Money Matters

Wait, It Costs How Much? Biotech Balances Optimism, Uncertainty For 2018

(Source: www.forbes.com)

Inventors, investors and fundraisers from the pharmaceutical industry arrived at the annual J.P. Morgan Healthcare Conference, their annual kickoff party, with lots of questions. They’re probably leaving with them, too.

Will tax reform lead large pharmaceutical firms to buy more smaller biotech firms, raising the valuations for the whole sector? Will the system be able to handle the high price of new drugs, including gene therapies for cancer and rare diseases that are launching with prices between $300,000 and $900,000? Will the U.S. insurance system and government become effective in pushing back against high drug prices in general, particularly the annual increases taken by pharmaceutical companies?

Maybe.

A Boring Meeting For Biotech Stocks

The best-performing stocks of the meeting were small companies rebounding from past disappointment. Shares in Novavax, trading at just under $2, rose by 50% as some investors saw hope for its beleaguered vaccine. Alder Biopharmaceuticals, which is developing a migraine treatment, saw shares jump 30% thanks to a patent settlement with Teva, but they’re still down 25% over 52 weeks. Nektar Therapeutics, now sporting a $10 billion market cap, saw shares rise 16% as investors continued to hope its cancer drug will have synergy with the best-selling immunotherapies sold by Merck and Bristol-Myers Squibb.

There was one dramatic stock disaster: Shares on Axovant cratered 50% as it showed new data that its failed Alzheimer’s drug had failed again, and then erroneously reported that its other medicine, for Parkinson’s psychosis, had a statistically significant result. (Whoops! It didn’t.) Chairman Vivek Ramaswamy and chief executive David Hung walked through J.P. Morgan like they were enduring penance, but they still have the large sums of cash raised by Axovant and Ramaswamy’s larger, private vehicle Roivant Sciences to try to plan a second act.

Vicky Valet for Forbes

Will The Deal Machine Rev Up?

What about big deals? Investors want them. But when you ask potential buyers, they insist new tax laws that will allow companies to access overseas cash to bring it back to the U.S. won’t make a difference. (They would say that.) Adam Schechter, the president of human health at Merck, praised the tax reform law, saying it “levels the playing field” for companies that have chosen to stay based in the U.S. But does that alone make deals happen? “I don’t think that alone is a reason to believe there will be more M&A,” he says. “It really comes down to what assets are available at what price.”

Paul Biondi, the head of business development at Bristol-Myers Squibb, says tax reform could work as an “enhancer,” helping a few more deals get done. He does think more deals will get done though, just because right now deal volume is low and things will trend back to the average.”I do think you’ll see the deal volume go up because the long-term trend will revert to the mean.”

A New Biotech Star

The one big deal at J.P. Morgan – Celgene’s purchase of Impact BioMedicines for $7 billion “biobucks,” less in real up-front cash, almost didn’t happen. John Hood, Impact’s chief executive, says the broad economic terms of the deal didn’t come into focus until late December. He says there was a “hot internal debate” whether to sell at all, and the final decision was made because the launch of the company’s medicine, a treatment for people with myelofibrosis who have failed Incyte’s Jakafi, would be faster and less risky if Celgene handled it.

“There is one company that has a bigger infrastructure and more in heme/onc than anyone,” Hood says. “They’re not a hindrance. And if they don’t [get the drug to patients], I’m going to hunt [Celgene head of business development] Robert Hershberg down.” Says chief operating officer Charlie McDermott: “We’re getting emails from patients that they’re dying and they need this drug,” he says.

Hood regardless emerges as a biotech star. People who invent drugs don’t usually run companies. In a space of a few years he raised $100 million and sold to Celgene.

Wait. How Much?

Still, most of the talk at J.P. Morgan was about Celgene, not Impact. Many think it paid too much for Impact, and more are asking if, facing the future patent expiration of top drug Revlimid, the biotech giant needs to do a bigger deal. Many investors wanted them to buy Bluebird Bio, the gene therapy company.

Regardless of what Celgene should have bought, one big thing keeps coming up: people inside the industry are having the same reaction to the price of privately held biotechs that people outside the pharmaceutical business have to drugs. How can they be so expensive? I asked Kristina Burow, a partner at ARCH Venture Partners, which has pulled off some of the biggest fundraises in the sector. She points out that one of ARCH’s companies, Denali, went public this year in part to make sure that it would have access to the public markets in the future. “I don’t really want to be in a position where you have a $10 billion private healthcare company,” she says.

Aside from M&A, the big question will be how new breakthroughs, like the first gene therapy, from Spark Therapeutics, and the cancer-killing T-cells being sold by Novartis and Gilead actually perform in the market. For that, too, we’ll have to wait and see.

More Info: www.forbes.com

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