BioPharm Executive: Could It Get Any Worse?

Could It Get Any Worse?
July 27, 2016
By Karl Thiel for

A Horrible 2016 Keeps Heading Downhill

It was easy to see that, for the biotech sector, 2015 would be a tough act to follow. Back in January, I opened the year with a discussion of biotech's looming "hangover"—seven factors weighing on the sector—along with what I hoped were mitigating points. But mitigation has been in short supply—2016 hasn't just been a cooldown after a long string of successes; it's been a seemingly perfect storm of bad news and worsening conditions—some specific to the industry, some more general, some within the control of industry, and much of it not.

For investors, this year has been a rout. The Nasdaq Biotechnology Index (NBI) has seen positive returns every year since 2008, but it will take a major reversal for that trend to continue through 2016. Right now, the index is down over 18 percent year-to-date—and that's after rallying for most of July. The S&P 500, meanwhile, is up a respectable 6.4 percent. Blame any number of events, but simple supply and demand is explanation enough: Biotech funds have seen massive net outflows this year. The popular IBB ETF, which tracks the NBI, saw a 4.2 percent outflow in a single week back in April. Even in this past week, which saw a huge $20 billion inflow to ETFs, biotech saw comparatively modest improvements.

And there are factors that will continue to act as a drag on growth. The Brexit, for instance, is an underappreciated weight on the economy. Certainly biotech is less affected than most industries by Britain's decision to leave the EU, but it's surprising how quickly U.S. equity markets have decided that the Brexit is no big deal at all.

Yet it certainly won't help the U.K.'s ambition of becoming the world's third largest biotech hub outside Boston and the Bay Area. It means greater regulatory burden for everyone, as the U.K. could need an approval apparatus independent from Europe's. It is likely to complicate clinical trials, at least in the short run. It will add to currency woes for companies that sell internationally. And it will mean an ongoing piece of uncertainty—one that will drag on for at least a couple of years as Britain renegotiates trade and regulatory deals with the rest of the world. Indeed, this last problem may be the most nettlesome—uncertainty and volatility tends to send investors toward safer assets. By and large, that ain't biotech stocks.

Biotech is also unlikely to get any real love until after the election. Certainly the outcome may not enthuse industry either way—one candidate has been taken some hostile positions regarding the biotech industry, and the other is a global disaster waiting to happen. But simply getting past November 8 at least means a lot less attention on things like drug price controls—things that in reality are unlikely to happen anytime soon.

Finally, we're just not seeing the kind of dealmaking that excites the market. It's not that there hasn't been a fair bit of activity in 2016, albeit at a slower pace than last year. But most of this year's notable healthcare deals are a little outside the core biotech space. Headline grabbers include Teva /Allergan , Shire /Baxalta , Abbott /St. Jude Medical , IMS /Quintiles and Mylan /Meda . These are about mature products, generics, devices, and data—not really about bidding up clinical-stage assets. Moreover, the biggest deal news of the year is about the $160 billion Pfizer -Allergan merger that didn't happen.

Time alone will probably heal these wounds, but there's really one thing that the industry needs to go right: It needs success. That means success in the clinic and success in the marketplace. There's been a dearth of that this year, with few blockbuster launches and perhaps more notable clinical failures than successes.

A Better Tomorrow, Delayed

Never has there been so much transformative technology, seemingly right around the corner, and comparatively so little to look forward to in the near term. Hugely exciting new technologies like CAR-T, emerging technologies like CRISPR-Cas, and perhaps-ready-for-prime-time technologies like RNAi, gene therapy, and antisense all seem to be on the cusp of revolutionizing healthcare. Except...2016 has been marked by setbacks that have outweighed the advances.
    The "will they or won't they?" drama over potential FDA approval of Sarepta 's etiplipersen continues into this month, but antisense approaches for Duchenne muscular dystrophy have thus far failed to win approval, and BioMarin 's offering was killed outright.

    Ziopharm Oncology has reported three deaths in its gene therapy trials for recurrent glioblastoma, the most recent just this month. While the company denies the deaths were related to its treatment, it is nonetheless submitting data on the deaths to FDA and evaluating how, or if, to move forward. That follows some disappointment over the efficacy seen in early trials of gene therapies from erstwhile stock market darling Bluebird Bio .

    Perhaps the biggest drag on investor enthusiasm is the report from Juno Therapeutics about three deaths in its trial of CAR-T drug JCAR015. The deaths—two this month following one in May—came from cerebral edema. While a clinical hold by FDA was short-lived—it was lifted just a few days after being initiated. The company insists the problem stemmed from aggressive chemotherapy pretreatment as opposed to the CAR-T drug itself, and it seems FDA was persuaded. Nevertheless, this is a significant setback for the sector. The company had seem moderate neurotoxicity before, but believed it was manageable. This isn't a death knell for the company's CAR-T approach, but it may make treatment a more difficult balancing act.

A major clinical success will erase many of these bad memories, particularly if it comes in one of the "hot" areas like gene therapy, CAR-T, immunotherapy, or Alzheimer's disease. However, success—even if it comes—won't happen until nearer year-end, or later. That's when we may hear key Alzheimer's data from Lilly and Biogen , new gene therapy data from Bluebird, as well as Phase II data on Celgene 's lynchpin Crohn's drug GED-0301 (with phase III results following in the first half of 2017).

I'm probably not alone in looking forward to getting past November and to what I hope are better times ahead.

-Karl Thiel

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