3Q14 Financial Markets Preview: Summer lull

Biotech investors expect quiet 3Q14, position portfolios for larger events in 4Q

With Vertex Pharmaceuticals Inc. already having delivered 2014's most anticipated data and Gilead Sciences Inc. having rolled out the year's most keenly watched launch, buysiders expect a quiet 3Q14 and plan to use the lull to position portfolios ahead of bigger events slated for later this year.

Vertex shares soared $26.92 (40%) to $93.53 on June 24 on positive Phase III data for Kalydeco ivacaftor plus lumacaftor (VX-809) to treat cystic fibrosis patients with the delta F508 mutation, the most common among CF patients.

The positive data removed what could have been 3Q's biggest pitfall, as investors feared a Vertex miss would weigh on investor sentiment.

"Had Vertex been a big disappointment or failure, I think that would've really hung on expectations, and it would've dimmed the expectations for future pipeline development, fair or unfair," Janus' Andy Acker told BioCentury.

In its first full quarter of sales, Gilead's HCV drug Sovaldi sofosbuvir blew away investor and analyst expectations with 1Q14 sales of $2.3 billion. Investors are now awaiting the launch of Gilead's all-oral combination therapy, which is expected in 4Q14.

With Sovaldi's launch and the Vertex data in the rearview mirror, investors do not expect many major inflection points over the next three months.

"I expect it to be a pretty quiet period," HBM Partners' Ivo Staijen told BioCentury.

Omega Fund's Otello Stampacchia agreed. "In terms of product milestones that could have a negative effect, I don't see any at the moment," he said.

That said, investors are watching a few key clinical and regulatory milestones from large and mid-cap companies, among them Phase III data for Amgen Inc.'s Kyprolis carfilzomib and detailed data from Intercept Pharmaceuticals Inc. for the Phase II FLINT trial of obeticholic acid to treat non-alcoholic steatohepatitis (NASH).

Among small caps, investors don't anticipate too many milestones that could help push the group back to its 1Q14 highs.

Thus, a slow summer will likely see buysiders getting ready for the bigger events in 4Q14, such as a showdown in HCV and data for chimeric antigen receptor (CAR) therapies at the American Society of Hematology (ASH) meeting in December.

Cancer for large caps

Most investors pointed to 2Q14 earnings as the main drivers for large caps this quarter. But that doesn't mean the next three months are completely devoid of clinical or regulatory events.

Apex Capital's Julia Balanova and Polar Capital's David Pinniger underscored the importance for Amgen of Phase III data from two trials of Kyprolis: FOCUS in multiple myeloma patients who have received three or more prior therapies; and the ASPIRE study of Kyprolis plus Celgene Corp.'s Revlimid lenalidomide and dexamethasone to treat MM in patients who have received one to three prior therapies.

Investors noted Amgen needs the trials to succeed to help justify the $10.4 billion it paid for Onyx Pharmaceuticals Inc.

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