Amid the usual refrain of drug-pricing pressure and new technologies that push the envelope of what we’re able to do with medicine, 2019 could have some surprises in store.
Those surprises could rock the biotech market, so analysts at Cowen worked to take them into account before they transpired.
“In an effort to stimulate discussion and aid out-of-the-box thinking, we have scanned our large-, mid-, and small-cap coverage universe for potential surprises,” the Cowen biotechnology team wrote in a December note. The team includes senior analysts Ritu Baral, Phil Nadeau, Boris Peaker, and Chris Shibutani.
To be clear, the list below doesn’t contain predictions, exactly. The Cowen team figures each case has a 40%-or-less chance of occurring. But if the events do occur, they could have big implications for investors.
Cowen ranked the surprises from most (No. 10) to least (No. 1) likely to happen.
Between 1999 and 2017, more than 200,000 people in the US died from overdoses related to prescription opioids. President Donald Trump in 2017 declared the opioid epidemic a public-health emergency, escalating the amount of attention and funding that could go toward addressing the issue.
While there are a number of strategies proposed to alleviate the opioid crisis, the pharmaceutical industry has championed the development of opioids specifically designed to discourage abuse, such as pills that can’t be crushed and snorted.
“Abuse-deterrent” drugs, which aim to prevent users from manipulating pills and abusing them, are a busy development category right now. So far, the Food and Drug Administration has approved 14 versions.
But that could start to backfire as skepticism of abuse-deterrent formulations grows. The FDA has raised concerns about how the medications are perceived by patients. And in 2017, the FDA requested that one painkiller, an extended-release opioid painkiller called Opana ER, come off the market.
“After initial excitement regarding abuse-deterrent formulations, views of the drug class appear to have cooled at the FDA even as curbing opioid abuse has become a top priority,” the analysts wrote.
Vertex Pharmaceuticals, which is known for its cystic-fibrosis treatments, is researching a drug for a rare disease called Alpha-1 antitrypsin deficiency. The drug hasn’t entered human trials yet, but the company might be able to show in an early-stage trial that it can influence a key protein found in the body that’s impacted in the disease. That could set Vertex up for a late-stage trial by the end of 2019.
“We believe Vertex is particularly well positioned to use a biomarker-based endpoint in clinical development in AAT,” the analysts wrote.
If it were to happen, it’d be in the last few months of 2019, the analysts wrote.
In 2015, the FDA approved the first oncolytic-virus therapy, a treatment called Imlygic that’s for certain kinds of melanoma, a dangerous form of skin cancer. The basis of the drug is a modified herpes virus. It won’t infect the person with herpes but will attack the cancerous cells directly after being injected into the tumor. That may stimulate an immune-system response to tumors, especially in combination with other cancer drugs.
So far, its use has been pretty limited, but it’s currently being studied in combination with the blockbuster cancer-immunotherapy drug Keytruda in patients with metastatic melanoma. Should that trial be successful, it could broaden how the treatment is used.
“Approval in this setting would potentially broaden the scope of T-Vec [Imlygic] use and, we expect, unlock interest and boost efforts in overcoming the challenges to adoption in practice,” the analysts wrote.
We’re still beginning to understand how well drugs that target the immune system to treat cancer work and why some people respond while others don’t. It’s led to the creation of a class of drugs known as checkpoint inhibitors.
These drugs help take the brakes off the body’s immune system so that it can attack cancer cells. Cowen projects the checkpoint inhibitors that have to do with the proteins PD-1 and PD-L1 will have $49 billion in sales by 2024. The catch: The majority of patients who get these drugs aren’t showing any benefits.
Now, drugmakers are in search of something that will make those drugs more effective for those who aren’t responding. 2018 had some setbacks after some trials came up short, but 2019 could be the year to reverse that. Results from companies including Nektar Therapeutics and Array BioPharma could lead to that change, the analysts said.
But that could change as the FDA goes through a period of reorganization that’s throwing together centers that have a whole bunch of disease areas under their purview.
“The re-organization has resulted in certain ‘franken-centers’ that combine seemingly disparate therapeutic and disease areas,” the analysts said.
For example, one center will house cardiology, hematology, endocrinology, and nephrology, while the Office of Immunology and Inflammation will cover everything from pulmonology, rheumatology, and hepatology to dermatology and dentistry. That could shake up the way drugs are reviewed, making it more difficult for a drugmaker to get approval than it might have been in the past.
The search for new treatments for Alzheimer’s disease hasn’t been going well. Alzheimer’s affects more than 5.7 million Americans, a number that’s expected to balloon to 14 million by 2050. There are only four drugs that have been approved to treat the symptoms of the disease, and the most recent drug approval happened in 2003.
Over the past few years, the biotech world has been littered with late-stage-trial failures. That could begin to change in 2019 with a drug made by biotech Biogen called aducanumab, which goes after certain proteins that accumulate in the brain. The idea of targeting beta-amyloid deposits in the brain to clear them out is known as the “amyloid hypothesis.”
Aducanumab is expected to have results in 2019 or early 2020, but the Cowen analysts said it’s possible the trial could show success at slowing cognitive decline in patients with Alzheimer’s at an interim stage, which could mean results come out sooner than expected.
Sage Therapeutics’ depression treatment, Sage-217, acts on GABA, one of the neurotransmitters in the brain. The idea is that modulating GABA might help to treat depression by applying a brake to slow down parts of the brain that could be getting overexcited. Because it targets a different part of the brain than other depression treatments, the drug seems to work faster and last longer, meaning that instead of taking a pill daily it could be used episodically.
But it’s possible that the drug might not work in its next, later-stage trial, leading to a surprising failure. That could happen because of a response from participants who took the placebo medication. It could also not have as strong a response as the company observed in its smaller phase 2 trial, which looked at 89 patients.
“If there was any depression trial that was supposed to work cleanly, it was the ‘217 trials. Skepticism of depression trials in the investment community would run at an all-time high, and the indication would be more out of style than a pink velour hoodie, rivaling Alzheimer’s as a black hole of value,” the analysts wrote of the possibility that Sage-217 fails.
In 2018, a number of drugmakers, including the likes of drug giant Novartis, exited the antibiotic-drug-development business.
It’s not an easy business. Bacteria have found ways to grow resistant to commonly used antibiotics and have started to resist newer antibiotics as well. It takes a long time to develop antibiotics, making it an expensive process, and even those that have made it through development face stumbling blocks.
But the Cowen analysts think that could start to change in 2019 thanks to new legislation that creates more economic incentives for drugmakers to develop the drugs, including options such as having hospitals license the antibiotics for the right to use them instead of paying based on how much of the potent antibiotics they use.
Big biotechs like Celgene have had a tough year, even amid doing big-ticket deals like the $9 billion acquisition of Juno Therapeutics and picking up Impact Biosciences in a $7 billion deal. In 2018, Celgene’s stock fell about 40%, and the company faces competition for its blockbuster cancer treatment, Revlimid.
That could open up the smallest possibility that Celgene could stand to go private.
“The revenues of the biopharmaceutical industry are among the least correlated of any industry. So it would only make sense if private equity began looking to do deals in health care,” the analysts wrote.
A virus called the Vesivirus contaminated biotech Genzyme’s manufacturing plant in 2008 and 2009, and Cowen analysts think a decade later it could make a return. That could be a big issue for biotech companies.
“Though a decade has passed, biologic manufacturing remains complex and fragile, particularly for some of the newer technologies such as gene and cell therapy,” the analysts wrote. “Therefore, it is only a question of ‘when,’ and not of ‘if’ manufacturing issues constrain the production of a key biologic at a biotech company.”