A Bullish Outlook For Biotech. But Can It Last?
By Scott Gottlieb
The mood was decidedly upbeat at January’s J.P. Morgan Healthcare Conference, the largest annual confab for the healthcare industry.
The investment landscape has been strong this past year, and many healthcare segments experienced a robust market, including hospitals, managed care, and healthcare information technology. Performance was particularly good in the life sciences sector, evidenced by the 82 biotech IPOs completed in 2014
. This compares to 67 IPOs in 2000 – a year that many in the industry consider a biotech “bubble” year. Last year (also viewed as strong market) there were 49 biotech IPOs.
In total, $5.5 billion was raised by biotech initial public offerings in 2014. Even more was raised in a plethora of secondary offerings and debt issues.
But the question on many minds was whether the underlying fundamentals in the life science space had shifted, justifying the outperformance – or are we due for a correction?
While it’s hard to predict whether the equity markets will remain as hot as they were in 2014, there are some reasons why the life science industry will continue to enjoy certain tail winds, and could show resilience if the broader markets stutter.
For one thing, much science that has been percolating for more than two decades is now manifesting in the form of new drugs. Consider the relatively new ability to manipulate immune cells to fight cancer, or tools that allow us to use gene therapy to essentially cure diseases – techniques have been in the works for several decades, but have reached a point where the science is finally starting to move into the clinic. Or consider the use of genomic level data in drug development that enables scientists to correct underlying mechanisms of diseases like cystic fibrosis.
Similar to the 1990s, when the science for the above innovations was nascent, a number of large-scale science projects are underway. One, announced last week in President Obama’s State of the Union Address, is the National Institutes of Health’s “Precision Medicine” initiative, an undertaking that could lead to the mapping of up to one million human genomes and formation of a master repository of genetic data for use in drug development. These efforts will continue to stir enthusiasm and generate new scientific foundations for the biotech sector.
Investors and companies are also flush with resources having benefited from a multi-year bull market. That collective capital will continue to support the sector.
There’s also a palpable sense that the Food and Drug Administration has finally started to make the path to market more efficient, especially when it comes to “breakthrough” drugs that are targeted to unmet medical needs. The FDA approved 41 new drugs in 2014, one of its highest totals ever. Two-thirds of these were designated in one or more categories of Fast Track, Breakthrough, Priority Review, or qualified for Accelerated Approval.
Mark Schoenebaum of Evercore-ISI recently broke down on the numbers: FDA labeled nine of the 2014 novel new drugs as “Breakthrough” therapies. Moreover, a majority of the new drugs (32 of 41) were approved on the “first cycle” of review, meaning without requests for additional information that would typically delay approval and lead to another review cycle. Almost two-thirds of the novel new drugs approved in the prior year (26 of 41) were approved in the U.S. before receiving approval in any other country.
Finally, legislation is likely to advance in Congress this year (the MODDERN Cures Act) that will seek to make FDA’s regulatory scheme more efficient, transparent, and predictable. Those political headlines will continue to support the perception that the FDA process is becoming more cordial to innovation. While the verdict is still out on that premise, the belief itself is nonetheless driving a self-reinforcing view that the risk to bring a drug to market (especially orphan drugs) has been reduced.
While the boom years in biotech may eventually slow, there is reason to believe that the improved outlook represents more than just another bubble.
There’s reason to believe that a secular shift is underway when it comes to science and medicine that could leave biotech on a path for continued strong performance.
Dr. Scott Gottlieb is a practicing physician and Resident Fellow at the American Enterprise Institute. He is a Senior Fellow with BDO’s Center and has been named as one of the Top 30 Social Influencers in Biotech by the Huffington Post. He can be reached at firstname.lastname@example.org.