The fact that approximately 95 percent of the 353 public biopharmaceutical companies tracked by the BioWorld Stock Report saw their share price values fall in January emphasizes just how brutal the equity markets have been so far this year. The prevailing conditions bring back memories of the chaotic markets experienced back in 2008 during the global financial meltdown. This time around the markets have been derailed by fears of a flagging global economy and a world drowning in an oversupply of crude oil with producers unwilling to turn off the tap.
In this highly volatile environment investors have moved to the sidelines and sold off their holdings in a number of sectors, including health care.
The industry has certainly got off to one of its worst starts to a year with the final iteration of the BioWorld Blue Chip Biotech Index, which comprises 20 of the leading companies ranked by market cap, closing January down a staggering 22.5 percent in value. (See BioWorld Blue Chip Biotech Index, below.)
The prevailing volatile capital markets and the changing nature of the sector, with pharmaceutical companies in the process of morphing themselves to operate more like innovative biotechnology companies to improve the return on research and development investments, requires that we reflect this with a new index. It is designed to more closely track the progress of this new evolving biopharmaceutical sector as innovation in drug development has now spread well beyond the confines of traditional biotech companies.
We have created a new price-weighted BioWorld Biopharmaceutical Index that combines group members drawn from the BioWorld Blue Chip Biotech Index and BioWorld Pharma Index. Specifically, group members include the 11 top biopharma companies by market cap as of Jan. 29, and 10 leading pharmaceutical companies, including Pfizer Inc., Merck & Co. Inc., Glaxosmithkline plc, Astrazeneca plc, Roche AG, Abbvie Inc., Sanofi SA, Bristol-Myers Squibb Co., Eli Lilly and Co. and Novartis AG.
The new BioWorld Biopharmaceutical Index closed out January down almost 17 percent, with all its members contributing red figures. The general markets also had a bad month but not as bad as biopharma, with the Nasdaq Composite index and the Dow Jones Industrial Average recording drops in value of 8 percent and 5.5 percent, respectively. (See BioWorld Biopharmaceutical Index, below.)
Adding to the gloom
Leading the decliners in the month was Incyte Corp., which announced at the end of January a futility-driven stoppage of a phase II substudy testing Jakafi (ruxolitinib) and Stivarga (regorafenib, Bayer AG) against metastatic colorectal cancer (mCRC). The news contributed to driving its shares (NASDAQ:INCY) down even further to close out the month down 35 percent. (See BioWorld Today, Jan. 9, 2016.)
The decision to stop the substudy was made during a planned interim analysis that showed the drug combination failed to demonstrate "a sufficient level of efficacy" in patients with relapsed or refractory mCRC and levels of C-reactive protein – linked to inflammation – of greater than 10 mg per liter in their blood.
Companies reporting any hint of negative news saw their share values plummet. Even though Biomarin Pharmaceutical Inc. had received negative advisory committee feedback in November for its Kyndrisa (drisapersen) in Duchenne muscular dystrophy (DMD), news in January that it had received an expected complete response letter from the FDA, still hit the company's shares (NASDAQ:BMRN), which closed down 29 percent by the end of the month.
To further add to the gloom for biopharma companies, even though most are reporting annual financials that are in line with expectations, the positive reports failed to impress. For example, shares of both Celgene Corp. and Vertex Pharmaceuticals Inc. closed out January down 16 percent and 28 percent respectively. (See BioWorld Today, Jan. 29, 2016.)
For the full year, Vertex reported revenues totaling $1.03 billion, including $350.7 million for Orkambi, a drug that combines previously approved Kalydeco (ivacaftor) with lumacaftor and gained initial approval last year in CF patients 12 and older with the homozygous F508del mutation. It reported revenue of $631.7 million for Kalydeco. Vertex ended the year with about $1 billion in cash, cash equivalents and marketable securities.
For the full year, Celgene reported net product sales totaling $9.16 billion, a 21 percent increase over 2014. Net income for the year was $3.88 billion, or $4.71 per share. The company ended the year with $6.55 billion on its balance sheet.
Tracking drug developers
Our second new index – the BioWorld Drug Developers Index – comprises representative companies from each of the BioWorld Blue Chip, Growth and Emerging Growth biotech indices, which will no longer be maintained. The 30 group members all have market caps above $250 million. The index allows a closer tracking of the progress of drug R&D, rather than by company size and stage of development.
Drug development is an expensive and risky undertaking and in these turbulent economic times investors are shying away from companies that are involved in that space, reflected by the whopping 34 percent drop in value of the index in January. It certainly is a dramatic change in sentiment from biotech's bullrun, which saw the index hit a peak at the beginning of 2015. (See BioWorld Drug Developers Index, below.)
Leading the decliners was Sarepta Therapeutics Inc., whose shares (NASDAQ:SRPT) fell dramatically by 69 percent. What tanked the share value was news that FDA staff reviewing the company's eteplirsen (Exondys 51) expressed "considerable doubt" regarding how much the drug improves dystrophin production for patients with DMD and about whether improvements seen in small trials could be reliably attributed to the drug. The negative comments had followed closely on the agency's rejection of Biomarin's Kyndrisa and suggest that chances for eteplirsen's approval are low. (See BioWorld Today, Jan. 19, 2016.)
San Diego-based Halozyme Therapeutics Inc. (NASDAQ: HALO) also saw its shares drop by almost 50 percent as investors were not impressed with the company's annual financial guidance presented at the recent J.P. Morgan Healthcare conference.
The company had rounded out December on a high note, announcing a partnership deal with Eli Lilly and Co., which will access Halozyme's Enhanze delivery platform. The deal includes $25 million up front and up to $160 million for each of up to five collaboration targets. (See BioWorld Today, Dec. 22, 2015.)
Halozyme President and CEO Helen Torley noted in the business update that the Lilly deal was the sixth the firm had signed and it allowed the company to "enter the year with great momentum," emphasizing an expanded clinical program for PEGPH20, an investigational pegylated form of recombinant human hyaluronidase, which hit targeted enrollment in a phase II study in pancreatic cancer patients.
Investors were, however, disappointed in Halozyme's 2016 financial guidance of revenues in the range of $110 million to $125 million, which was lower than consensus estimates.
Will the tide change?
After this terrible start, industry watchers will be wondering when the sector will finally hit bottom. Unfortunately it remains at the mercy of the capital markets, which remain volatile. In the first four days of trading in February, the BioWorld Biopharmaceutical Index dropped a further 1.3 percent, suggesting that many companies may be closing in on an oversold position with investors starting to troll for buying opportunities.
There is still plenty of pain ahead for the sector, and it will require a significant flow of positive news to reverse the tide along with a change of fortunes for the general markets.