5:06 PM
Apr 05, 2019
 |  BioCentury  |  Finance

Big caps under pressure

Buysiders eye gene therapy, SMID-cap catalysts in 2Q19

Biogen’s fall in the wake of its decision to discontinue late-stage trials of Alzheimer’s therapy aducanumab is yet another reminder that large caps are in dire need of new pipeline products, and could serve as a boon to SMID-cap companies that buysiders see as takeout targets.

Biogen Inc. has shed $15.5 billion in market cap since announcing on March 21 that it would discontinue a pair of Phase III and a Phase II trial of its anti-amyloid mAb. The company is currently valued at $47.5 billion (see “Biogen’s Lead Balloon”).

“In terms of M&A, Biogen 100% needs to get very active, so now you have one large buyer with some urgency. That is good news for smaller companies,” said Loncar Fund’s Brad Loncar.

The recent spate of gene therapy buyouts and continued interest from pharma has investors looking for players with broad pipelines and manufacturing capabilities.

Meanwhile, expectations around the American Society of Clinical Oncology (ASCO) meeting are tempered, as investors guard against putting all their immuno-oncology eggs in one basket.

Fading fortunes for big caps

Specialists remain wary of large cap names, and the Biogen blow-up has only exacerbated the sentiment.

“With big caps, we had an industry that could do no wrong a few years ago, and now it looks more like big pharma in terms of growth and margins,” said Abingworth’s Andrew Sinclair. “They’re not offering the same potential rewards and excitement, and short of mega-M&A and Celgene-type acquisitions, it’s not as easy for investors to justify,” he added, referring to the Jan. 3 announcement that Bristol-Myers Squibb Co. would acquire Celgene Corp. in a deal valued at $74 billion.

Borho agreed, adding, “Amgen is trading much more like a large cap pharma company. Celgene is becoming a pharma company, and Gilead and Biogen need M&A to fix their pipelines. We need to have Regeneron and Vertex fill the gap that opened up with the fading fortunes of the big four.”

Buysiders who spoke with BioCentury agreed that Biogen’s path forward will require aggressive M&A.

“All the big companies want to make a commitment to gene therapy.”

Sven Borho, OrbiMed

Omega Fund’s Otello Stampacchia thinks the big biotech is vulnerable to a takeout, and needs to enter partnerships or make acquisitions in CNS, gene therapy and/or rare disease in order to grow.

“It’s a reminder that big cap biotechs still carry material pipeline risk and the pressure is on to replace the maturing base businesses. In their quest for growth, larger biotech and pharma companies need to keep adding external assets to their portfolios. The most innovative small caps stand to benefit from this,” said HBM’s Gavin MacGregor.

Loncar named Sarepta Therapeutics Inc. and Voyager Therapeutics Inc. as sensible targets for Biogen, which has been bringing in new modalities and broadening its scope in neurology (see “Rebuilding Biogen’s Brain”).

Sarepta has a pipeline of RNA-targeted therapies, gene therapies and gene editing candidates for neuromuscular and rare diseases.

Voyager is developing gene therapies for neurological indications including Parkinson’s disease, amyotrophic lateral sclerosis (ALS), Huntington’s disease, Friedreich’s ataxia, Alzheimer’s disease and severe, chronic pain.

Biogen could also look to Sage Therapeutics Inc. to build out its pipeline in neuropsychiatry, an area it has highlighted for growth.

On March 19, FDA approved Sage’s Zulresso brexanolone, a positive allosteric modulator of the GABA A receptor, to treat postpartum depression (see “Sage Broadens the Spotlight on Postpartum Depression”).

Loncar said he is awaiting deal news from Gilead Sciences Inc. following the appointment of Daniel O’Day as CEO and chairman. O’Day was previously CEO of Roche Pharmaceuticals; his role at Gilead took effect on March 1.


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