BioPharm Executive: 2015 In Review, 2016 In View

December 18, 2015
By Karl Thiel for BioSpace.com

Another year draws to a close, so it's time for a quick look back at some of the big trends that shaped 2015, and also a few (ok, 17) guesses at what might happen in 2016. It's been quite a year.

1. M&A goes hyperbolic.
This has really been the overarching business trend of the past couple years, as many companies have looked to leverage their massive balance sheets into growth. But M&A activity reached new heights in 2015, surpassing a robust 2014 and even the previous high water mark of $4.29 trillion from 2007 (it's on pace to reach about $4.7 trillion). An insatiable corporate appetite for acquisition isn't an entirely encouraging sign—it indicates companies are struggling to find organic growth, while continuing to be cautious about investing in hiring. But, it has certainly created great wealth for some.

And healthcare certainly gets more than its fair share of the action—it represented about 20 percent of global M&A this year. While Pfizer 's proposed $160 billion link-up with Allergan is likely to stay in headlines well into the presidential election, there were many other highlights from the year. AbbVie buying Pharmacyclics, Inc. for $21 billion caught a lot of attention early on, and was followed by Valeant and Salix , Celgene and Receptos , Shire and Dyax , Endo and Par, and many more. There were, of course, also the ugly takeover battles that failed—like Teva and Mylan and Perrigo , Horizon and Depomed . And then there were those rumored pairings that never materialized as anything more than speculation. Remember Shire and Actelion , Shire and BioMarin , Pfizer and GlaxoSmithKline , or Gilead and Vertex ?

We'll certainly see some more big deals in 2016, but this year will be a tough act to follow. Still, a few names are at the forefront of investors' minds. We're waiting around to see who Gilead will buy, when Amgen will get into the game, and if Biogen has something big up its sleeve. But for every expected deal, there will be a few surprises. (I tried last year to predict a few deals for 2015. I was right about Receptos, but Puma and Incyte remain independent).

2. The biotech bull market died.
The biotech bull market was officially pronounced dead in September by CNN, Business Insider, and others. As I said at the end of last year, it was unlikely that 2015 was going to be able to live up to 2014 in terms of biotech stock performance, and that's certainly turned out to be true. As I write, both the Nasdaq Biotech Index and NYSE Arca Biotech Index have eked out small gains for the year, unlike the S&P 500, but most investors will probably view that as a pyrrhic victory given where things stood back in the summer.

Will it come back? An October poll from FierceBiotech showed that over 75 percent of respondents expect a rebound, but since the poll didn't set any timeline, it's hard to know how to interpret the results. (I mean, who doesn't expect a rebound ever?) In terms of 2016, investors are likely to get increasingly nervous about drug pricing issues as the presidential election draws nearer. That may keep a lid on things, but if I had to guess I'd still say the broad biotech indices will rise next year.

3. Breathless hype gets a reality check.
Beyond that broad cooling of sentiment, we've seen investors come back down to earth about specific technologies. Some of the hottest companies of last year have seen some of the biggest setbacks in late 2015. Gene therapy, cancer immunotherapy, RNAi, gene editing, and other emerging platforms all continue to produce compelling data, at least in the hands of some companies. But some of those most prominent stocks behind these technologies—like bluebird bio , Alnylam , Spark Therapeutics , Celldex , Isis Pharmaceuticals , NewLink Genetics and Aduro Biotech —have had a tough time, particularly in the past few months. Expectations play a big role here: Investors were counting on a near-perfect performance from some of these companies; reality in many cases has merely been encouraging. Many other companies in these areas, like Celladon , Applied Genetic Technologies Corporation, Galena Biopharma , Cellectis, Arrowhead Research Corporation , Inovio Pharmaceuticals and Dicerna , have suffered major losses in value...or been absolutely crushed.

4. Wait, no, biotech was smoking hot in 2015!
Did you know that 9 of the top 10 performing stocks of 2015 are from the biotech sector? Amazing. Check out these names: Eagle Pharmaceuticals , Anacor , Exelixis , Prothena , Intra-Cellular Therapies, Dyax , Sarepta , Cambrex and Neurocrine Biosciences . All of them posted triple-digit gains in 2015, with Eagle up almost 490 percent. (The only non-biotech to break the top 10 was Netflix). Some of this was an artifact of M&A activity (e.g., Dyax). Some of it was woefully beaten down companies staging a bit of a comeback (e.g., Exelixis and Sarepta). But it's hard to argue with that kind of dominant showing. Biotech is always an industry of haves and have-nots; that become exaggerated in 2015. That's a useful lesson going into 2016: Even in a tough market, this industry will have huge winners.

5. Pricing controversies gain steam.
Gilead Sciences was always a strange poster child for pharma industry greed. Here, after all was a company offer bona fide cures, and doing it at a cost that would certainly save payers over the lifetime of a patient. Luckily, critics found much better villains in 2015. There was Martin Shkreli, of course, about whom the less is said the better. More significantly, there was new focus on a whole business model built around acquiring "mispriced" drugs and jacking up the price tag, exemplified by Valeant Pharmaceuticals International and Mallinckrodt . These companies—and others pursuing similar strategies—have just earned the industry a whole lot of extra scrutiny, not to mention rhetorical bombast, throughout the 2016 election cycle. Thanks, guys.

Looking forward.

I won't let the lack of a crystal ball stop me from hazarding a few guesses about the year to come. Here are 17 predictions for 2016 of varying seriousness and import:

1. The stock market will post lackluster (albeit modestly positive) returns, but biotech will again outperform the S&P 500.

2. One of the leading CAR-T companies will encounter a clinical setback that will cause investors to reassess optimistic forecasts and timelines. It won't actually be an existential challenge to the companies in this space—just a limitation on unchecked enthusiasm.

3. Gilead Sciences and Biogen will both make multi-billion dollar acquisitions. (Admittedly, not an especially bold prediction).

4. It will be a big year for personalized medicine. Companies will make moves to tie treatments ever closer to individuals' genetic profiles. Pacific Biosciences will have a winning year as Roche launches its Sequel system for diagnostic purposes.

5. Roche will acquire a cancer immunotherapy company to match its push into personalized diagnostics.

6. 23andMe will file for an IPO.

7. Hillary Clinton wins in a match-up with Donald Trump or Ted Cruz; she narrowly loses in a match-up with Marco Rubio. Which way does it go? Not that my call means anything, but it seems like the GOP keeps getting in its own way and puts forward the wrong candidate. But the Democratic party fails to recapture the Senate.

7b. By the end of 2017, few people will admit they once supported Donald Trump.

8. Pharma and biotech M&A will cool down from 2015, but not by much. Heathcare will comprise over 20 percent of all M&A.

9. Asia (not counting Japan and India) will draw almost even with the European Union in pharmaceutical sales.

10. Asia (including Japan and India) will draw close to the U.S. (within 10 percent) in pharmaceutical sales.

11. Latin America will draw almost even with Japan in pharmaceutical sales.

12. After acquiring Allergan, Pfizer will split up into brand-name and established (generic) drug businesses.

13. Somebody will start delivering prescriptions by drone.

14. Biosimilars make a big entrance in 2016, with several new approvals. But, meager discounts become a talking point in the debate over drug pricing.

15. Drug price inflation accelerates in 2016 as companies position themselves against potential price controls that won't materialize. But they also prepare for eventual reform and some sort of effectiveness-based pricing.

16. Celgene buys some companies. That's got to be right, right?

17. There is a major cybersecurity breach of healthcare data, affecting millions.

I hope I get at least a few things on this list right. And, on further reflection, there's a few things I hope I'm wrong about, too. Have a great holiday and New Year!

-Karl Thiel

Read the BioPharm Executive online newsletter December 18, 2015.
Sign-up for the free monthly subscription to the BioPharm Executive