4:38 PM
Jan 05, 2018
 |  BioCentury  |  Finance

Burgeoning bellwethers

26th annual Buyside View sees biotech investors eyeing small- and mid-caps in 2018

The miserable performance of large cap biotechs last quarter is likely to be a boon for small- and mid-cap players this year, in more ways than one.

Buysiders spent most of 2017 focusing to a large degree on the big caps, which had been riding clinical data and commercial launches to new heights. Biotechs valued at $10 billion and up had a median gain in value of 16.1% through 3Q17, adding $248.4 billion in market cap in the first nine months of the year.

But sentiment soured in 4Q after Celgene Corp.’s mongersen failed in Phase III and several bellwethers served up soft 3Q17 earnings and weak guidance. The median big cap gain was just 1.3% in the quarter, and overall $56.5 billion in market cap was lost from Sept. 29 to Dec. 29.

With few large cap catalysts in the coming year, buysiders are planning to put more funds to work in smaller names that could become the next generation of big biotechs.

“Nobody is out there saying 2018 is going to be the year for biotech large caps.”

Otello Stampacchia, Omega Funds

“Nobody is out there saying 2018 is going to be the year for biotech large caps. The stocks look relatively cheap versus the S&P 500, but in my opinion, the discount is justified by the fundamentals,” said Omega Funds’ Otello Stampacchia (see “Watch and Wait”).

Many of the 18 buysiders who spoke to BioCentury are watching companies in the $1 billion to $10 billion market cap space that are close to market. A handful of others are watching players in the $10 billion to $40 billion range that could break the $50 billion market cap threshold on the back of clinical data and strong launches.

ClearBridge Investments’ Marshall Gordon’s sentiment was typical: “I’m definitely more in small- and mid-caps than large caps. There’s more opportunity there, and even more so on a relative basis compared to past years.”

Buysiders also think the biggest biotechs may turn to M&A to seed long-term growth. As a result, they’ll be tracking take-out targets in the $1 billion-$20 billion market cap range.

Maturing combinations

Oncology and Orphan diseases remain favorites in the small- and mid-cap space, along with companies working on new modalities with curative potential. In cancer, investors continue to look for winners among immuno-oncology combinations.

“We want to see winners emerge,” said Loncar Fund’s Brad Loncar. “So far that hasn’t happened and that’s mostly because it’s just been too early.”

Incyte Corp. remains in the spotlight as it prepares to report the first Phase III data for its indoleamine 2,3-dioxygenase 1 (IDO1) inhibitor, epacadostat.

Initial data are expected in 1H18 from the ECHO-301 study of epacadostat in combination with Merck & Co. Inc.’s PD-1 inhibitor, Keytruda pembrolizumab, as first-line treatment for advanced melanoma. The combo is also in Phase III testing to treat non-small cell lung cancer (NSCLC), renal cell carcinoma (RCC), urothelial carcinoma and squamous cell carcinoma of the head and neck (SCCHN).

The melanoma data will “show a lot about IDO’s potential utility in the combination approach, and cancer in general,” said Loncar.

“We want to see winners emerge.”

Brad Loncar, Loncar Funds

LSP’s Joep Muijrers said a negative readout could drag the sector down. “There’s so much riding on what could be the best combo partner for checkpoint inhibitors,” he said.

Carl Harald Janson of International Biotechnology Trust plc (IBT) thinks Incyte has long-term growth potential, but Loncar and apo Asset Management’s Kai Brüning believe the company could be acquired following its melanoma readout.

Loncar and Gordon also are following Bristol-Myers Squibb Co.’s Phase III CheckMate -227 trial of PD-1 inhibitor Opdivo nivolumab plus CTLA-4 inhibitor Yervoy ipilimumab as first-line therapy for NSCLC. Data are expected in 1H18.

The stakes are high, as Opdivo monotherapy already failed in one Phase III study in first-line NSCLC, and a PD-L1/CTLA-4 inhibitor combination from AstraZeneca plc also missed its endpoint in a first-line NSCLC Phase III trial.

Loncar called CheckMate -227 “the most important trial of the year because it affects such a big company and is in such an important space.”

IBT’s Ailsa Craig and WBB Securities’ John Nolan like Nektar Therapeutics, and look forward to Phase Ib/II data evaluating NKTR-214 plus Opdivo in solid tumors.

Nektar reported positive interim response data from the Phase Ib portion of the study in November, and plans to report additional data at the American Society of Clinical Oncology (ASCO) meeting in June.

NKTR-214 is an immunostimulatory cytokine engineered to selectively activate IL-2 receptors on cytotoxic T cells.

Table: 2018 milestones

Selected products with clinical or regulatory milestones expected in 2018. (A) Mallinckrodt plc (NYSE:MNK) is acquiring Sucampo Pharmaceuticals Inc. (NASDAQ:SCMP). Source: BCIQ: BioCentury Online Intelligence

AB Science S.A. (Euronext:AB)Masiviera masitinibPrimary progressive multiple sclerosis (PPMS) or relapse-free secondary progressive MSInterim Ph III AB07002 data1H18
AbbVie Inc. (NYSE:ABBV) / Boehringer Ingelheim GmbHRisankizumabPlaque psoriasis Submit reg apps2018
Ablynx N.V. (Euronext:ABLX; NASDAQ:ABLX)CaplacizumabAcquired thrombotic thrombocytopenic purpura (TTP)Submit BLA2018
Ablynx N.V. (Euronext:ABLX; NASDAQ:ABLX)VobarilizumabSystemic lupus erythematosus (SLE)Top-line Ph II STEADY data1H18
Acceleron Pharma Inc. (NASDAQ:XLRN) / Celgene Corp. (NASDAQ:CELG)LuspaterceptBeta-thalassemiaPh III BELIEVE dataMid-2018
Acceleron Pharma Inc. (NASDAQ:XLRN) / Celgene Corp. (NASDAQ:CELG)LuspaterceptMyelodysplastic syndrome (MDS)Ph III MEDALIST dataMid-2018
Achaogen Inc. (NASDAQ:AKAO) / Ionis Pharmaceuticals Inc. (NASDAQ:IONS)PlazomicinComplicated urinary tract infections (cUTIs), including pyelonephritis and bloodstream infectionsSubmit MAA2018
Aerie Pharmaceuticals Inc. (NASDAQ:AERI)Roclatan netarsudil/latanoprostGlaucoma and ocular hypertensionSubmit NDA2Q18
Aimmune Therapeutics Inc. (NASDAQ:AIMT)AR101Peanut allergyTop-line Ph III PALISADE data; submit BLA and MAA1Q18; late 2018
AIT Therapeutics Inc. (Pink:AITB)AIT-BROBronchiolitisPh III data2Q18
Alder BioPharmaceuticals Inc. (NASDAQ:ALDR)EptinezumabPrevent frequent episodic migraineTop-line Ph III PROMISE 2 data; submit BLA1H18; 2H18
Aldeyra Therapeutics Inc. (NASDAQ:ALDX)ADX-102 dermatologic formulationSjogren-Larsson syndromePh III data2H18
Aldeyra Therapeutics Inc. (NASDAQ:ALDX) / Ligand Pharmaceuticals Inc. (NASDAQ:LGND)ADX-102 ophthalmic solutionNon-infectious anterior uveitisPh III data2H18
Alexion Pharmaceuticals Inc. (NASDAQ:ALXN)ALXN1210Paroxysmal nocturnal hemoglobinuria (PNH)Ph III data2Q18
Alexion Pharmaceuticals Inc. (NASDAQ:ALXN)Soliris eculizumabNeuromyelitis optica spectrum disorder Ph III PREVENT dataMid-2018
Alkermes plc (NASDAQ:ALKS)Samidorphan/olanzapine (ALKS 3831)SchizophreniaPh III data2018
Alkermes plc (NASDAQ:ALKS) / Biogen Inc. (NASDAQ:BIIB)ALKS 8700Relapsing-remitting multiple sclerosis (RRMS)Submit NDA2018
Allergan plc (NYSE:AGN) / Gedeon Richter plc (Budapest:RICHTER) Cariprazine Bipolar I depressionSubmit sNDA2H18
Alnylam Pharmaceuticals Inc. (NASDAQ:ALNY)GivosiranAcute hepatic porphyriasInterim Ph III ENVISION data; submit NDAMid-2018; YE18
Amarin Corp. plc (NASDAQ:AMRN) / HLS Therapeutics Inc.Vascepa icosapent ethylReduce major adverse cardiovascular events (MACE)Ph III data2018
Ampio Pharmaceuticals Inc. (NYSE-M:AMPE) AmpionSevere osteoarthritis (OA) of the kneeSubmit BLA2018
Amryt Pharma plc (LSE:AMYT; ISE:AYP)EpisalvanEpidermolysis bullosaTop-line Ph III EASE data2H18
AnaptysBio Inc. (NASDAQ:ANAB) ANB020Severe peanut allergy in adultsTop-line Ph IIa data2Q18
Anthera Pharmaceuticals Inc. (NASDAQ:ANTH) / Eli Lilly and Co. (NYSE:LLY)Sollpura liprotamaseExocrine pancreatic insufficiency (EPI) due to cystic fibrosis (CF)Top-line Ph III RESULT data1Q18
Aquinox Pharmaceuticals Inc. (NASDAQ:AQXP)RosiptorBladder pain syndrome (BPS)/interstitial cystitisTop-line Ph III LEADERSHIP data3Q18
Aradigm Corp. (NASDAQ:ARDM) / Grifols S.A. (Madrid:GRF; NASDAQ:GRFS)Linhaliq liposomal ciprofloxacinNon-CF bronchiectasis Submit MAA1Q18
Ardelyx Inc. (NASDAQ:ARDX) / Shanghai Fosun Pharmaceutical Group Co. Ltd. (Shanghai:600196; HKSE:2196)TenapanorIrritable bowel syndrome with constipation (IBS-C)Additional Ph III data; submit NDA2018; 2H18
argenx S.E. (Euronext:ARGX; NASDAQ:ARGX) ARGX-113Immune thrombocytopenia (ITP)Top-line Ph II data2H18
argenx S.E. (Euronext:ARGX; NASDAQ:ARGX) ARGX-113Pemphigus vulgarisInterim Ph II data2H18
ArQule Inc. (NASDAQ:ARQL)DerazantinibCholangiocarcinomaInterim Ph III data2H18
Array BioPharma Inc. (NASDAQ:ARRY) / AstraZeneca plc (LSE:AZN; NYSE:AZN) / Merck & Co. Inc. (NYSE:MRK)SelumetinibThyroid cancerPh III data; submit reg apps1H18
Assembly Biosciences Inc. (NASDAQ:ASMB)ABI-H0731HBVPh Ib/II data2H18
AstraZeneca plc (LSE:AZN; NYSE:AZN) / Celgene Corp. (NASDAQ:CELG)Imfinzi durvalumabFirst-line treatment of urothelial carcinomaPh III DANUBE data2H18
AstraZeneca plc (LSE:AZN; NYSE:AZN) / Celgene Corp. (NASDAQ:CELG)Imfinzi durvalumabSquamous cell carcinoma of the head and neck (SCCHN)Ph III KESTREL and EAGLE data1H18
Atara Biotherapeutics Inc. (NASDAQ:ATRA) / Memorial Sloan Kettering Cancer Center EBV-CTL (ATA129)Epstein-Barr virus-associated post-transplant lymphoproliferative disease (EBV-PTLD)Submit MAA 2018
Auris Medical Holding AG (NASDAQ:EARS)Keyzilen esketamineAcute inner ear tinnitusPh III TACTT3 dataEarly 2018
Avenue Therapeutics Inc....

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