BUYSIDE VIEW XXIV
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.
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.
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