Although biopharma's second-quarter financial results haven't knocked the ball out of the park, investors nevertheless returned to the sector big time as M&A speculation continues to swirl around some of biotech's blue chip companies. As a result, the BioWorld Biopharmaceutical Index reversed an 8 percent drop in June, with a 12 percent rebound in value in July, outpacing the general markets, with the Nasdaq Composite index up 6.6 percent and the Dow Jones Industrial average up 2.3 percent in the same period. (See BioWorld Biopharmaceutical Index, below.)

Most of the index group members enjoyed double-digit increases in their share values, with Biomarin Pharmaceutical Inc. and Regeneron Pharmaceuticals Inc. leading the way. Biomarin's shares (NASDAQ:BMRN) gained almost 28 percent in July. Helping drive that uptick was news of positive interim results from an open-label phase I/II study of BMN 270, the company's gene therapy to treat severe hemophilia A, which showed the candidate outperformed expectations both in terms of efficacy, as measured by factor VIII (fVIII) expression and clinical improvements, and safety, as measured by alanine aminotransferase level. (See BioWorld Today, July 29, 2016.)

The dose-escalation study was designed to evaluate the safety and efficacy of BMN 270 in up to 12 patients with severe hemophilia A, defined as less than 1 percent of blood clotting factor. Endpoints were safety of a single intravenous administration of the recombinant AAV human-coagulation fVIII vector, change from baseline of fVIII expression level and impact on the frequency of fVIII replacement therapy in the annualized bleed rate.

In its second-quarter financial results, the San Rafael, Calif.-based company reported total revenue of $300.1 million, an increase of 20 percent compared to the same period in 2015. That strong result was driven by year over year growth of 98.1 percent and 50.1 percent of Vimizim (elosulfase alfa) and Kuvan (sapropterin dihydrochloride), respectively. Overall, it was a strong quarter for the company, with ISI Evercore analyst Mark Schoenebaum noting that the total revenues came in approximately 8 percent above consensus, and Cowen and Co. analyst Phil Nadeau saying that the company "appears firmly on track to break into profitability during 2017."

Vimizim net product revenue growth was driven primarily by robust patient growth and in part by the timing of large orders from Latin America and the Middle East. Kuvan revenue growth was driven by patient increases in North America and strong sales in international territories. Biomarin had cash, cash equivalents and investments totaling $704.9 million, as compared to just over $1 billion on Dec. 31, 2015.

Slow news month

Although news flow from Tarrytown, N.Y.-based Regeneron in July was limited to it jointly announcing, along with partner Sanofi SA, of Paris, the Japanese approval of Praluent (alirocumab), a human monoclonal antibody targeting PCSK9 for the treatment of hypercholesterolemia, its share value (NASDAQ:REGN) vaulted 22 percent.

Last week, Regeneron reported that its total revenue for the second quarter was 2 percent below consensus, with uptake of Praluent generating $24 million, just behind the same-class drug sold by competitor Amgen Inc., of Thousand Oaks, Calif. Amgen's Repatha (evolocumab) sold $27 million during the same period. Product sales for Praluent are recorded by Sanofi, and Regeneron shares in any profits or losses from the commercialization of the drug. It was launched in the U.S. in the third quarter last year and in certain countries in the European Union starting in the fourth quarter.

M&A rumors

Helping attract the attention of investors back to biotech has been the increased chatter that the sector is ripe for some major M&A transactions. In addition to Sanofi's, and others, interest in acquiring Medivation Inc., Biogen Inc. was added to the potential list of companies that might be acquired in the near future. Last week, news surfaced that the Cambridge, Mass.-based firm is drawing interest from the likes of Merck & Co. Inc. and Allergan plc. (See BioWorld Today, Aug. 3, 2016.)

The company's shares (NASDAQ:BIIB) enjoyed a strong upswing in July, closing the month up almost 20 percent.

Fueling the rumors about Biogen was its announcement during the second-quarter earnings call that CEO George Scangos would be leaving the company. (See BioWorld Today, July 22, 2016.)

With a market cap of around $67 billion, the takeout, if it comes, will certainly be of blockbuster proportions. The prize is a profitable company, which reported solid second-quarter earnings, including revenue of $2.9 billion and a bank balance of about $7.3 billion.

The top two companies by market cap continue to have differing fortunes. Shares of Amgen Inc. (NASDAQ:AMGN) recorded a solid 13 percent increase in value; however, Gilead Sciences Inc. saw its share value (NASDAQ:GILD) dip about 5 percent in July and buck the trend of most Biopharmaceutical Index members.

The company has been out of favor with investors for some time, and year to date its share value is down 21 percent – a performance that has seen the company lose its top spot to Amgen in terms of market cap. (See BioWorld Insight, May 31, 2016.)

The Foster City, Calif.-based company, a solid biopharma favorite with investors, has run into some headwinds lately and its share value has come under pressure. (See Share performance of Gilead and Amgen year-to-date, below.)

Not helping its cause was the company's disappointing second-quarter financials, with recorded revenues coming in at $7.78 billion compared to $8.24 billion in 2015, missing the consensus estimate by about 1 percent. Net income was $3.5 billion, or $2.58 per diluted share, compared to $4.49 billion, or $2.92 per diluted share, in 2015. Non-GAAP net income was $4.18 billion, or $3.08 per diluted share, compared to $4.85 billion, or $3.15 per diluted share, in the same period in 2015.

With $24.6 billion in the bank there is a growing call for the company to pull the trigger on an M&A deal, but John Milligan, president and CEO, on the company's conference call indicated it will not be rushed into more M&As. By year-end, "we'll have a better, more complete story of programs internally and externally that we can use to talk about why the long-term prospects for growth are as good as we believe they are."

Amgen's shares are up 6 percent for the year, bringing its market cap to $127 billion, compared to Gilead, which has a current market cap of $107 billion.

The Thousand Oaks, Calif.-based company reported a solid second quarter. Its revenues increased 6 percent year over year to $5.7 billion, with product sales growing 5 percent, driven by Enbrel (etanercept), Prolia (denosumab), Kyprolis (carfilzomib) and Xgeva (denosumab). Sales of Enbrel, approved for multiple autoimmune indications, totaled about $1.48 billion for the quarter, with about $1.4 billion in U.S. sales and $61 million for the rest of the world. Sales of osteoporosis drug Prolia were $441 million for the quarter, while Xgeva, the same RANKL-targeting drug as Prolia but designed to target bone metastases in cancer, recorded sales of $381 million. The company increased its revenue guidance for the full year to a range of $22.5 billion to $22.8 billion, with an EPS guidance of $11.10 to $11.40 for the year. Cash and investments totaled $35 billion as of June 30.

Great month for drug developers

The BioWorld Drug Developers Index grew by 12 percent in July, thanks to a general upswing in the fortunes of the sector as a whole. That performance helped eat into its year-to-date slump, which now sits at just under 20 percent. (See BioWorld Drug Developers Index, below.)

Leading gainer in the group was Bluebird Bio Inc., which saw its shares (NASDAQ:BLUE) jump by a whopping 32 percent. With gene therapy companies a hot commodity right now and dealmaking in the space on the rise, investors could be betting on the company being on the M&A target radar screen.

Pfizer Inc., for example, strengthened its own gene therapy franchise by scooping up privately held Bamboo Therapeutics Inc., paying $150 million up front and committing to milestone payments of up to $495 million just months after investing $43 million for a 22 percent equity stake in the Chapel Hill, N.C.-based company. (See BioWorld Today, Aug. 2, 2016.)

Bluebird is developing gene therapies for severe genetic diseases and T-cell-based immunotherapies for cancer. It has an evolving pipeline, including its ongoing phase II STARBEAM trial of Lenti-D in childhood cerebral adrenoleukodystrophy, an ultra-rare and ultimately fatal disorder.

The company has plenty of cash – $779 million, as reported in its recent second-quarter financials – which is expected to fuel operations through 2018.

Alnylam Pharmaceuticals Inc., of Cambridge, Mass., was another group member that enjoyed a positive month, with its shares (NASDAQ:ALNY) increasing 23 percent.

During July it reported new positive results from its ongoing phase I study with fitusiran, an investigational RNAi therapeutic targeting antithrombin (AT) for the treatment of hemophilia A and B and rare bleeding disorders. New clinical data showed that once-monthly subcutaneous administration of fitusiran achieved dose-dependent lowering of AT and increases in thrombin generation, resulting in a median estimated annualized bleeding rate of zero in evaluable patients with hemophilia A or B without inhibitors.

Getting back to even

While the industry still has a ways to go before it gets back to even for the year, it appears its future has begun to look a little brighter.

Earnings season for the sector has brought investors back thanks to solid performances for most of the top tier companies. With the prospects for heightened M&A activity, it looks as though biotech will have a great second half of the year.

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