Our mid-month checkup on the biopharmaceutical sector's temperature finds that it is finally exhibiting some healthy signs of life as it gathers momentum in parallel with the improving capital markets, where the Dow Jones Industrial Average and S&P 500 index continue to scale new heights.
With the capital markets benefiting from renewed investor confidence about the future outlook of the U.S. economy, equities across a number of sectors are swinging to the upside. That is a dramatic reversal since the U.K.'s unexpected decision to leave the European Union sent world markets into a tailspin.
At the close of the markets Thursday, the BioWorld Biopharmaceutical Index had gained 4.2 percent in July, which will be welcome news for the sector, giving hope that its fortunes may have turned the corner. To consolidate those gains, analysts believe that in the short term blue chip companies will need to deliver strong second-quarter financial results in a "beat expectations and raise guidances" scenario. Anything less and it will be difficult to reverse their poor 1H 2016 collective performance.
Year to date, the BioWorld Biopharmaceutical Index is down 16 percent, which means it has recovered 7 percent since its horrendous first-quarter start. That slow recovery is in contrast to the general market where the Dow Jones Industrial average is up 6.2 percent and the Nasdaq Composite index is up a modest 0.5 percent so far this year. (See BioWorld Biopharmaceutical Index, below.)
So far this month the shares of Amgen Inc. (NASDAQ:AMGN) and Gilead Sciences Inc. (NASDAQ:GILD) have performed well, up 7 percent and 2.5 percent, respectively. Amgen kept investors engaged this month not with innovative medicines but with its biosimilars franchise activities. The FDA Arthritis Advisory Committee voted 26-0 to support the licensure of the company's Humira biosimilar last week and in related news it reported that it had hooked up with Tokyo-based Daiichi Sankyo Co. Ltd. to commercialize a total of nine biosimilars in Japan.
Amgen's shares have now got back to even for the year, and the company maintains its top spot in terms of market cap. Gilead still has a ways to go, with its shares down 15.5 percent year to date (YTD).
The BioWorld Drug Developers Index has also gained 3.25 percent so far this month but still remains mired in a 26 percent YTD slump. (See BioWorld Drug Developers Index, below.)
Leading gainer is Alnylam Pharmaceuticals Inc., of Cambridge, Mass., whose shares (NASDAQ:ALNY) are up 13.5 percent so far this month. At a scientific meeting, it reported positive preliminary results from its ongoing phase II open-label extension studies with patisiran and revusiran, investigational RNAi therapeutics targeting transthyretin (TTR) for the treatment of hereditary TTR-mediated amyloidosis (hATTR amyloidosis). The data provided evidence of improvement or no change in the mean neuropathy impairment score (mNIS+7) following 24 months of dosing in hATTR patients with polyneuropathy (hATTR-PN, also known as familial amyloidotic polyneuropathy, or FAP). According to the company, the data support the therapeutic hypothesis that TTR knockdown with patisiran can potentially halt or improve neuropathy progression in patients with hATTR-PN.
Putting a spring in the sector's step
Since coming through a good second-quarter earnings season with flying colors will only be a first step on the road to the biopharmaceutical sector's recovery, it is going to take other activities in order to attract investors back to the fold.
In a research note, RBC Capital Markets analyst Michael Yee suggests two things the sector also needs: "some M&A as countless big biopharmas continue to say they're looking and on the hunt," and "we need big new clinical data to get bullish on owning biotech and to convince generalists to come back."
News flow around those potential events will be vital to counteract the negative sentiment that continues to swirl around drug pricing. All in all, expect to see the sector's valuation continue its upward trajectory for the next couple of months.