Pharma, Biotech and Medtech Half-Year Review 2020 This is condensed from the Evaluate Vantage Pharma, Biotech and Medtech Half-Year Review 2020.
The coronavirus pandemic has been the driving force shaping the biopharma and medtech sectors over the first half of 2020. And, while much of the fallout has been predictable, certain events and trends have surprised.
The speed of the recovery, for one, at least on the financial markets. Stock markets crashed as the scale of the Covid-19 outbreak became clear, but the selloff lasted a mere month. By the end of March investors had apparently come to terms with the situation, and by the half-year point most global indices were well on their way to a full recovery, led by healthcare stocks. Incredibly, by April the Nasdaq Biotechnology Index was already setting new highs, as investors rushed to back the sector that promised to deliver vaccines and treatments for Covid-19. Gilead has already won emergency approvals for its antiviral remdesivir, and many more projects are in development. This report summarizes biopharma’s efforts so far, pinpointing the most advanced vaccines and therapeutic approaches that will hopefully follow remdesivir to market. Covid-19 diagnostics, too, have been rushed to market, with industry leaders such as Abbott and Roche being rewarded for their efforts. Tests for the virus will be instrumental in developing vaccines and therapies, binding the fates of drug and diagnostics developers together. Surging stock markets have kept the IPO window wide open in the US, for example, with biotechs and device makers alike raising decent sums. Another major surprise is how the venture sector has seemingly shrugged off the pandemic. Start-ups in the drug development world were handed a huge $9.7B in the first half of the year, putting 2020 on track to set records. In the medtech arena, too, venture cash has been surprisingly plentiful as investors move to ensure that portfolios are protected against the rough times that might be on the way should the pandemic cause a recession. The biggest dent in activity has been seen in M&A, where restrictions on global travel deterred executives from taking on larger transactions. Smaller deals are happening, but the biggest takeover the pharma world mustered was Gilead’s $4.9B move on Forty Seven. In medtech the effect was even more pronounced, with only two megamergers being signed and device companies across the board having unprecedented difficulty in closing deals. Covid-19: Biopharma’s response Before considering Covid-19’s knock-on effect on business development and general investor sentiment, investors will be aware of one much more obvious way in which the coronavirus pandemic has shaped biopharma: the industry is working on ways to treat or prevent the virus, and the markets have rewarded companies working on such approaches. The first half of 2020 has marked out the battleground into three broad groupings: vaccines as a primary means of defense; antivirals and other approaches designed to reduce the effects of the virus; and antibodies whose ultimate aim is to cure a patient of an infection. Within each area early leaders have emerged, at least in investors’ eyes. Moderna and Biontech/ Pfizer are seen leading the charge of anti-Covid-19 vaccines, though it is Novavax that has secured the most US government funding. In treatment it is Gilead that has won with an antiviral, while antibody development leaders include Lilly and Regeneron.
The US government’s willingness to put money behind work against Covid-19, showering several vaccine developers with cash in an effort called Project Warp Speed, should not be underestimated. Technically this is a partnership between the US Department of Health and Human Services, the FDA, the NIH, Barda and the Department of Defense, but it basically allocates taxpayer dollars. The US said in May that 14 “promising” vaccine candidates had been chosen for this project from over 100 in development at the time. These undisclosed 14 are being narrowed down to “about seven,” it revealed, representing the most promising candidates from a range of technology options. So far four vaccine makers’ names have been revealed on account of them qualifying for cash awards, which in two cases have exceeded $1B. There is also one non-vaccine beneficiary of Project Warp Speed: Regeneron, whose two-antibody “cocktail” treatment is now in a phase III study. The biggest beneficiary so far has been the biotech Novavax, whose status as the best-performing stock of 2020 was confirmed when it was singled out for a $1.6B award in early July. This trumped the $1.2B handed out to AstraZeneca/ Oxford University. two months earlier. (Figure 1)
THE HUNT FOR A VACCINE
Five vaccines have generated clinical data so far, and the market seems to have declared the early skirmish a victory for Pfizer/Biontech’s BNT162. This is deemed to have jumped ahead of AstraZeneca and Moderna, while firmly in the must-try-harder camp are the laggards Cansino and Inovio. Vaccine data are pretty meaningless without disclosure of their ability to elicit neutralizing antibodies – at least up to a target level, with the general rule that the higher the better. Neutralizing antibodies are those that are capable not only of binding to virus but also interfering with its ability to infect a cell.
Equally important is a vaccine’s ability to elicit a CD8+ T-cell response, as it has been hypothesized that to prevent severe Covid-19 infection and generate a long-lasting effect it might be necessary for a vaccine to stimulate cellular as well as humoural (antibody-based) immunity. It is not yet clear what levels of neutralizing antibodies or indeed CD8+ T cells might give protection from the virus, but nevertheless these are becoming important benchmarks in ranking rival vaccine approaches. Safety is also key, given that a Covid-19 vaccine would be expected to be given to a broad patient population, and that some of the most vulnerable patients might also be the least able to tolerate toxicity. Investors should look for an absence of inflammatory symptoms, for instance. (Figure 2)
TREATING THE SYMPTOMS
In the Covid-19 treatment arena Gilead’s remdesivir remains the hottest near-term hope. The antiviral has already been approved by the US FDA under emergency use measures, notwithstanding its suboptimal profile and largely unproven efficacy, as evidenced by the numerous perverse clinical datasets it has generated. A major development occurred on June 19 when Gilead priced the drug – at $2,340 for a five-day course. Gilead investors were thus kept on side, though the US watchdog Icer deemed that the price chosen was only cost effective if remdesivir had a survival benefit – which it has so far failed to show. Little wonder that Gilead moved quickly to claim that remdesivir does indeed show a mortality benefit, on July 10 presenting an analysis comparing the antiviral’s outcomes data versus what it called a real-world cohort of Covid-19 patients receiving standard of care. Still, a threat is emerging in the shape of dexamethasone, a cheaply available steroid that has managed to demonstrate a survival benefit, according to an NEJM paper on part of the prospective, 15,000-patient, multi-agent Recovery trial run at the UK’s Oxford University. For its part remdesivir has, so far, demonstrated only a marginal benefit. Findings from Gilead’s latest study, in moderately ill patients, suggest that the antiviral has some activity, but that overall it is not a game changer. Clearly no in-depth analysis is possible until the data are published in a peer-reviewed publication. (Figures 3 & 4)
THE ANTIBODY APPROACH
As potentially the most effective way of treating a person infected with Covid-19, antibodies designed specifically to target the virus’s structure are a key area of focus for several companies. Perhaps because of the relatively long timelines and high risk involved, several have wasted no time to start clinical trials. Regeneron’s two-MAb cocktail, for instance, is entering a phase III prevention trial in 2,000 asymptomatics. This is the Warp Speedfunded project, which is also in phase I studies in hospitalized and ambulatory subjects. The study in asymptomatics is important because of its potential to make a real difference to healthcare workers and people with close exposure to a Covid-19 patient. Also prominent are two separate Lilly assets, one partnered with Abcellera and the other with Junshi. The former, coded LY-CoV555, is in phase II in 400 mild to moderate Covid-19 patients, comparing it against placebo in a double-blind fashion, with change in day-11 Covid-19 viral load as primary endpoint. The separate Lilly/Junshi project, JS016, which binds a different epitope on the virus’s spike protein, has completed enrolment into a healthy volunteer trial. The spike protein-targeting approach is similar to that of several of Lilly’s competitors. The protein is present on the virus surface, and the virus uses it to dock with the Ace2 receptor on target cells, allowing it to be internalized and infect. The next project into the clinic with this mechanism could come from Vir’s partnership with
GlaxoSmithKline, which has so far identified two lead MAbs. Also keenly awaited is a project under way at AstraZeneca; the hope is that these antibodies can prevent the virus docking, or hit another part of it that leads to antibodymediated destruction. The last two are noteworthy because they are based in part on plasma derived from patients who have recovered from Covid-19 infection. While many companies are making claims about the superiority of their respective approaches, these are of course all based on animal or in vitro data. No comparison will be possible until the first clinical trials read out – and this will not happen for some time yet.
In the medtech sphere, too, Covid-19 had dramatic effects on companies’ fortunes at the half year point. Most obvious beneficiaries were the testing groups, many of whom rushed to develop Covid-19 molecular assays and, later, antibody tests to identify those who may have developed some form of immunity to the virus. Roche, the world’s largest diagnostics company by test sales, was one of the first off the mark developing a viral RNA test by mid-March. It was soon joined by other big groups such as Abbott, Thermo Fisher Scientific, LabCorp and Hologic. By July 21 over 100 molecular tests for the new coronavirus developed by commercial medtech companies had received individual authorization from the FDA. Despite the wide range of viral RNA tests available and the large production capacity – many companies have stated that they can perform hundreds of thousands of these tests per day – the demand has outstripped supply. With this in mind in mid-July the FDA allowed the pooling of samples, a technique by which nasal swab samples from up to four people are being mixed together before testing. (Figure 5)
Medtech half year review
COVID-19 DIVIDES THE BIGGEST MEDTECHS No prizes for guessing the major factor impacting big-cap medtechs’ share price performance across the first half of 2020. Ventilator manufacturers and testing specialists are up and orthopaedics and cardiology groups are down as the pandemic forces hospitals to reorder their priorities. Intriguingly, though, the top riser had little to do with Covid-19. Blood glucose sensor developer Dexcom was up 85%, buoyed by collaborations and regulatory approvals. The group was hit by the wider stock market downturn in March as the scale of the Covid-19 crisis became apparent, but recovered easily by the end of the month, showing what can be accomplished even in hard times by a group with in-demand technology.
A look at share price indices covering this sector shows just how catastrophic the first half of 2020 has been. Over the course of last year, these metrics showed growth of around 30%; now they paint a picture of an industry struggling to find a path through the mire. (Figure 6) Dig deeper and it becomes clear that the pandemic has split the big-cap cohort neatly into winners and losers along subsector lines. Ventilator companies Fisher & Paykel and Resmed were up, as were diagnostics groups, including Biomerieux, Bio-Rad, Sysmex and Hologic, all of which have Covid-19 tests approved in various territories. Fisher & Paykel also benefited from its New Zealand base and listing; the country has
done a superb job of first containing and then stamping out Covid-19, and the S&P NZX All Health Care index is up 17% so far this year. (Figure 7) The fallers are just as easily delineated. All lost out because their products are used in the kinds of elective procedures that hospitals and other sites have had to shelve – mostly orthopaedic, cardiac and dental surgery. Hitachi, whose medical business centers on imaging, saw big losses as patients in need of scans stayed away. Orthopaedics companies Smith and Nephew and Zimmer Biomet were hit hard, and Medtronic, active in both the cardiovascular and orthopaedics sectors, also suffered. Even robotic surgery market leader Intuitive Surgical, a perennial stock market darling, was down 4% at the halfyear point. Among the smaller device makers, too, the pandemic has made its
effects felt – but in a different way. Many of the risers have either their headquarters or their listings in the Far East, whereas the fallers are almost all US-based. The recovery from the virus in many of the earliest-hit countries, and its disquieting resurgence in the US, are major factors in determining these companies’ performance. (Figure 8) MEDICAL DEVICE MERGERS ON PAUSE Thanks to Thermo Fisher Scientific and Invitae, two groups brave enough to push ahead with multibillion-dollar acquisitions during a pandemic, the total value of medical device M&A announced in the first half of 2020 nudged over $16B – though this is still a distressingly low figure. The real shock, however, is not the value of the deals announced, but of those that have been closed.
The medtech deals completed in the first half of 2020 have a total value of less than $2B. This is despite mergers worth a total of more than $21B remaining open. The Covid-19 pandemic seems to have made it harder to hammer out the legal or financial complications of closing deals than it did to conduct the negotiations in the first place. (Figures 9 & 10) The average size of completed mergers is also lower than at any point in the past decade. The mean acquisition size was just $108M in the first six months of 2020; this figure has been erratic over the past 10 years, but shows an overall downturn since 2015. It is also interesting that the two big acquisitions announced in the first half of 2020 were both diagnostics deals. The unveiling of the $12.5B Thermo Fisher-Qiagen deal predates the WHO’s designation of Covid-19 as a pandemic, and thus the deal has little to do with tests for the coronavirus itself – though Qiagen has subsequently developed and launched Covid-19 tests. (Figure 11) As for what the second half of this year might hold, the trends in business development will depend on whether new waves of infections and deaths occur, and their magnitude if they do. If major lockdown measures are eased, M&A activity ought to pick up, and orthopaedics companies might be a hotspot. Companies such as Zimmer Biomet and Smith & Nephew, which have suffered as less urgent surgical procedures have been delayed, might wish to diversify their offering by picking up companies developing emergency trauma products, or even technologies outside their traditional specialties, such as telemedicine or patient monitoring devices.
As for the very largest deals, a resurgence will depend not only on the risk of a major second wave having passed but also on economic factors such as the availability of cheap credit. If the second half of 2020 sees the same number of medtech megadeals announced as the first – two – the industry might be regarded as having got off lightly. (Figure 11)
FDA KEEPS THE NEW DEVICES COMING
As the FDA grapples with a oncein-a-generation crisis and tries to speed drugs, vaccines, devices and diagnostics to market, the less pressing business of evaluating and approving non-Covid-19-related medical technologies has taken a back seat. Even so, the number of devices approved by the agency has not dipped as much as might have been feared. In the first half of 2020 the FDA approved 16 high-risk and 11 lowrisk novel medical devices, putting it only slightly behind its performance last year. As importantly, the speed at which these products made it through the regulatory process has barely slowed. Still, last year saw a slowdown in the second half, so medtechs must hope that the FDA is able to keep up the pace in the coming months. In vitro diagnostics make up the majority of products granted premarket approval by the FDA – the type of approval used for products intended to be used in supporting or sustaining human life or preventing impairment of health. Many of these high-risk diagnostics are for viral infections, including hepatitis B and C, HIV and human papillomavirus. Absent from this analysis is any diagnostic for Covid-19 infection or test for immune response. The FDA has not granted approval or clearance for any such test – instead these are afforded regulatory oversight in the shape of emergency use authorization, a less rigorous stopgap measure for a time of crisis. It is reassuring that the FDA is still attending to its routine work even as it is under political pressure to rush Covid-19 diagnostics and therapeutic devices on to the US market. Ventilators, for example, are also eligible for emergency use authorization. Provided it can continue to do so during the second half of the year, this is one area in which 2020 could come to be regarded as almost normal. Pharma and Biotech half year review
BIOPHARMA SHARES SHAKE OFF THE PANDEMIC
The pandemic was a fleeting affair as far as the stock market was concerned. Biopharma’s key role in fighting Covid-19 did not prevent across-the-board declines in March – with a few notable exceptions – and then the second quarter witnessed an unmistakable return to health. The revival mirrored broader stock market recoveries and Evaluate Vantage’s quarterly look at the sector’s share prices shows that drug developers of all sizes posted strong gains over the second quarter. In fact, at the half-year stage our universe of global stocks had grown in value over the end of 2019, which is remarkable considering that much of the world is still afflicted by the coronavirus outbreak. (Figure 12) This analysis concerns all listed drug makers covered by EvaluatePharma, from across the world – a cohort of 579 companies. Micro-caps, those with a market value of less than $250m at the start of the year, have been excluded, as have subsectors like medtech or diagnostics; only developers of therapeutics are included. The combined market cap of this group is already greater than at the start of the year. This is real growth: those companies that have arrived via IPO so far in 2020 have not been added, to allow a like-forlike comparison over the year. The next charts, meanwhile, show that all cohorts other than big pharma more than recovered value lost in the first quarter. Among the big caps Merck & Co and Pfizer are feeling the heat, down 15% and 17% respectively at the half-year stage, largely on concerns about replacing existing franchises. (Figures 13 & 14)
WHAT PANDEMIC? BIOTECH FLOATS BREAK RECORDS
Given the depths of the panic that sent stock markets crashing in late February, the strength and speed of the recovery has been remarkable. And there are few places where this is more evident than biotech IPOs, the statistics around which show few signs of a global pandemic.
Of course, it could be argued that the arrival of Covid-19 spurred much of the demand seen recently for young drug developers; investors have been reminded of the sector’s worth, while chasing potential beneficiaries of the outbreak. Biotech was already on a run before the pandemic hit, however, so this is far from the only explanation for the record sums raised in the second quarter. (Figure 15) This view of the sector concerns only those companies developing human therapeutics – excluding medtech, diagnostics and digital health – so it provides a snapshot of the riskiest end of healthcare. Flotations on all Western exchanges are tracked. The pandemic did cause IPOs to pause for most of March, so to a certain extent the huge second quarter can be explained by companies that were to have gone out that month being pushed back. This result is also down to the huge amount of capital being made available to these firms. The average amount raised by an IPO in the first half came in at $193M, another record. It should be noted that Royalty Pharma’s $2.2B flotation is not included in the tally. (Figure 16) Outlook With coronavirus capturing investors’ attention, and stock markets seemingly in good health, swathes of the biopharma sector are heading into the second half in a strong position. There are always clouds on the horizon, of course, the pandemic being the most ominous one right now. For now, the worst projections of impact on the drug development process have not come to pass. Some clinical trials were suspended and delayed, but most work has got back on track. Businesses are coming to terms with remote working, and while this certainly adds complications the world is adapting. Regulatory processes have, for now, also escaped lightly. Certain reviews have taken longer, but for now the volume of novel drug approvals makes for encouraging reading. The FDA gave a greenlight to 29 novel agents in the first half, in line with the run rate of the past couple of years. (Figure 17) With some very big decisions still to come in the second half of the year, the scope for delays and missed opportunity is real. (Figure 18) While Covid-19 has had a catastrophic impact on many medtechs in the early months of 2020,there are glimmers of hope. Johnson & Johnson and Abbott, for example, saw sharp drops in sales of their non-diagnostic medical devices in the second quarter of 2020 compared with Q2 2019 as elective procedures were deferred, with sales of surgical, orthopaedic and cardiovascular technologies being hit badly. But in both cases the fall was not as bad as had been feared, with signs of an earlier-than-expected recovery in May and June, raising hopes that other companies which had previously forecast big hits to their business will also be able to report good news. Over the longer term, when cases of the coronavirus finally begin to diminish, a new normal will likely be established. Patients will still be wary of hospitals, and volumes of elective procedures might take some time return to levels seen in prior years. Demand for diagnostics for active Covid-19 infections should fall if vaccines become available, but these assays will become a routine part of triage when a patient presents with breathing difficulties or other Covid-19 symptoms. There will always be a need for antibody tests, too, as they become necessary for establishing whether a vaccine has elicited an immune response. Currently, though, the US is already in the grip of a second wave of infections. If a second wave of deaths manifests, if infection rates rise once more in Europe and Asia, the divide between the medtech industry’s haves and have-nots can only widen. Many of the badly affected groups have been keen to stress that the second quarter was always going to be the toughest period of 2020 and made it clear that they expect sales to increase in the second half. But economies are struggling, and with health insurance linked to employment in countries such as the US, device makers’ 2020 sales seem likely to remain below prior years. •