12:00 AM
Jan 11, 2016
 |  BioCentury  |  Finance

Sowing season

Buysiders eyeing big cap clinical milestones in 2016 to seed next growth spurt


While the biotech sector's three-year rocket ride isn't likely to continue in 2016, fund managers are still anticipating a slew of high-profile milestones in the New Year. This year the emphasis is more on data than on approvals or launches as buysiders look ahead to the seeds for the next phase of growth.

As large caps come off a three-year period of revenue and market cap growth, maintaining that trajectory becomes increasingly difficult. Investors are therefore looking for internal pipeline catalysts that will provide revenues in a few years, plus aggressive M&A activity.

Investors think some of these catalysts could be market-moving for the sector, such as Phase II data on Biogen Inc.'s BIIB033 to treat multiple sclerosis, which are expected in mid-2016.

Other investors will be focusing on mid-cap names with at least one marketed product and near-term late-stage milestones that could propel them into the large cap tier.

Cancer, and in particular immuno-oncology, remain at the top of the list of hot indications for fund managers in 2016 as incremental data milestones for combination therapy will continue to roll out over the coming year. A few investors expect that data for competing combination therapies built on checkpoint inhibitors will begin to reveal the winners by year end.

For other buysiders, 2016 is a critical year for CAR T therapies, as pivotal data in hematological malignancies and potential proof of concept in solid tumors should shed light on how big -- or small -- the commercial opportunity really is.

Orphan diseases are still of high interest to investors, with a focus on FDA approval decisions in Duchenne muscular dystrophy (DMD) and several high-profile, high-risk clinical readouts. Investors also remain interested in gene therapy, although a few clinical failures in 2015 have tempered expectations.

Driving large cap growth

Large cap biotech was the best performing segment in 4Q15, and buysiders indicated the group would remain in focus as clinical milestones and expected M&A activity provide the potential for significant upside in 2016.

AXA Framlington's Linden Thomson noted that most large caps are priced for their base businesses but without much of a premium for pipeline opportunities. "A lot of these large caps have big catalysts coming next year," she said. "All of those set up in a way that if the majority of those are positive, then you've got new growth drivers coming through."

"You have real growth and real pipelines and you're not paying much more than the market multiple in many cases," added Marshall Gordon of ClearBridge Investments.

The highest profile milestone is Biogen's Phase II MS data for BIIB033, an antibody against leucine-rich repeat neuronal protein 1 (LINGO-1).

Sky-high expectations for the disease-modifying potential of the mAb were tempered a year ago by mixed Phase II data in optic neuritis, an indication Biogen targeted to demonstrate proof of BIIB033's remyelination mechanism.

As a result, multiple investors said the MS data may have a high upside potential with little downside impact for Biogen. BB Biotech's Daniel Koller said if BIIB033 succeeds, "that would propel the stock to completely new levels."

Thomson added that BIIB033 could change investor perception of Biogen's MS franchise, which has suffered from slowing sales and is threatened by IP issues and new competitors. "If LINGO works, then all of the sudden the MS franchise has longevity," she said.

About half the 16 investors contacted by BioCentury said they'd also be watching for Phase II data from Biogen's second anti-beta amyloid mAb, BAN2401. Biogen is co-developing the mAb with Eisai Co. Ltd. Data are expected in 2Q16.

Biogen's first anti-beta amyloid mAb, aducanumab, entered Phase III in 2015.

For Amgen Inc., buysiders named two major clinical events that could drive the next wave of growth. The first is expected in 1H16: data from the Phase III FRAME trial of romosozumab to treat postmenopausal osteoporosis. The humanized mAb against sclerostin is partnered with UCB Group.

Koller and LSP's Joep Muijrers said the molecule is a potential blockbuster for Amgen, while apo Asset Management's Kai Brüning noted it is a game changer for UCB.

"For UCB it is make-or-break data," Brüning said. "It will decide whether UCB will be a big player in the next couple of years, or whether they have to do some restructuring and look elsewhere to keep the company surviving."

In September, the partners announced top-line data from the Phase III STRUCTURE trial that showed romosozumab met the primary endpoint of a greater percent change in bone mineral density (BMD) from baseline to 12 months vs. Forteo teriparatide.

The second major clinical milestone for Amgen is the cardiovascular outcomes study of anti-PCSK9 mAb Repatha evolocumab. Data are expected in 2H16.

"That data will be hugely important," Thomson said. "You will need to see this support for the LDL reduction hypothesis for doctors to think, actually, we should move patients more aggressively with these higher-priced products."

Amgen did not break out sales figures for Repatha, which was approved in August. Regeneron Pharmaceuticals Inc. reported $4 million in 3Q15 U.S. sales of Praluent alirocumab, a competing anti-PCSK9 mAb that was approved in July.

Regeneron and partner Sanofi expect CV outcomes data for Praluent next year.

While a few investors said they expect some sort of M&A activity from Amgen this year, almost all of them said they expect Gilead Sciences Inc. to deploy its major cash reserves for a major transaction in 2016.

"Gilead is the same story every year -- everyone wondering who and when they're going to buy," Brad Loncar of Loncar Investments said. "Everyone says Vertex, but I think that's a terrible idea."

The biotech spent a dollop of its $25 billion in cash before year end when it partnered with Galapagos N.V. to co-develop and co-commercialize filgotinib for $725 million up front. The partners expect to begin Phase III studies next year of the Janus kinase-1 (JAK-1) inhibitor to treat rheumatoid arthritis and Crohn's disease (see "Growing Up Galapagos," page 18).

Non-alcoholic steatohepatitis (NASH) was the most common indication mentioned by investors as an M&A target for Gilead, although late-stage biotechs in the space such as Intercept Pharmaceuticals Inc. aren't expected to report data from their Phase III trials for a few years.

A few buysiders said clinical data for Gilead's simtuzumab, including an ongoing study in NASH, would also be important. Phase II trials in NASH and primary sclerosing cholangitis (PSC) should have data in 2H16. Thomson had also been looking forward to data in idiopathic pulmonary fibrosis (IPF), but on Jan. 5 Gilead said it stopped a Phase II trial of the humanized mAb against lysyl oxidase-like 2 (LOXL2) for IPF due to a lack of efficacy.

Investors did not highlight any major catalysts for Celgene Corp. now that it has addressed the overhang of patent litigation for multiple myeloma (MM) drug Revlimid lenalidomide. Celgene gained $10.93 (10%) to $122.07 on Dec. 23, adding $8.6 billion in market cap, after announcing a settlement that will allow Natco Pharma Ltd. to begin selling limited quantities of a generic in the U.S. in March 2022.

Let's do launch

The few launch-related milestones buysiders are waiting for are in the $1-$5 billion market cap tier.

Polar Capital's David Pinniger named Tesaro Inc. and Acadia Pharmaceuticals Inc. Acadia's Nuplazid pimavanserin is under review to treat Parkinson's disease (PD) psychosis with a May 1 PDUFA date.

Tesaro just launched Varubi rolapitant to prevent delayed nausea and vomiting from emetogenic cancer chemotherapy.

"Those are the sorts of stories that got a little bit left behind in the past year in the enthusiasm for platform technologies, but I think are stories that could really appeal in 2016," Pinniger said. 
Brookside Capital's Matt McPherron and Koller named Radius Health Inc. as a pick. Radius plans to submit an NDA for abaloparatide-SC at the end of 1Q to reduce fractures in postmenopausal osteoporosis. An MAA for the subcutaneous formulation of a peptide analog of parathyroid hormone-related protein (PTHrP) is under review.

"The commercial opportunity there is substantial in terms of bringing an anabolic agent to market that's better than existing best-in-class therapies," said McPherron.

He also likes RAD1901, a...

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