Source: Kentucky.gov
At the beginning of this year, I outlined five biotech predictions that could affect investors, and now that the first six months of the year are in the rearview mirror, it seems to be the perfect time to check in and see how I'm doing. Without further ado, here's my report card -- warts and all.
No. 1: Celgene buys somebody -- Grade B
In January, I wrote, "Celgene Corporation (CELG +0.00%) will buy somebody. I don't have any idea which company Celgene could buy in 2015, but the company's getting flush with cash, and it's been kicking a lot of tires over the past two years."
In April, Celgene announced it was buying the privately-held Quanticel for $100 million plus potential milestones, and last month, it reported an $850 million acquisition of a 10% stake in the immuno-oncology play Juno Therapeutics as part of a broader $1 billion collaboration.
The Quanticel purchase gives Celgene epigenetics drug candidates that could enter human trials by 2017, and the Juno Therapeutics deal nets Celgene options to rights on compelling CAR-T medicines that may someday revolutionize cancer treatment, while also giving Celgene the option to increase its stake in the company to just shy of 30%.
However, neither of those deals is as big a splash as I was predicting, and for that reason I'm giving myself a "B" on this one -- for now. Because the investment in Juno Therapeutics doesn't make too big of a dent in Celgene's cash stockpile, other deals could be coming. So stay tuned.
No. 2 Alkermes market value will climb -- Grade: A
I predicted that investors would boost Alkermes (NASDAQ: ALKS) shares this year for a variety of reasons, including the potential for future revenue tied to a long-lasting version of Abilify and an adjunct therapy for depression.
Shares have indeed gone higher this year, gaining 25% at their peak in late February, and trading 9.5% higher today. Although I was much happier with the valuation pop in February than I am today, I remain a believer that Alkermes' evolving pipeline and royalty revenue stream could lead shares to take another run higher.
Source: Leafly.
No. 3 GW Pharmaceuticals will stumble -- Grade: F
Boy, did I blow this one! I thought valuation concerns would lead investors to walk away from GW Pharmaceuticals (NASDAQ: GWPH). However, shares have surged higher since I made my prediction.
To my credit, GW Pharmaceuticals reported in January that its marijuana drug Sativex failed in the first of three phase 3 trials to read out this year, but ultimately investors care about the direction of the stock, so I'm sticking with giving myself an "F."
Could I be vindicated? I think so. The second cancer trial was designed similarly to the first failed trial, which could mean that Sativex falls short there, too. If so, then it puts a lot of pressure on the third trial, which was designed differently. Additionally, while GW Pharmaceuticals' epilepsy research is intriguing, Epidiolex targets relatively rare cases of the disease, which could limit eventual sales, especially if competitor Insys Therapeutics succeeds with its epilepsy trials. These risks give me reason to think GW Pharmaceuticals' market cap of $2.4 billion is too rich, but I'm not willing to sell it short.
No 4. The hepatitis C battle will evolve -- Grade: B
Heading into 2015, most investors' attention was focused on the looming showdown between Gilead Sciences (NASDAQ: GILD), the maker of two HCV drugs that racked up over $12 billion in sales last year, and AbbVie (NYSE: ABBV), which secured FDA approval for Viekira Pak, a therapy that challenges Gilead Sciences' Harvoni for market share in genotype 1 patients, in December.
I speculated that a far more intriguing battle could emerge not between those two drugs, but among drugmakers jockeying to create next-generation treatments that work better and can be dosed over fewer weeks.
Based on first-quarter results, Gilead Sciences' $3.6 billion in Harvoni sales suggests that Viekira's impact may be less than feared, but the jury is still out on whether that battle is becoming secondary to the one likely to be waged over next-generation therapies.
In May, Johnson & Johnson stepped a $1.1 billion deal to lock up Achillion Pharmaceuticals' HCV pipeline, which has shown impressive results so far for a six-week treatment regimen. That gives me conviction that the debate will continue shifting toward future HCV drugs, rather than those that are currently approved. Since Gilead Sciences is expected to release data from phase 3 trials evaluating a next-generation successor to Sovaldi in non-genotype 1 patients, I think that battle could become increasingly important as we get deeper into the year.
No 5: Investors will flock to biosimilars -- Grade: A
In February, Pfizer (NYSE: PFE) forked out $17 billion to buy biosimilar maker Hospira, one of the stocks I called out as a likely beneficiary of investors' rising interest in biosimilars that work similarly to, but aren't exact replicas of, existing biologic medicines.
In that deal, Pfizer estimates that it gains exposure to a market that will grow from a few billion today to as much as $20 billion by 2020.
Pfizer's deal kick-started interest in biosimilars, but it was the FDA's approval of Novartis' Sandoz unit's biosimilar to the blockbuster drug Neupogen and Sandoz and Momenta Pharmaceuticals' Copaxone biosimilar that had investors scurrying to pick up shares in the companies working on them. One of the biggest beneficiaries of the increasing interest in biosimilars is Momenta Pharmaceuticals, which has seen its shares jump 79% this year.
I think the biosimilars land-grab remains in the early stages and that there's plenty more upside for companies developing them lying ahead, so investors might want to sprinkle biosimilar drugmakers into their portfolios.
Tying it together
Overall, if I could take a mulligan, it would be on GW Pharmaceuticals. Its ongoing rally is an important reminder never to underestimate momentum, or, in the words of a former mentor, to "never stand in front of a runaway locomotive." Otherwise, I think the predictions continue to hold water today and for that reason, investors should still be considering which companies Celgene could buy, and taking stakes in Alkermes, next generation hepatitis C drug developers, and companies that are at the forefront of the biosimilar movement.
