BB Biotech: Strong start to the year for the biotech sector
Schaffhausen (CH) — Record numbers of product approvals, clinical breakthroughs in new therapies and further acquisitions — at its most important investor conference at the beginning of the year, the biotech industry presents itself in strong shape. For a number of BB Biotech portfolio companies, 2019 will be an exciting year.
The who’s who of the healthcare industry met at J.P. Morgan ’s annual investor conference in San Francisco, California. Scientists, managers and investors watched presentations and panel discussions between January 7 and 10 and exchanged ideas at countless meetings. For BB Biotech’s investment team, the event provided an opportunity to meet with the management of its portfolio companies and also to hold discussions with a number of potential new companies.
Acquisitions and licensing deals
The number one topic of conversation at the start of the conference was the two acquisitions announced at the beginning of January. In both cases, US pharmaceutical companies acted as buyers. Eli Lilly is acquiring cancer specialist Loxo Oncology, which received approval for its first product in November 2018, for USD 8 billion. Even more spectacular is Bristol-Myers Squibb ’s acquisition of BB Biotech ’s long-standing core holding Celgene. The acquisition price of USD 74 billion represents the largest transaction in the history of biotechnology to date and creates one of the world’s largest providers of cancer therapies on the sales side.
Even though other pharmaceutical companies have indicated that they are looking for takeover targets, BB Biotech believes that deals of this magnitude will remain the exception. The team considers so-called bolt-on acquisitions to be far more likely, with which companies strengthen their portfolio in individual indications via smaller acquisitions in the single-digit billion range. “Takeover targets among the biotech heavyweights include Gilead Sciences in oncology and gene therapy and Biogen in neurology, in addition to Amgen. The valuations of many biotech companies, which remain low despite the recent share price recovery, will have a supportive effect on the conclusion of such transactions,” says Dr. Daniel Koller, Head Investment Team BB Biotech.
The discussion about the acquisitions was partially overshadowed by the numerous licensing agreements announced at the conference. For example, the subsidiary Esperion Therapeutics signed an agreement with Daiichi Sankyo Europe. Under the terms of the agreement, the Japanese pharmaceutical company will pay USD 300 million in upfront payments and a further USD 900 million in success-based milestone payments in return for securing the marketing rights to a blood lipid-lowering drug.
In terms of price-driving news, Sage Therapeutics provided a highlight of the conference. Its share price shot up 40% after the company announced very good clinical data for a product to treat severe postpartum depression. This nerve disease is the result of hormonal changes after childbirth and affects 400,000 women each year in the U.S. alone. The advantage of the substance called SAGE-127 is that it is taken as a tablet over a period of two weeks. In this delivery form, the drug could also be used for other forms of depression in which Sage is testing the drug. If SAGE-127 receives approval, the U.S. biotech company could secure a lucrative market niche, as the U.S. FDA is already deciding on March 19 whether to approve Zupressa for the same indication. The disadvantage of Zupressa is that this medicine must be administered by infusion over a 60-hour period. In any case, the chances are good that Sage will be able to generate annual sales in the billions with these products.
Investment Strategy BB Biotech: Bet on tomorrow’s winners
The latest developments in the industry confirm BB Biotech’s investment strategy of increasingly focusing on smaller and mid-cap companies that are on the verge of a breakthrough with new therapeutic approaches. Cancer therapies remain the largest topic area here, followed by monogenetic rare diseases and neurological diseases. The team is very confident that some of the portfolio companies will deliver positive price-driving news this year. These include Alexion Pharma with a follow-on product for Soliris, a billion-dollar product for the treatment of a rare genetic disorder in hematopoiesis. At the same time, management is working to increase the sales potential of Soliris through expanded applications in other niche indications. Halozyme will submit pivotal data for its pancreatic cancer treatment towards the end of the year. From Vertex Pharma, BB Biotech expects further data from combination studies in cystic fibrosis.
Intercept and Gilead Sciences will present pivotal clinical data from their candidates for the treatment of non-alcoholic fatty liver (NASH) in H1 2019. These medications could be used to treat the early and late forms of the disease. In the USA alone, up to 2 million people are affected by liver cirrhosis as a result of fatty liver and at least the same number by liver fibrosis, which in most cases can only be treated by liver transplantation. The actual sales potential for this disease, which until now has been virtually untreatable, will only become apparent once the first products have been approved. The main issue here is to determine how long and intensive the medication of NASH in its early forms will be in reducing the fat content in the liver and improving the blood count, and to what extent the new therapies will have a curative effect in the late stages of the disease.
As in other disease areas, BB Biotech positioned itself here at an early stage, as soon as the medical and commercial success of the new therapeutic approaches was convincing. The above-average performance of BB Biotech’s shares compared to the industry underpins this investment approach. www.bbbiotech.com