The year 2015 has been a fascinating one to be tracking the healthcare sector. In the past 12 months the industry saw a boatload of game-changing drug approvals, all-time highs in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), record-breaking enrollment figures in Obamacare, a surge in support for legalized marijuana, and much more. And these aren't even the headlines that stood out the most to me.
As the host of Industry Focus: Healthcare, The Motley Fool's weekly podcast on the healthcare industry (which -- shameless plug alert! -- you can listen to on iTunes or Stitcher), I've had a front-row seat to all the ups and downs the sector faced this year. Which ones were the biggest needle-movers? Let's find out.
Imitation is the sincerest form of flattery
The most significant drug approval of the year, curiously enough, was not for a novel drug, but for a biosimilar called Zarxio. Zarxio, made by Novartis (NYSE:NVS), is a biosimilar of Amgen's (NASDAQ:AMGN) blockbuster white blood cell booster Neupogen. Biosimilars are generic versions of biologic drugs, which are more complex to make than your average small-molecule drug.
So what makes a copycat approval the most significant of the year? This approval marked the first time a biosimilar was approved by the U.S. Food and Drug Administration. Biologic drugs have come off patent in droves in recent years, but they had yet to lose market share to non-branded (i.e., cheaper) competition due to an unclear regulatory approval pathway. Well, the road is clear now.
This is huge for healthcare spending. Biologic drugs are some of the priciest out there, and $100 billion worth of biologic medicines are slated to lose patent protection in the next five years. However, because developing a biosimilar is much more difficult than developing a generic version of a small-molecule drug, biosimilars won't sell for as big of a discount. Novartis has stated that it will sell Zarxio at a 15% discount to Amgen's Neupogen.
Several pharmaceutical giants are investing heavily to bulk up their biosimilar arsenals, including Amgen itself. In addition to Novartis, another standout to keep an eye on is Pfizer (NYSE:PFE), which bought generic-drug maker Hospira earlier in the year.
The year 2015 was the biggest year ever for merger and acquisition activity, and the healthcare sector led the way. Global M&A topped $5 trillion this year, handily surpassing the old record of $4.6 trillion set in 2007.
By far the biggest M&A story in healthcare was Pfizer's acquisition of Allergan, a deal estimated to be worth $160 billion. The combined company will still be known as Pfizer, but headquarters will be moved to Allergan's home country of Ireland to take advantage of the country's favorable tax situation.
Another giant merger involved retail pharmacies Walgreens Boots Alliance (NASDAQ:WBA) and Rite Aid. Walgreens is paying $17.2 billion in this all-cash transaction that will leave the company with $7.3 billion in debt. Previously, this space was dominated by the aforementioned two companies and CVS Health. As the market dwindles down to just two main players, it may raise flags with antitrust regulatory bodies, so we'll have to wait to see whether it gets the green light.
Health insurers didn't want to miss out on all the action; consolidation was a major 2015 trend in this space as well. The two highlights were that Anthem bought Cigna for $54 billion, while Aetna bought Humana for $37 billion. It's only logical that insurers would get in on the M&A mania to keep negotiations with other parts of the healthcare food chain fair.
Pharma Bro ignites a war on drug pricing
This year's most mainstream healthcare headlines surrounded "pharma bro" Martin Shkreli. An ex-hedge fund manager and avid social-media user, Shkreli first made major news when he was the CEO of Turing Pharmaceuticals, and the company raised the price of a rare-disease drug often used by cancer and HIV patients by more than 5,000% overnight.
Shkreli's story only got more interesting from there, as he was later arrested on claims of securities fraud related to his hedge fund days. Shortly thereafter he resigned from Turing Pharmaceuticals and was fired from KaloBios Pharmaceuticals, a cancer drug research company where he had also been CEO. Of course, the story wouldn't be complete without some commentary from Hillary Clinton, some utterly ridiculous tweets from Shkreli himself, and a stranger-than-fiction plot twist involving the Wu Tang Clan.
Comic relief aside, Turing Pharmaceuticals brought drug pricing into the mainstream, and outrage ensued. Scrutiny over drug pricing and pharmaceutical business models hammered most stocks in the industry, and the topic will surely remain a hot-button issue in next year's elections. Talk about a tough pill to swallow.
What will 2016 hold?
Without a doubt, 2016 will bring us more fascinating headlines. Many game-changing developmental drugs will report data or receive regulatory approval decisions. The political landscape surrounding November elections will directly influence conversations about drug pricing and Obamacare -- and as a result, it will certainly shake up stock prices across the sector. Who knows -- maybe Martin Shkreli will do something even more jaw-dropping.
It will be another 365 days before we know what the most important healthcare headlines of 2016 will be. In the meantime, there are plenty of records to be shattered, needles to be moved, and profits to be had for Foolish investors.