. 10 – Jan. 17), which turned out to be a very low-key affair absent of any blockbuster M&A revelations. As a result, confidence has now given way to concerns about the prospects for biopharmaceutical companies going forward, particularly as unfavorable political rhetoric on drug pricing will certainly be dialed up during this election year.
The BioWorld Biopharmaceutical Index closed January down almost 6%, in lock step with the Nasdaq Biotech index. The general markets were also off to a slow start, with the Dow Jones Industrial Average dipping 1% in the period. (See BioWorld Biopharmaceutical Index, below.)
Cowen & Co. analysts reflecting on the current sentiment for the sector in their Biotechnology Thermometer report for January said, “Though the vast majority of pre-announcements and early earnings reports were in line or ahead of expectations, this was not enough of a consolation.”
Year-end financial returns have started to roll out, but those companies that have filed so far have failed to move their valuations. For example, Vertex Pharmaceuticals Inc. wowed the Street reporting Q4 financial results significantly beating consensus on both revenue and earnings per share (EPS).
The company earned $4.16 billion in product revenues in 2019, bolstered in large part by the late October approval of cystic fibrosis drug Trikafta (elexacaftor/tezacaftor/ivacaftor and ivacaftor), which earned a remarkable $420 million in the short period to year end.
The result led J.P. Morgan analyst Cory Kasimov to reflect, “If only VRTX preannounced this enormous Trikafta beat at our health care conference, then there would have been some excitement!”
Although Vertex was among the leading index gainers for 2019, as shares (NASDAQ:VRTX) ratcheted up 32%, investors remained unmoved, with their valuation dipping 1.42% on earnings announcement day. The shares closed out the month at $227.05, up 3.7%.
The shares of Thousand Oaks, Calif.-based Amgen Inc. (NASDAQ:AMGN) took a beating after reporting fourth-quarter revenue of $6.2 billion, down 2% year over year. The company reported earnings of $2.85 per share, down 5% year over year, while adjusted earnings were up 6% to $3.64 per share. Amgen ended the year with $8.9 billion in cash and investments. Management expects 2020 revenue in the range of $25 billion to $25.6 billion. Earnings per share are expected to be in the range of $10.85 to $11.65, while adjusted earnings are forecast to come in at $14.85 to $15.60 per share. The shares closed the month at $216.05, down 10.4%.
Biogen Inc., of Cambridge, Mass., also saw its shares wane almost 10% in the month, despite reporting total revenues of $14.37 billion for 2019, up 7% over the prior year. Full-year sales of multiple sclerosis drugs, including $688 million in royalties on sales of Ocrevus (ocrelizumab), totaled $9.21 billion, up 2% over 2018. Sales of spinal muscular atrophy drug Spinraza (nusinersen) jumped 22% over the prior year to $2.09 billion. For the full year, the company’s GAAP net income and earnings per share were $5.88 billion and $31.42, respectively.
Leading decliner for the month was index member Incyte Corp. (down 16.3%), despite reporting, along with partner Eli Lilly and Co., positive top-line results from their collaborative phase III trial of baricitinib in treating adults with moderate to severe atopic dermatitis that show the oral selective JAK inhibitor met the study’s primary and secondary endpoints. The primary endpoint was defined by the proportion of patients achieving at least a 75% or greater change from baseline in their Eczema Area and Severity Index at week 16.
Separately, the company also announced positive top-line results from its phase III TRuE-AD2 study evaluating the safety and efficacy of ruxolitinib cream, also a JAK inhibitor, for adolescent and adult patients with atopic dermatitis.
The market performance downturn of biopharmaceutical companies has not diminished their appetite for public offerings. As Cowen analysts note, “Investors cite deal fatigue and grouse about the magnitude of new paper, but IPOs and secondary offerings continue to be executed and in fact are generally trading well.”
The data are in line with that observation. According to BioWorld, more than $3 billion has been raised via follow-on offerings this month, and four IPOs have been completed, collectively hauling in more than $575 million. Shanghai-based I-Mab Biopharma Co. Ltd., which is focused on immuno-oncology and autoimmune diseases, became the first IPO out of the gate this year, pricing its IPO for gross proceeds of $103.7 million.
Closely following that offering was Cambridge, Mass.-based Black Diamond Therapeutics Inc.’s upsized IPO of about 10.5 million shares at $19 each, for gross proceeds of about $201 million. Investors warmed to the issue, pushing the company’s shares (NASDAQ:BDTX) up 108% on their first day of trading.
In December, the company closed on $85 million in a series C financing to support lead product candidates targeting oncogenic driver mutations of the ErbB kinases in EGFR and HER2.
On the final day of the month, Annovis Bio Inc., of Berwyn, Pa., closed its IPO, generating $13.8 million and Arcutis Biotherapeutics Inc., of Westlake Village, Calif., which is developing topical therapies for dermatologic disorders, priced its IPO of about 9.4 million shares at $17 per share, the high end of its proposed range, for gross proceeds of about $159.4 million. Its shares, trading under the ticker ARQT, ended their first day at $21.80, up 28%.