Biotech Analysts See Deals, Drug Data Carrying 2020 Performance
Biotech Analysts See Deals, Drug Data Carrying 2020 Performance
(Bloomberg) -- Biotechnology analysts expect another strong performance in 2020 after stocks rose almost 25% this year.
The group has caught fire over the past few months, led by strong results for drug candidates and large pharma deals at massive premiums. Analysts and investors polled by Bloomberg News expect those gains to continue as companies developing next-generation medicines like gene therapy have peaked Wall Street’s interest. Credit Suisse’s Martin Auster said Sarepta Therapeutics Inc., BioMarin Pharmaceutical Inc. and UniQure N.V. all face “make-or-break catalysts” in the next year.
Data for Sarepta’s gene therapy in Duchenne muscular dystrophy by the end of 2020 and a U.S. regulatory decision for BioMarin’s hemophilia A gene therapy around mid-year could offer a boon to broader biotech, Auster wrote. Novel gene therapies have spurred a string of deals in the past few years, most recently Astellas Pharma Inc.’s agreement to buy Audentes Therapeutics Inc. for about $3 billion. UniQure has also been speculated as a takeover candidate.
While some investors have been hesitant to dive into smaller drugmakers amid worries about legislation to drive down drug prices, analysts across Wall Street have advised investors to pile into companies with more innovative products.
“Investor expectation(s) for acquisition announcements into year-end and through the first couple weeks of January is also much more elevated now given what has transpired over the past few months,” Jefferies health-care strategist Jared Holz wrote this week.
The Nasdaq Biotech Index, a key gauge for investor sentiment, has risen 24% so far in 2019, on track for its best year since the boom from 2012 to 2014 when the index roughly tripled over three years. This year’s rise has underperformed the broader market’s climb, but has outpaced the S&P 500 Health Care Index’s 17% rise.
As investors buckle up for the looming a presidential election amid worries surrounding things like drug pricing and the China trade war, Credit Suisse analyst Evan Seigerman sees “strong fundamentals and clear opportunities for outperformance.” Seigerman said the election may impact sentiment in the second half of the year, though deals and innovation should continue.
For larger drugmakers like Merck & Co. and Bristol-Myers Squibb Co., pricing concerns will remain a key focal point. However, JPMorgan analyst Chris Schott said those worries are already reflected in Wall Street’s estimates. Rhetoric around the election, however, “remains a wild card,” Schott said. That’s because some Democratic candidates have an eye on proposals to curb health-care spending, including Elizabeth Warren, though she has started to back away from a full-blown Medicare for All plan on the campaign trail.
“Pricing remains a key controversy over the past few years and there have been a number of drug pricing proposals over the past 12 months… but we still see more bark than bite,” Schott wrote in a research note. He expects smaller deals from drugmakers after 2019 was the year of mega-deals.
SVB Leerink analyst Andrew Berens is positive on the 2020 outlook for health care and expects investors to prefer biotechnology firms with stronger balance sheets given the election and the need for more deals.
“We also expect disciplined M&A to continue with a preference for innovative platform technologies and drug development approaches, and see the importance of emerging markets as a source of strategic value,” he wrote.
Technical gauges may bode positively for biotech stocks. The iShares Nasdaq Biotechnology exchange-traded-fund is up less than 1% in December following its best two-month stretch since 2003. Technical indicators show its rise in the fourth quarter was overextended. However, the move sideways over the last two weeks could mark stabilization for another breakout in 2020. The ETF is trading below its 2015 peak.
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To contact the reporter on this story: Bailey Lipschultz in New York at blipschultz@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm
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