2Q13 Financial Markets Preview: Manning the middle

Biotech 2Q13: Buysiders pick Orphan, cancer plays; big names to lose steam

Buysiders are being drawn to mid- and small cap biotechs with solid balance sheets and/or near-term inflection points going into 2Q13, a period that may be relatively quiet for some of the sector's largest names.

The challenging environment for illiquid micro-caps seems likely to persist, though investors chasing returns will inevitably take some fliers on smaller names.

Companies developing targeted cancer agents or Orphan programs may be poised to benefit as investors search for this year's versions of big movers Pharmacyclics Inc. or Sarepta Therapeutics Inc.

Sleeping giants

ClearBridge Investments' Marshall Gordon said 2Q13 is shaping up to be a subdued quarter for big names like Amgen Inc., Gilead Sciences Inc. and Regeneron Pharmaceuticals Inc.

"Amgen doesn't really have much going on this quarter, Gilead won't be launching sofosbuvir in HCV for a while, and Regeneron is past its launch period for Eylea," he said.

Sofosbuvir (GS-7977) is a nucleotide analog HCV NS5B polymerase inhibitor in Phase III to treat HCV infection.

Eylea aflibercept, which is partnered with Bayer AG, is approved in the U.S. to treat wet age-related macular degeneration (AMD) and macular edema following central retinal vein occlusion (CRVO) and in the EU to treat wet AMD.

The two big cap exceptions are Biogen Idec Inc. and Celgene Corp.

Industry watchers are keen to see how strong a start Biogen gets with its launch of multiple sclerosis drug Tecfidera dimethyl fumarate (BG-12), which FDA approved last week.

Gordon said his only concern will be Biogen's ability to manage the Street's expectations.

"I think it is going to be a good launch but my only worry is that in the very near term the Street may be getting ahead of what is possible. I strongly believe in the long-term value of the drug though and think Biogen is working as hard as it can to set realistic expectations," said Gordon.

Earlier in March, EMA's CHMP issued a positive opinion on an MAA for the oral drug, which activates the NF-E2-related factor 2 (Nrf2) pathway to treat adult patients with relapsing-remitting MS.

venBio's Behzad Aghazadeh is watching for a readout from Celgene's Phase III MM-020 study, which is designed to expand use of Revlimid lenalidomide into the front-line multiple myeloma (MM) setting. Data are expected in late 2Q13 or 3Q13.

"Celgene's recent updates have been positive as far as Revlimid not increasing the incidence of secondary cancers, so the consensus seems to be that '020 will be a success," he said.

The thalidomide analog is approved in the U.S. and EU for relapsed or refractory MM, and in the U.S. for myelodysplastic syndromes (MDS).

The list of notable 2Q13 milestones includes a large number of regulatory submissions, meaning the real catalysts for these events won't come

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