Biotechnology Industry Prospects Remain Strong
New York—After several poor years, the biotechnology industry rebounded in 2013 with 45 initial public offerings (IPOs) of biotechnology companies and more money flowing into the sector. It was the most activity since 2000, and the trend has continued. Through early February, there had already been 14 IPOs in 2014, according to James Greenwood, president, chief executive officer, Biotechnology Industry Organization (BIO).
Mr. Greenwood, who spoke at the BIO CEO & Investor Conference, said there are now >900 biologic drugs in the pipeline intended to treat >100 rare diseases. He also presented results of a BIO survey of >200 buy-side investors conducted during the week of January 23.
More than 56% of respondents indicated the major biotechnology indices would increase at least 10% this year. Two-thirds said small cap biotechnology companies were better investment opportunities than large biotechnology companies, while 65% preferred to invest in companies with late-stage pipeline drugs instead of companies with early-stage pipeline drugs. The best investment opportunities are in oncology (48.1% of respondents), genetic disorders/rare diseases (16.4%), and autoimmune/immunology (14.8%), according to the survey participants. In addition, 61.2% predicted there would be fewer biotechnology IPOs this year compared with last year.
Still, William Slattery, partner, Deerfield Management Company, predicted that the large number of IPOs would continue and funding for biotechnology companies would remain high. “I do not think we are getting crammed yet,” Mr. Slattery said.
Mark Schoenebaum, MD, senior managing director, ISI Group, and investment research firm, said the attention the biotechnology sector received in 2013 was “absolutely unprecedented” and “really remarkable.” A positive of so much money being available for biotechnology companies is that molecules have a higher probability of getting developed and approved, according to Oleg Nodelman, founder, managing director, EcoR1 Capital, a hedge fund.
The FDA approved 39 drugs in 2012 and 27 drugs in 2013. Investors are encouraged with the FDA’s decision-making. The survey found that only 23.7% of respondents said the FDA had not changed its approach to weighing the risks and benefits of new drugs in recent years. The remaining 76.3% of people said the FDA had instituted a minor or major shift toward a more balanced approach to risks and benefits. Furthermore, 46.3% of respondents said drug developers would be more productive in the next few years, while 44.7% said the productivity would remain the same, and 8.9% said productivity would decrease compared with the last few years.
The panelists discussed reimbursement of expensive drugs, as well. Although drugs costs are high, they only account for around 10% of healthcare spending, according to Andrew Acker, CFA, portfolio manager, Janus Global Life Sciences. Adam Koppel, MD, PhD, managing director, Brookside Capital Partners Fund, said oncology drugs are still getting reimbursed, although he added that “something has to give” when it comes to the increasing costs.
Dr. Koppel predicted that life-saving drugs such as rituximab or treatments for chronic myeloid leukemia would continue to get reimbursed in the coming years, but he was not sure about drugs that extend survival by a few months. Meanwhile, Mr. Slattery said drugs that are true breakthroughs will sell themselves and not require as many salespeople, which would lower expenses for pharmaceutical companies.
