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Pharma: 2020 preview - blog article / Pharma: 2020 preview

As the proverb goes, what goes up must come down. Furthermore, it’s been no secret that the pharma industry has been a hot topic on many a politician’s agenda, with pharma prices particularly contentious. What’s more, with the US presidential election not far away and pharma hawks like democrat Elizabeth Warren in the picture, you wouldn’t be blamed for thinking tough times await. But is it all really doom and gloom?

A bullish market?

Firstly, it’s the markets that are most vulnerable to succumbing to pharma-pricing rhetoric. The capricious nature of stock markets and other macro-economic issues mean it is tough forecasting how the financial health of the sector might change. Events external to the industry can rapidly push sentiment towards the high-risk drug development industry.

But we can talk about where biopharma will source its growth from this year with far more confidence. Through leveraging the data, the sector’s biggest sales growth drivers for ’20 can be attributed to the following areas:

  • Oncology drugs: this year eight drugs are expected to add $1bn or more in new sales
  • Four of these are cancer drugs: some of these comprise real breakthroughs
  • Keytruda (Merck & Co) set to reach $13.9bn in sales – $3.29bn growth
  • Apart from anti-PDL(1) antibody class substantial growth coming from:
    • antibodies against interleukin targets ($4.2bn)
    • GLP receptors agonists ($2.0bn)

We can summarize by saying that various events and their mechanisms are likely to add billions of dollars in extra revenues this year, while there won’t be too many obstacles stopping biopharma’s balance sheet from getting even healthier – and it is cancer drugs that are set to play the starring role.

It’s all in the research

No summary of the prognosis for the pharma industry in 2020 would be complete without a look at the most highly valued R&D projects. Number 1 on the list with a staggering net present value of almost $12bn is Eli Lilly’s effort to take a new mechanism to the diabetes market. Another extremely valuable asset is Bristol-Myers’ Tyk2 inhibitor, BMS-986165. Pfizer and Johnson & Johnson are also working with Tyk2 inhibitors, so this is a mechanism to keep an eye on this year.

However, one key observation to make is that oncology comprises only three of the top 10 top-valued R&D projects. And while cancer projects often now target smaller niches, this may also highlight that the next phase of immuno-oncology assets are going to be delivered substantially later than first envisaged.

Regulation vs. cooperation

In recent years biopharma has enjoyed a hugely prosperous period that can be heavily attributed to an ever more cooperative, pliable regulatory department at the US FDA. It’s the very position assumed by the FDA that helps determine investor attitudes towards the biopharma industry. And this isn’t only because the US is globally the largest customer of medicine.

A ten-year analysis of new drug approvals in the US paints a clear picture of declining numbers in recent years. The sector’s concentration on rare diseases or underserviced niches in the oncology sphere can be attributed to this focus, which the FDA has rewarded with rapid decisions. There are limited indications that the US regulator’s industry-favourable stance will change radically this year.

In Europe also, regulators are trying to get new medicines to those that need them quicker, although tracking this data is more complex. Meanwhile, gene therapy is something to keep a keen eye on. Analysis has unearthed a large jump in clinical holds on these projects, and while this could merely mirror the uptick in work on this new approach, it is evident that the FDA is watching the progress here carefully.

Drawing informed conclusions

To wrap up this summary, the next US presidential election heeds the first callout. Investor sentiment is heavily tied to the uncertainty around who may assume the Oval Office, the changes they could make, and to the level of further scrutiny that the pharma industry’s pricing practices might receive. As Dan Mahony, partner at healthcare-focused investment firm Polar Capital explains, “Pharma and biotech are definitely in the cross hairs, and the industry’s reputation in DC is pretty low right now.”

However, it is not all doom and gloom: policy becomes more realistic as the election nears, while any Trump victory and Republican gain in Congress would likely be looked upon favourably by pharma. And while stock market volatility means IPOs this year look set to retract, as Søren Møller, managing director of Novo Seeds puts it, these are more likely to be “bumps in the road”.

Another key indicator of the year ahead is M&A activity. While, in general terms, deal volume has seen a slump, larger, cash-rich behemoths are likely to make moves to find new sources of growth, and it seems highly likely that the use of structured acquisitions will increase in 2020.

Although certain concerns will persist next year, many see reason for optimism. Hakan Goker, director at M Ventures sums up the prognosis well: “We’re looking at it all very positively ... We remain very excited about the science that we see ...”

While many are more sceptical and believe boundless growth may no longer be on the menu at least in the short term for pharma, this year the buffet is still very much open.