The Evaluate Vantage 2021 Preview
Evaluate provides trusted commercial intelligence for the pharmaceutical industry. We appreciate their cooperation in providing regular updates on the industry to our readership. The following is an edit of the Evaluate Vantage 2021 Preview. For the full report, go here.
Biopharma’s role in trying to bring the pandemic to an end has made household names of companies that would typically only be known to those working in the industry. Cutting-edge technologies, like mRNA vaccines, are being discussed on the front pages of newspapers. Little wonder that the drug development sector is under intense scrutiny right now, from investors, politicians and the world more widely.
Of course, investor attention means money, and pharma and biotech companies will start 2021 bolstered by substantial financial support and, in certain cases, eye-watering valuations. But this also means giant expectations, for Covid-19 development projects and beyond. Hopes are high that vaccines will start to bring the coronavirus outbreak under control next year.
Treatments for those already infected are also making progress, with a lot of data due in the coming months on various mechanisms being trialled. It should soon become easier to pinpoint those projects with real pandemic potential; figuring out which companies might benefit financially over the short or long term will remain a big preoccupation for investors in 2021.
It is not only those working on treatments for Covid-19 that have benefited from this renewed support. Biopharma groups from all corners of the sector have enjoyed a halo effect. The records set in 2020 for IPOs and venture financings will be tough to beat and heading into the New Year there are few signs of the cashflow drying up.
A number of multibillion-dollar M&A deals in 2020 showed that big developers remain motivated buyers, undeterred by the pandemic. Investors are also betting that 2021 will usher in more high premium takeovers.
The problem with giant expectations is that there are repercussions when they are not met. The huge valuations that some early-stage developers are achieving makes the situation even more precarious. Investors will be carefully monitoring market sentiment next year for signs of loss of confidence – failing to call the top when prices have so far to fall would prove expensive.
2021 will also be spent figuring out the fallout of another seismic shift – the exit of President Donald Trump. What President Joe Biden means for biopharma remains to be seen; from his promises to increase corporate tax and overhaul the American Care Act to potential action on drug prices, the new administration could spell big changes for the sector.
But the overarching theme of 2021 will be the pandemic. Despite early wins with vaccines, it would be dangerous to assume that progress will continue to be made at such speed. The efficient rollout of these first vaccines will also present huge challenges.
For now, stock markets are riding high on the promise of an end in sight. In 2021, biopharma has ahuge role to play in delivering that dream.
COVID-19: BIOPHARMA’S ONGOING RESPONSE
Clinical impact and efforts
As the realities of the pandemic dawned in the opening months of 2020, clinical trials were one of biopharma’s first casualties. First China then Europe and finally the US saw research projects grind to a halt as hospitals turned to treating Covid-19 patients those enrolled in ongoing studies were unable to attend visits.
Heading into 2021, much of the research that was put on pause has recommenced. An analysis of clinical trial records shows that in April, almost 160 commercially sponsored studies had been suspended for reasons related to Covid-19.
By November that number had more than halved and, assuming vaccines start to roll out next year, the picture should improve further in 2021.
The flip side of this is the huge amount of new research that has been started to find potential treatments for the pandemic virus. Progressing this work will be a huge focus for biopharma next year, and the world will be watching.Many projects are being tested in Covid-19, including repurposed, existing drugs as well as novel antivirals and antibodies, and their success or otherwise could have far-reaching consequences. This section of the report summarizes the most high-profile R&D projects likely to yield results in 2021.
Vaccine development proceeded at record pace in 2020 and, for those already across the finish line, 2021 will be all about the roll out. For now, the sellside has picked a winner in Moderna’s mRNA-1237; the requirement for Biontech and Pfizer’s BNT162b to be stored at -70C degrees means that this first mover will probably be superseded.
However, the fast-moving nature of Covid-19 development means that these numbers are far from set in stone, and a reliable consensus has yet to emerge for other leading vaccine projects. Overall, it is thought that Covid-19 vaccines sales will amount to $10bn to $15bn next year.
How that might be split among the leading contenders, particularly over the longer term, remains hard to gauge. The outlook for Novavax’s NVX-CoV2373, detailed here and comprising estimates put together in October, already looks optimistic, given ongoing delays to the start of a US trial. The future for Astrazeneca’s AZD1222 is also unclear; after a confusing topline readout from the first two pivotal trials the company is reportedly planning a new global study, testing a different dosing regimen.
Some later entrants hope to offer more convenient dosing schedules. Both J&J and Merck are working on single-shot approaches, for example, which would be preferred once the pandemic is under control. But with efficacy around 95%, BNT162b and mRNA-1273 have set an incredibly high bar; few would swallow a convenience advantage if it came with a significant compromise on protection.
Unless those coming behind get pivotal studies up and running fast, recruitment will surely become harder. As will generating data, as the first vaccines will hopefully swiftly suppress the virus. If infection rates start to drop sharply, next year could see a number of developers drop out of the running.
Gilead’s Veklury was the first product approved to treat Covid-19 back in May, but clinical evidence that has emerged since shows the antiviral leaves much room for improvement. As a result, the sellside has slashed billions of dollars of from sales projections.
Some analysts had reckoned Gilead would be booking income of around $8bn next year from the product, but disappointing follow-up data and progress elsewhere means those initial estimates now look wildly optimistic. Consensus for 2021 currently sits above $1bn but further downgrades look likely.
Developers of novel antivirals believe that this is still an area with much potential in Covid-19, however. Merck’s molnupiravir is the leading R&D project. Merck has high hopes for the oral agent, licensed from Ridgeback, and has even mooted a prophylactic role, assuming safety readings are clean. And with big pharma buying in to this space via several deals over 2020, antivirals is a space to watch next year.
Antibodies, and the rest
With two antibodies now available under emergency use authorizations in the US, it seems pretty clear that MAbs have a role to play in treating Covid-19. The extent to which they will be helpful is not yet known, however. Both the Regeneron and Lilly products have failed to show a benefit in severely ill patients, and developers have turned their attention to these antibodies’ ability to knock down the virus in those recently exposed.
Much data are due from the various MAb approaches next year. However, with complex administration schedules and what will presumably be big price tags, it is hard to see these therapies playing a major role outside of wealthier regions.
It seems likely that 2021 will see more Covid-19 dealmaking, as big developers pluck promising projects from smaller biotechs. That Merck was prepared to pay $425M for Oncimmune’s recombinant fusion protein in the wake of encouraging interim data shows the level of interest here.
Finally, several trials of repurposed drugs should yield results in 2021. Jak inhibitors remain a mechanism of interest, with two industry-sponsored trials due to read out next year, from Incyte and Lilly.
INNOVATION AND REGULATION
Growing biopharma’s top line: drugs
Oncology will continue to be a major driver of the sector’s topline growth in 2021. Six of the 10 biggest new sales generators are treatments for various cancers, and three of these are anti-PD(L1) antibodies. Keytruda is king here – the Merck & Co product is forecast to become the world’s biggest-selling drug in 2023, wresting the crown from Abbvie’s Humira.
Biosimilars are finally biting for Humira, and sales of other big products like Revlimid, Eylea and Xarelto are also set to peak in the next couple of years, spelling growth problems for their developers.
Contenders to replace these fading mega-blockbusters feature among the biggest growers listed here: annual sales of Dupixent, Ozempic, Tagrisso and Tecentriq are all forecast to reach the $8bn mark in the coming years. The pressure will be on next year for these drugs to meet some very lofty expectations.
Products that feature in both charts are notable, in that they bring both huge sales and substantial growth. This includes both Keytruda and Opdivo, which act very similarly, speaking to the advances that these checkpoint inhibitors have made in a very broad range of solid tumors. This analysis also shows how Gilead is still very much an HIV company, despite its efforts to move into oncology.
Growing biopharma’s top line: companies
Abbvie will certainly feel the loss of Humira, but for now it is reaping the benefits of two very well-received new immunotherapies, Rinvoq and Skyrizi. These were launched for RA and psoriasis respectively and are largely responsible for the new sales the company is expected to book next year. Astrazeneca and Bristol have cancer franchises to thank for their new sales; the latter will see the final year of growth from Revlimid in 2021, while demand is predicted to surge next year for the former’s Tagrisso, Imfinzi and Lynparza.
Still, these hugely successful cancer drugs are not enough to win Astra a place in the top 10 companies by sales next year. The UK pharma giant looks set to be supplanted by Japan’s Takeda, which is now firmly among the big beasts of the sector in the wake of its 2018 acquisition of Shire.
Novartis, meanwhile, is looking to a mix of therapy areas for its new sales, from immunotherapy to cardiology and rare diseases; its gene therapy Zolgensma is expected to become a blockbuster next year with sales of $1.5B.
Sanofi, however, is almost entirely reliant on Dupixent for next year’s growth; the ways in which the French pharma giant plans to diversify will be a key focus next year.
Waiting in the wings
At least 10 future blockbusters could be given a green light by regulators next year, and decisions do not come bigger than that pending for aducanumab, Biogen’s controversial Alzheimer’s project. For the antibody to reach the market in 2021 the FDA must rule against its advisory committee,which voted almost unanimously against approval.
The agency typically sides with these panels; however, supportive FDA documents and the high-profile nature of the decision makes the outcome hard to call. Either way, the verdict is one of biopharma’s biggest 2021 events.
Setbacks could afflict any of these projects, and it is notable how many of the other big assets awaiting approval are owned by smaller companies, which can be more prone to tripping up. Perhaps testing valuations are preventing the takeout of these promising new therapies; Bristol had to pay $13.1B to gain control of mavacamten, for example.
Biopharma’s highly valued late-stage research projects include tirzepatide, a Lilly project using a new diabetes mechanism, and Bristol’s Tyk2 inhibitor for autoimmune conditions deucravacitinib; multiple pivotal readouts are due from both over the year. Two gene therapies also makethe cut. Developers hope that data due soon on these will further bolster high hopes for this cutting-edge technology.
The cost of research
There is a very good reason why big pharma dominates certain therapy areas: the huge cost of clinical programs that require experimental therapies to be tested in thousands of subjects. Diabetes and autoimmune conditions are prime examples here, and assets in these fields feature heavily in this look at some of the most expensive development projects under way.
These tables are based on estimates from Evaluate Omnium’s R&D cost models and help pinpoint some of the most critical investments that biopharma is making right now – and which will be a major focus for these companies and their investors next year.
Tirzepatide crops up again; however, Lilly also has a lot of R&D dollars riding on mirikizumab, which threatens to be a late arrival in the very crowded psoriasis field. Novartis recently started a 7,680-patient cardiovascular outcomestudy for pelacarsen (TQJ230), an antisense approach to lipid lowering licensed from Ionis. And at least the development burden is being shared with nirsevimab, Sanofi and Astrazeneca’s new antibody approach to RSV infections.
In terms of brand extension, substantial investments will continue to be made in the various PD-(L)1 antibodies next year. Still, the four drugs listed here are projected to bring in combined sales of $32.4bn in 2021 – so it could be argued that the investments are paying off.
MONEY, MARKETS AND M&A
Stock market performance
Predicting where markets might go next is never easy. For now, investors seem reassured that central banks will step in and prop up economies struggling to cope with the pandemic. Many global stock markets have recovered – some more than others – from the crash of February 2020.
For this optimism to endure much depends on deeper scrutiny confirming promising early vaccine results, and then these products being successfully rolled out. At the very least, signs that the pandemic is being brought under control are surely required.
Biopharma shares have benefited enormously from the industry’s efforts to bring the coronavirus outbreak to an end. The Nasdaq Biotechnology Index recovered much faster than the mixed-sector S&P 500, as investors rushed to inject cash into the industry that promised answers to this most pressing of problems.
The extent to which this support will be maintained in 2021 is a big unknown. Many repercussions of the pandemic have yet to be felt. For example, drug pricing could move up political agendas again; with high unemployment and government debt soaring in many countries, medicine costs could be considered an area for savings.
The emerging healthcare policies of the new Biden administration in the US will be another major focus for biopharma investors.
Tracking demand for IPOs
There are few areas in which investor support for biopharma is more evident than the IPO market. Throughout 2020, very early-stage companies managed to float at substantial valuations, with many offerings upsized. For this to remain the case in 2021, broader stock markets must stay buoyant and drug developers in demand.
With both of those conditions in place in the closing weeks of 2020 – at the time of writing at least – the outlook is encouraging for the opening months of 2021. Whether developers continue to raise the sorts of sums seen last year, at such heady valuations, is less certain. The huge third-quarter haul looks unlikely to be repeated in the final three months of 2020, though a deliberate slowdown to avoid potential volatility around the US election cannot be ruled out.
Incredibly, none of the biotechs captured here that floated on Nasdaq in 2020 had to take a haircut to get away. This means that they all floated at or above the initial valuation range that their bankers proposed to investors. That is a remarkable statistic, which in itself could help ensure that the coming months are equally busy for IPOs, as those with an eye on the market rush for the window while it is still wide open.
Venture financing and the exit environment
The venture financing sector is also poised for another successful year, although there is gathering evidence of a pullback. Still, this would be relative to the huge highs of 2020, when staggering amounts of money were raised by private companies. With the year not yet over, 2018’s record $17.9B haul has already been beaten.
Swollen venture funds have been a major driver of the IPO boom, since they have been keenly pushing their portfolio companies into the hands of public investors while they can. So, should the financing available to start-ups retreat next year, the supply of IPO-ready companies could follow suit.
A further analysis illustrates one of the trends that has helped drive the recent venture boom: shrinking times to exit. True, a float is not strictly an exit for venture investors, and insider participation in IPOs remains very high.
But funds have been able to sell or float their portfolio companies much more quickly in recent years. This does not necessarily mean better returns, of course, but this efficient churn of assets points to a very active market, which is showing few serious signs of quietening.