- 2020 could bring a lot of surprises for biotech companies — both good and bad.
- In a December note, Cowen’s biotech analysts listed the 10 “surprises” they’re keeping an eye out for in the coming year, from the most to least probable.
- Those surprises include a Regeneron acquisition (5% likelihood), to bigger-than-exected sales for key drugs on the cusp of launching.
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Over the next 12 months, it’s anyone’s guess what could unfold for drugmakers.
A number of surprises could rock the biotech market, so analysts at the investment bank Cowen worked to take them into account before they transpired.
“Biotechnology is by its nature unpredictable, and the New Year will likely also feature a few true ‘surprises’ from left field,” the analysts wrote. The Cowen biotech team includes Ritu Baral, Marc Frahm, Phil Nadeau, Boris Peaker, Chris Shibutani, Yaron Werber, and Joe Thome.
To be clear, the list below doesn’t contain predictions, exactly. The Cowen team figures each item has a 40%-or-less chance of occurring. But if the events do occur, they could have big implications for investors.
Cowen ranked the surprises from most (No. 10) to least (No. 1) likely to happen.
10. Alexion defends patents for its blockbuster drug successfully.
In August, the US Patent and Trademark Office launched a review of the patents for Soliris, Alexion’s blockbuster rare blood disease drug, after rival Amgen requested a challenge to the company’s patents on the drug.
It remains to be seen whether Alexion’s patents stand up to the challenge, and the PTO is expected to rule on the challenge in August. If Soliris successfully stands up to the challenge, it won’t face competition in the US until its patents expire in 2027.
Likelihood: 39.95%
9. BioMarin’s not-yet-approved gene therapy gets picked up quickly in the treatment of hemophilia
Biotech company BioMarin in December submitted its gene therapy to treat hemophilia, valoctocogene roxaparvovec, to the FDA. A big surprise for 2020 would be if the gene therapy is adopted quickly, Cowen said.
“With a number of other gene therapies for Hemophilia A in or entering clinical trials, why wouldn’t patients wait a few years to see if there is one with a better profile? It is hard to see how the adoption of valrox won’t be glacial,” Cowen analysts noted as the consensus view.
Analysts expect the treatment could be approved by the fourth quarter of 2020, leaving some time for patients to adopt the gene therapy. “With expectations so low, there is much room for upside,” the analysts noted.
Likelihood: 30%
8. More laws focused on transparency in drug pricing lead to more mergers in the drug industry
Lawmakers and the public have been pushing for more transparency around how drugmakers set their prices, with the hope that by exposing how prices are set, it could lead to lower prices.
Given the current political climate, the analysts noted, it seems more likely that there’ll be drug pricing legislation in 2020 or shortly after. To counter that, pharmaceutical companies could look to make acquisitions.
“There is a realistic chance that this could spur M&A,” the analysts said. Acquiring a company can add to the research and development figures cited when asked to justify a particular price tag.
For instance, in defending the $1,000-a-pill price tag of the hepatitis C treatment Sovaldi, Gilead could argue that it was looking to recoup on its investment, which largely included the $11.2 billion acquisition of Pharmasset, the company that initially developed Sovaldi.
Likelihood: 25%
7. Big biotech companies like Biogen and Gilead make a comeback
Despite what the past year has been like for big biotech companies like Celgene, Biogen, Amgen, and Gilead, a surprise that could happen in 2020 might be that these drugmakers make a comeback.
It’s possible, the analysts said, because of some anticipated drug launches in 2020 and 2021. That includes the potential for the first new Alzheimer’s treatment in almost two decades and Vertex Pharmaceuticals’ recently approved treatment for cystic fibrosis.
Likelihood: 18%
6. Microbiome-based drugs could have their moment in the treatment of cancer
A big surprise for 2020, the analysts wrote, would be if drugs based on the microbes that live in our gut see major success when paired with cutting-edge treatments that harness the body’s immune system to treat cancer, in particular checkpoint inhibitors that work by releasing the immune system to go after cancerous cells.
While over the last decade, checkpoint inhibitors have transformed the way certain cancers are treated, not all cancer patients respond to treatment. It’s led researchers to look at whether combinations with other treatments — chemotherapy, other immune-system targeting treatments, etc. — could increase the number of people who respond to treatment.
One approach that has caught attention is the link between responses to treatments and the microbiome, and the potential to introduce certain strains of bacteria to enhance responses to treatments. Though most research into treatments targeting the microbiome still hasn’t made it past early trials, the analysts wrote that the results so far “provide reasons to be encouraged (but not necessarily overwhelmed) by single-strain approaches in these oncology settings.”
Likelihood: 15%
5. Janet Woodcock, the director of the Center for Drug Evaluation and Research, leaves the FDA
The Cowen analysts dubbed Woodcock “an icon of drug development.” Should she leave her post at the FDA, “it would send anxious ripples through the entire drug development landscape and negatively impact (directly or indirectly) all development stage public company stocks.”
Woodcock has been with the FDA since 1986, which is why the analysts posit, it would take winning the Powerball lottery to get her to leave her post.
Likelihood: 12%
4. Intercept makes $200 million in sales on its drug Ocaliva to treat the liver condition NASH in 2020
Investors expect Ocaliva, a drug that’s already approved to treat a rare liver condition called primary biliary cholangitis, to get approved in the first half of 2020 for the treatment of NASH, a liver condition that affects millions of Americans.
In 2019, Intercept said that the drug had succeeded in improving liver fibrosis, though the late-stage trial wasn’t able to show that the treatment resolved NASH in patients compared to the placebo group.
NASH, short for nonalcoholic steatohepatitis, is a type of liver disease in which liver fat builds up in people. It affects an estimated 16 million Americans, but many don’t know it until it leads to more serious problems like cirrhosis and liver failure.
So far, however, investors have been skeptical of how well Ocaliva will do, expecting only $26 million in sales in 2020. To get to $200 million in sales, Intercept would have to get about 80,000 patients to begin treatment on Ocaliva, or about 15% of the market the drug is looking to treat, about ten times more than analysts are expecting.
Likelihood: 10%
3. Regeneron gets bought
New York-based biotech giant Regeneron has long been seen as a success story of growing from a small biotech developing drugs to a massive player. Its CEO, Len Schleifer, has been at the helm of the company since it was founded in 1988.
The Cowen analysts noted that investors aren’t expecting a big biotech like Regeneron will get bought in 2020, roughly a year after Bristol-Myers Squibb announced its plans to acquire Celgene. Regeneron in particular is facing competition on its blockbuster drug Eylea, which is used to treat age-related macular degeneration.
But given the impact competitive pressure has had on the stock, it could make it more attractive for an acquirer. That said, given the complexities of Regeneron’s changing relationship with Sanofi and management’s likely disinterest in selling the company, the analysts only gave this surprise a 5% chance of occurring.
Likelihood: 5%
2. Incyte buys Blueprint Medicines
Analysts expect drugmaker Incyte to go on a dealmaking spree in 2020, but likely for early-stage collaborations and acquisitions.
The Cowen analysts said it would be surprising if Incyte went out and bought Blueprint Medicines, a company that’s developing treatments for genetically-defined cancers and some rare diseases, noting that there might be overlap in reaching prescribers for both the treatments Blueprint’s developing, and the areas where Incyte is active — specifically hematology, oncology, and dermatology.
“In total, we think there is a clear strategic rationale for Incyte to acquire Blueprint,” the analysts wrote. “The question is whether the parties can agree on a price that Incyte can afford.”
Likelihood: 2%
1.President Donald J. Trump assumes a more permanent role, which would be good for biotech
President Donald J. Trump has been vocal about his dislike for the high drug prices Americans are facing. One controversial idea coming out of the administration has been pegging US prices to what other countries pay, called an international pricing index.
Going into the election year, the analysts are anticipating a split Congress, which could keep any IPI legislation from having any legs regardless of whether Trump stays on as president.
“We question whether a permanent Trump presidency (is that even possible or would that be considered a dictatorship?) would be good for biotech,” the analysts wrote. “But frankly if that happens, at that point, we’ll all have bigger problems to consider.”
Likelihood: 1% – “Thanks to Constitution,” the analysts joked.
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