Industry report noble capital markets biotechnology industry overview january 2020

Friday, January 31, 2020

Biotechnology Industry Overview

Ahu Demir, Ph.D, Biotechnology Research Analyst, Noble Capital Markets, Inc.

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Refer to end of report for Analyst Certification & Disclosures

• 2020 Outlook. The biotechnology sector has modestly underperformed the broader markets thus far in 2020. S&P 500 (SP50, +1.4%) and Russell 3000 (RUA, +1.4%) benchmark indices have outperformed both the NYSE Arca Biotechnology (BTK, -2.1%) and NASDAQ Biotechnology (NBI, -2.6%) indices in YTD-2020 (as of 1/28/2020).  We think the major catalysts in the biotechnology sector are the potential approval of Biogen’s aducanumab by the FDA. We think this may significantly impact biotech investors’ sentiment. We also think data updates from ongoing clinical trials with Amgen (AMGN)’s KRAS inhibitor AMG 510 and Forty Seven (FTSV)’s magrolimab are other key catalysts as both have been among compelling developments in the field. We anticipate another active year with M&A transactions as large-cap biotech/pharma still have strong balance sheets (Exhibit 17) and appetite for innovative products and technologies.
• 2019 OVERVIEW. 2019 was a good year for the stock market including the biotechnology sector. BTK (+19.6%) and NBI (+22.9%) indices performed well in 2019. However, they could not match the performance of the benchmark indices: SP50 (+29.8%) and RUA (+29.4%). The average IPO proceeds in 2019 ($143mm) exceeded 2018 numbers ($116mm) and Q1 2019 IPOs reached the record high median number (146.5mm, Exhibit 4). The total gross proceeds of M&A deals in 2019 also showed an uptick (+10%) exceeding the 2018 transactions, despite a modest decline (-3%) in the deal counts (Exhibit 6). Although drug approvals had a slower pace in 2019 with 48 drug approvals compared to a record-high number of 59 in 2018 (Exhibit 12). We think 2019 was a successful year for the biotechnology sector with innovative developments in gene therapies, targeted therapies, large M&A transactions, and strong financing.

Click ‘view previous report’ for company specific disclosures on Noble covered companies.

2019 biotech IPOs

Biotechnology initial public offerings (IPOs) experienced a boom in 2018. 2019 numbers could not match the record numbers of 2018. However, average IPO proceeds in 2019 ($143 million) exceeded 2018 numbers ($116 million). Although number of companies going public was lower in 2019 compared to 2018, the total venture capital backing of this cohort exceeded $9.1 billion (an average of $194 million for companies with disclosed private financings, 13 of which topped the $200 million mark).

54 biotechs went public on global exchanges during 2019, raising a total of nearly $7.6 billion in fresh capital, as of December 6th.

• In the U.S., the highest use of proceeds for IPOs include BridgeBio Pharma (BBIO, $349 million raised in June 2019); Adaptive Biotechnologies (ADPT, $300 million raised in June 2019) and Genmab (GMAB, 300 million raised in June 2019)
• Eight Chinese biopharmaceuticals raised a cumulative $2.3 billion in Hong Kong Stock Exchange (HKEX), nearly ten times the amount of capital raised by European biotechs listing for the first time over the same time period. Hansoh Pharmaceutical Group raised $1.0 billion in June 2019.

The demand for new public biotechnology issues remains strong. In 2019, the biotechnology sector IPO characteristics are shown in Figure 1. The companies were in all development stages, ages, corporate strategies, and modalities.

• The clinical stage of the company showed modest impact in the average proceeds of IPOs, but companies with already marketed products saw the highest proceeds.
• The majority of the companies were 10 years or older.
• Companies who in-licensed assets had the highest average IPO proceeds.
• Small molecule companies dominated the IPO market in 2019 (27%), followed by biologics (12%). Blooming cell therapy field comprises 4% of the IPOs in 2019.

Figure 1. IPO characteristics in 2019.

a) Average proceeds by development stage of lead asset. Hansoh’s $1 billion IPO skewed the average haul of companies in the commercial cohort.

b) Age of companies.

c) Average proceeds by corporate strategy.

d) Number of companies focused on different therapeutic modalities. Biologics includes monoclonal antibodies, peptides and related modalities. Oligos includes RNAi, antisense, and gene therapy and gene editing approaches. 

Source: Morrison et. al. Nature, January 2020, Volume 19

Table 1. Top ten 2019 IPOs by gross proceeds

Source: Morrison et. al. Nature, January 2020, Volume 19

Oncology companies continued to have the largest share of IPO dollars, with more than $2.5 billion in cumulative 2019 IPO capital (Fig. 2a). Among segments of the biotechnology sector, Oncology and Autoimmune areas saw the highest average IPO proceeds (Fig. 2b). Also, the post-IPO market performance of oncology companies (on average 41%) exceeded all therapeutic areas except CNS

Figure 2. IPOs by therapeutic area

Source: Morrison et. al. Nature, January 2020, Volume 19

Recent Sector News

• Epizyme (EPZM)’s tazemetostat (Tazverik) received FDA’s approval for the treatment of epithelioid sarcoma (January 24, 2020)
•  Applied Genetic Technologies (AGTC) lost 15% following data announcement from 22 patients participating in Phase 1/2 studies of its AAV gene therapy in patients with achromatopsia (color blindness) due to mutations in the ACHM CNGB3 or ACHM CNGA3 genes (January 23, 2020). AGTC stock price gained 123% following data readout from X-linked retinitis pigmentosa (XLRP) clinical program demonstrating durable improvement in visual function six months after dosing (January 9, 2020)
•  The FDA approved olaparib (Lynparza, a PARP inhibitor) as frontline maintenance treatment for pancreatic cancer patients with germline BRCA-mutations (December 30, 2019)
• Merck (MRK) acquired ArQule (ARQL) for $2.7 billion (December 9, 2019)
•  Forty Seven (FTSV)’s shares gained 333% after data presented at the American Society of Hematology conference showing 92% overall response rate in 24 high-risk myelodysplastic syndromes (MDS) patients who were treated by magrolimab (December 9, 2019)

Important upcoming catalysts in our SELECTED coverage universe

Dyadic International (DYAI), Outperform rating, $9 Price Target (PT, view previous report by Ahu Demir, Ph.D.)

• Accomplishment of C1 glyco-engineering (human-like glycosylation) in 2020
• Bio-comparability data from certolizumab biosimilar program in 2020

Onconova (ONTX), Outperform rating, $1.30 Price Target (PT, view previous report by Ahu Demir, Ph.D.)

• Presentation at the RAS-Targeted Drug Discovery Summit Europe on 25-27 February 2020
• IND submission for ON123300 in 3Q 2020
• Topline data for the registrational INSPIRE trial of rigosertib in 1H 2020

Trovagene (TROV), Outperform rating, $23 Price Target (PT,
view previous report by Cosme Ordonez, M.D., Ph.D.)

• Data update from Phase 2 mCRPC program at the Genitourinary Cancers Symposium (ASCO-GU) on February 13-15, 2020
• Data update from Phase 1b/2 AML study at the European Hematology Association (EHA) annual meeting on June 13-16, 2020

Promis Neurosciences (PMN), Outperform rating, $1.00 Price Target (PT, view previous report by Cosme Ordonez, M.D., Ph.D.)

• Data update from Alzheimer’s disease program targeting neurotoxic Tau at the Alzheimer’s Association Conference to be held in Washington D.C. on February 12-13, 2020

Market Dynamics

Exhibit 1-1: Biotechnology Relative Price Performance in 1 year (as of 01/28/2020)

Source:  Noble Life Science Research, Capital IQ

S&P 500 (SP50, +24.1%) and Russell 3000 (RUA, +23.0%) benchmark indices have outperformed the NYSE Arca Biotechnology (BTK, +4.2%) and NASDAQ Biotechnology (NBI, +9.2%) indices in 1 year (as of 1/28/2020). Notable stock price outperformance in the BTK index (in alphabetical order) include Acadia, (ACAD, +88.0%), Alnylam (ALNY, +49.6%), Bio-Techne (TECH, +33.2), Charles River Laboratories (CRL, +32.3%), and Seattle Genetics (SGEN, +76.4%).

Exhibit 1-2: Biotechnology Relative Price Performance 2019

Source:  Noble Life Science Research, Capital IQ

NYSE Arca Biotechnology (BTK, +19.6%) and NASDAQ Biotechnology (NBI, +22.9%) indices have performed well in 2019; however, they could not match the performance of the benchmark indices S&P 500 (SP50, +29.8%) and Russell 3000 (RUA, +29.4%).

Exhibit 2-1: Top/Bottom 5 Small Cap Stock Performance, 1 year (as of 1/27/2020)

Source:  Noble Life Science Research, Capital IQ

Top stock performers of NBI index for the year of 2019 include Axsome Therapeutics (AXSM, +3149.6%), Kodiak Sciences (KOD, +770.4%), XBiotech (XBIT, +353.4%), Achillion Pharmaceutics (ACHN, +300.6%), Eidos Therapeutics (EIDX, +310.7%); bottom performers include CymaBay (CBAY, -77.0%), AnaptysBio (ANAB, -77.8%), Wave Life Sciences (WVE,-81.7%), resTORbio (TORC, -84.5%) and Solid Biosciences (SLDB, -88.0%).

Exhibit 2-2: Top/Bottom 5 Small Cap Stock Performance 2019

Source:  Noble Life Science Research, Capital IQ

Top stock performers of NBI index for the year of 2019 include Axsome Therapeutics (AXSM, +3680.2%), Kodiak Sciences (KOD, +828.3.1%), ArQule (ARQL, +591.3%), Arrowhead Pharmaceutics (ARWR, +381.1%), Eidos Therapeutics (EIDX, +310.7%); bottom performers include AnaptysBio (ANAB, -75.1%) CymaBay (CBAY, -76.5%), Wave Life Sciences (WVE,-80.5%), resTORbio (TORC, -84.2%) and Solid Biosciences (SLDB, -84.7%).

Market Dynamics—Financing

 Exhibit 3: Biotech Financing in Q4 2019/YTD-2020 (between $50-$200mm)

Source:  Noble Life Science Research, Capital IQ

The largest transactions include Axsome Therapeutics (AXSM, $174mm), Clovis Oncology (CLVS, $164mm), and Heron Therapeutics (HRTX, $150mm).

Exhibit 4: Biotech Financings—IPO and Follow-on Capital Raised by Quarter

Source:  Noble Life Science Research, Capital IQ

The average IPO proceeds in 2019 ($143mm) exceeded 2018 numbers ($116mm). The median IPO transactions in Q1 2019 reached the record high median number ($146.5mm). There were multiple large IPOs including BridgeBio (BBIO, 401mm), Adaptive Biosciences (ADTP, 345mm) and Gossamer Bio (GOSS, 317mm) in 2019.

Exhibit 5: Biotech Licensing Deals

Note: The Q4 2019 numbers are not yet available

Source:  Noble Life Science Research, Bloomberg

The licensing deal transactions in the 9 months of 2019 showed a modest increase (1%, total licensing deals of 321 versus 318) compared to the 9-months in 2018.

Exhibit 6: Biotech M&A Deals

Source:  Noble Life Science Research, Bloomberg

The total gross proceeds of M&A deals in 2019 showed an uptick (+10%) exceeding the 2018 transaction volume number, despite a modest decline (-3%) in deal count. The transaction volume reached $62 billion with 914 deals in 2019 compared to $238 billion with 940 deals in 2018 in the U.S.

Lock-Up Expirations

 Exhibit 7: IPO and Follow-On Lock-Up Expirations for 2019-Q1 2020

Source:  Noble Life Science Research, CapIQ

Selected Industry Conferences

Exhibit 8: Medical, Scientific and Industry Conferences in H1 2020

Source:  Noble Life Science Research, Biomed Tracker

Exhibit 8: Medical, Scientific and Industry Conferences in H1 2020 Cont.

Source:  Noble Life Science Research, Biomed Tracker

FDA Approvals

Exhibit 9: Selected Pending Approvals of New Molecule Entities (NMEs) and Biologics in Q1 2020

Source: Biomed Tracker, FDA

Exhibit 10: Upcoming Advisory Committee Meeting Dates

Source: Noble Life Science Research, FDA

Exhibit 11: Selected Approved Drugs and Biologics in 2019

Source: Noble Life Science Research, Biomed Tracker, FDA

 In total, 48 drugs were approved in YTD-2019.

Three drugs were approved in 2020: Tazverik to treat epithelioid sarcoma; Tepezza to treat Thyroid eye disease, and Ayvakit to treat adults with unresectable or metastatic gastrointestinal stromal tumor (GIST).

Drug Landscape

Exhibit 12: New FDA Drug Approvals

Source: Noble Life Science Research, Bloomberg

48 drug approvals in 2019 demonstrated a low productive year following all-time record of 59 approvals in 2018.

Exhibit 13: Number of Drugs in the Pipeline

Source: Noble Life Science Research, Global Data Intelligence

Oncology continues to be the dominant development category, which we think has also been fueled of late by the 1000+ immuno-oncology clinical drug trials.

Appendix

Exhibit 14: Cash Analysis, sorted by E/P (as of 1/28/2020)

Note: Market cap as of 1/28/2020, Cash value for 3Q19

Source: Noble Life Science Research, Capital IQ

Exhibit 14: Cash Analysis, sorted by E/P Cont.

Note: Market cap as of 1/28/2020, Cash value for 3Q19

Source: Noble Life Science Research, Capital IQ

Exhibit 14: Cash Analysis cont., sorted by E/P Cont.

Note: Market cap as of 1/28/2020, Cash value for 3Q19

Source: Noble Life Science Research, Capital IQ

Exhibit 14: Cash Analysis cont., sorted by E/P Cont.

Note: Market cap as of 1/28/2020, Cash value for 3Q19

Source: Noble Life Science Research, Capital IQ

Exhibit 15: Large-cap Biotechnology and Pharmaceutical Cash Analysis sorted by EV/Cash

Note: Market cap as of 1/28/2020, Cash value for 3Q19

Source: Noble Life Science Research, Capital IQ

Exhibit 16: Catalyst Calendar in Q1 2020

Source: GlobalData

Ahu Demir, Ph.D.

Biotechnology Research Analyst

Dr. Ahu Demir, Ph.D. covers the small cap biotechnology sector. She joined Noble Capital Markets as a Biotechnology Research Analyst in 2018. Prior to that, she worked at Roth Capital as an Associate Biotechnology Analyst. Dr. Demir started her Wall Street and sell-side equity research career in biotechnology at Cantor Fitzgerald Research Division, where she served as Associate Biotechnology Analyst and followed a range of publicly traded biotechnology companies focused on the development of therapeutics in oncology, infectious disease and central nervous system diseases.  Prior to joining Wall Street, Dr. Demir was a Post-Doctoral Fellow at Columbia University and New York University. During her fellowship, she has also worked as a scientific consultant for the industry and as Marketing and Patentability Agent at the Technology Transfer Office of New York University. She holds a Ph.D. in Chemistry from University of Florida.

Cosme Ordoñez MD, PhD

Senior Life Sciences Analyst

Dr Ordoñez joined NOBLE Capital Markets in 2016. He has nineteen years of experience in various segments of the healthcare capital markets including equity research and investment banking. During his career, he has worked on various roles in Buy-side and Sell-Side Institutions, including Difference Capital Financial Inc., and GMP Securities Inc. in Canada, where he was highly ranked by Brendan Woods International and Starmine for quality of equity research. Dr Ordoñez has advised and helped raise funds for North American companies in drug development, medical device, specialty pharma and healthcare services areas. He is a Medical Doctor and obtained a Ph.D. in Experimental Medicine and Biochemistry from McGill University in Montreal, Canada. He also completed post-doctoral training at the Karolinska Institute/Hospital in Stockholm, Sweden.

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Ahu Demir
Equity Research Analyst focusing on the Life Sciences sector. 5 years of industry experience. PhD in Chemistry from University of Florida.Post-Doctoral training at Columbia University and New York University. Her scientific training focused on antiviral therapy, oncology and immuno-oncology.

FINRA licenses 7, 63, 86, 87.

Cosme Ordonez
Senior Equity Analyst focusing on Life Sciences. More than 16 years of experience in his field. Former President and co-founder of Ciclofilin Pharmaceuticals. Held various roles in Buy-side and Sell-Side specializing in drug development, medical device, specialty pharma and healthcare services areas. Medical Doctor with a Ph.D. in Experimental Medicine and Biochemistry from McGill University in Montreal, Canada. Completed post-doctoral training at the Karolinska Institute/Hospital in Stockholm, Sweden.

Holds FINRA licenses 7, 79, 86, 87.

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Report ID: 11091