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Biotech Bonanza Will Continue in H2 2020

Biotech Bonanza – Second Half Outlook 2020

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This article was originally published by Prudent BioTech.

Prudent Biotech ~ IBB Performance 2015 to 2020
 
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Prudent Biotech ~ Interest rates
 
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Prudent Biotech ~ VC Funding
 
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Prudent Biotech ~ COVID -19 Testing
 
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Biotech is one of the rare industries whose prospects have improved as the year has progressed.
 
 
A low interest rate environment, a less hostile regulatory environment, and strong investor interest creates an ideal environment for biotechs to continue outperforming the market.
 
 
Vaccine, treatment and testing companies garner significant interest, but the biotech rally is quite broad-based.
 
 
Biotech exposure is a winning strategy as the group should again have a strong year.
 

Healthcare Pulse

Biotechs continue to be one of the leading healthcare groups and along with diagnostics represent two of the best segments of healthcare. The first half saw biotechs recover quicker from the March selloff than most of the market, and reach a milestone that took 5 years to achieve. The Nasdaq Biotechnology Index (IBB) finally made a new high after 5 years, eclipsing the level set in July 2015. At the beginning of the year in the Biotech Bonanza 2020 Outlook, a strong case was made for biotech exposure: "The fundamentals for biotechs are stronger than in 2019 as science continues to deliver, acquisitions have acquired a level of urgency, and there is plenty of risk capital to fund biotechs... which are on a trajectory that we believe will finally take the group to an all-time high in the first half." Biotech Bonanza 2020 Outlook, Jan 2020 But that was before the pandemic. The paralyzing viral outbreak that has swept the planet, costing trillions in output and gumming up the wheels of the global economy has also created a confluence of events so very favorable for biotechs that it will continue to push the sector higher up the golden arc.
Prudent Biotech ~ IBB Performance 2015 to 2020
 

Market Moves Higher and The Economy, Well, Will Eventually Follow

The market has concluded that the economy will come around, be it this quarter or next or even the following year. In the meantime, while it waits, the market is surfing the tsunami of fiscal stimulus. And in an irony, the worse the pandemic gets, the more stimulus it triggers. When there is a second wave of viral infections, there will be a second wave of the stimulus. The renewed stimulus will continue to at least support the stock market, if not extend the rally further, even though the worsening pandemic weakens the economic rebound. The recession and the market decline did correct a major technical concern for the stock market. The longest bull market worry is gone, and a new bull market has been born. The market's optimistic outlook of a glass-half-full has allowed it to look past the rising daily cases of infections, which have eclipsed the previous record from March 2020. The next big move for the market can occur when the total infections peak and begin to decline. The market will view that as leading to the second wave of an economic rebound. The fiscal stimulus and the record-low cost of capital will continue to spur risk-taking. The high debt levels that the government incurs is not a concern for the market. In fact, the pandemic may have given a template to shrink future recessions. Throw trillion-dollar stimulus packages to rekindle growth without worrying about deficit. Amidst all the stimulus, it is easy to drown the truth that the recovery path is highly uncertain in no small part due to an ineffective pandemic response which has made the US worse off than many other developed nations. A slower recovery is resulting in a significant and growing cost to the treasury, corporates, people, and the economy. The stimulus and the Federal Reserve's backstopping of the credit markets have avoided a mushrooming of the personal and corporate bankruptcies and economic devastation, at least for now. The second stimulus plan expected to be in place by next month will extend the runway further giving more time to the economy to eventually stage a rebound. The worse will probably occur when the ebbing doses of stimulus expire before a strong and durable economic rebound. This possibility can happen later this year. However, attempting to forecast the path of the economy is nothing but guesswork at this point, simply because of the many unique variables and potential scenarios. It's like peering into a dark well. Earlier this month during an earnings call, JPMorgan Chairman & CEO Jamie Dimon noted : "In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that’s true here...savings are up, incomes are up, home prices are up. So you will see the effect of this recession...you’re going to have a much murkier economic environment going forward than you had in May and June.� Jamie Dimon, Chairman & CEO, JPMorgan The market outlook can brighten immensely when successful vaccine outcomes and targeted treatments are announced, a possibility that can occur in the fourth quarter. This brings us to healthcare and...

The Era of Biotechs

Prudent Biotech ~ COVID -19, Getty Images
 
The biotech group is not only benefiting from the white knight status of being the only industry group, along with pharmaceuticals, that can deliver a solution to the pandemic, but also from a growing risk appetite spurred by a prolonged low cost of capital. In the past, we had highlighted the relationship of biotechs doing best in a prolonged period of low-interest rates. We have entered such a zone this year. When the fed funds rate (2010-2015) was flat after a downward bias...
Prudent Biotech ~ Interest rates
 
...the biotech benchmark rose in a steady long-term uptrend from 2010 to 2015, recording its all-time high in July 2015.
 
Now, as we have entered another prolonged period of low-interest rates, the Nasdaq Biotechnology Index finally made its first new high in 5 years, eclipsing the one set in mid-2015. It doesn't mean there is a perfect causal relationship between interest rates and biotech performance. But at the very least, the correlation underscores the existence of a highly favorable macro environment for biotechs that should now persist for longer than just 2020. As we had noted in our January 2020 outlook: "Perhaps, it is the beginning of a similar longer-term sustained rally [as the one that ended in 2015 which saw the index soaring 400% over 6 years.]" In a stable economy, low-cost money attracts risk-taking. Biotechs are well-positioned to attract such risk capital. In the private market, biopharma venture capital funding has surged this year, almost matching last year's total in just the first half.
Prudent Biotech ~ VC Funding
 
Biopharma Venture Cap Investing, Source: Silicon Valley Bank Such private and public risk capital finds it hard to race into many other industries at the same pace because of the uncertainty of business models during a time when the pandemic has the upper hand. However, even though trial delays will continue to occur, biotechs are relatively less impacted.

Vaccines and Treatments

Each piece of positive milestone news in the vaccine development is a jolt of adrenaline for the market. Key players, including Moderna (MRNA), Pfizer (PFE) and BioNTech (BNTX), AstraZeneca (AZN) and Oxford, Johnson & Johnson (JNJ), Merck (MRK), and Novavax (NVAX), to name a few well-funded Western players, will continue to have major progress updates in the months ahead. These multiple efforts are crucial for vaccine development which is a road littered with failures. Emergent BioSolutions (EBS) remains a primary outsourcer for vaccine manufacturing while developing its treatment. There are many interesting smaller companies, like Inovio (INO), CureVac (CVAC), Arcturus (ARCT), Vaxart (VXRT), and Altimmune (ALT) to name a few, with vaccine programs as well. But strong funding access is just as important as good trial results and it remains to be seen which companies will still remain with viable programs, combining both results and funding, by the end of the year. Many dedicated viral treatments are being developed and some of the notable ones include the monoclonal antibody treatments from Regeneron Pharmaceuticals (REGN) and Vir Biotechnology (VIR), which is also collaborating with Alnylam Pharmaceuticals (ALNY) to use its platform to develop siRNAs for COVID-19 therapeutics. Regeneron earlier this month moved into Phase 2/3 trials, while Vir is expected to begin Phase 2 in August. Gilead's (GILD) repurposed Remdesivir remains the only approved treatment at this time.

Testing Companies & Suppliers

Testing Companies & Their Suppliers Sensible preventive measures and a wide testing net are two critical blocks of an effective pandemic management response. When done in tandem, they assist in shrinking the viral footprint, still facing risks of flash outbreaks but not crippling blows. Two main testing technologies are being used. Molecular assays, which trace for the COVID-19 viral material in a sample, and immunoassays, which track for specific antigens or antibodies known to be triggered by the virus and are thus look-back tests identifying people who were infected and recovered. In mid-July, management firm McKinsey estimated the US capacity at 3 million to 3.5 million weekly tests, well below the 6 million weekly tests for an economy to open partially. For an economy to be fully reopened, it is estimated that a capacity of 20 million daily tests should exist. This is way beyond the country's present capacity.
Prudent Biotech ~ COVID -19 Testing
 

COVID-19 Molecular Testing Process

The above exhibit highlights the complexity of the testing environment. Constraints to capacity exist at different supply points from more front-line activities like sample collection to back-end processes like the availability of chemical reagents in the lab. McKinsey estimates 20 different reagents and consumables are required for executing a test. And many of them are supply-constrained. That is why there is no magic wand solution to quickly get testing to a 6 million weekly level and higher. A few prominent testing companies and suppliers include Quidel (QDEL), Abbott (ABT), Becton Dickinson (BDX), Luminex (LMNX), Thermo Fisher Scientific (TMO), OPKO Health (OPK), PerkinElmer (PKI), Qiagen (QGEN), GenMark Diagnostics (GNMK), Fulgent Genetics (FLGT), Co-Diagnostics (CODX), Meridian Bioscience (VIVO), and numerous others.

A Subdued Regulatory Environment

Prudent Biotech ~ Healthcare
 
Entering 2020, the biggest risk was a noisier and difficult regulatory environment as healthcare costs are a bipartisan issue and this being an election year. That risk diminished by the end of the first quarter as healthcare has acquired a savior's halo after being placed front-and-center in the pandemic response. President Trump's executive orders last week on drug rebates, insulin, and importation are just low wattage orders that do not move the needle materially on the drug pricing issue and will get tied up in courts. The regulatory environment will remain mild for the remainder of the year and even most likely through most of next year as attention remains diverted until the pandemic has been overcome.

Conclusion

Last month, the prominent Nasdaq Biotechnology Index finally rose to its first new high in five years. Highs that occur after such long periods represent a very meaningful shift in sentiment and can last for many months and years, auguring well for consistent long-term gains. The intrinsic fundamentals of biotechs have never been better as science continues to push new frontiers. Furthermore, the ability of biotechs to manage their business models in a relatively more effective manner during the pandemic than most other industries is a significant benefit and provides a level of comfort, similar to technology, during unprecedented economic uncertainty. The biotechs are also not earnings-driven, but expectations-driven, and with so many vaccines and treatments lining-up, there will be no dearth of news, and quite a bit of it positive. At the beginning of the year, we anticipated the Nasdaq Biotech Index to rise 10%, but now with regulation risk diminished and the pandemic providing an impetus to biotech valuations, we believe the index will be up 20% in 2020. A few promising biotechs and healthcare companies, some of which may be now or in the past part of the Prudent Healthcare or Prudent Biotech or the Smallcap model portfolios, include Regeneron Pharmaceuticals, Amgen (AMGN), Vertex Pharmaceuticals (VRTX), Alnylam Pharmaceuticals (ALNY), Seattle Genetics (SGEN), Moderna, Vir Biotechnology, BioMarin Pharmaceutical (BMRN), Emergent BioSolutions, BioNTech, TG Therapeutics (TGTX), Immunomedics (IMMU), Macrogenics (MGNX), Crispr Therapeutics (CRSP), Mersana Therapeutics (MRSN), Novavax, Akero Therapeutics (AKRO), Biohaven Pharma (BHVN), Livongo Health (LVGO), Karuna Therapeutics (KRTX), Halozyme Therapeutics (HALO), Principia Biopharma (PRNB), Trillium Therapeutics (TRIL), Celldex (CLDX), Five Point Therapeutics (FPRX), Ideaya Biosciences (IDYA), Quidel, Luminex, OPKO Health, Akebia Therapeutics (AKBA), NeoGenomics (NEO), Vapotherm (VAPO), Covetrus (CVET), and Meridian Biosciences. Industry exposure can also be acquired through ETFs like the one tracking the Nasdaq Biotech Index and another tracking the S&P Biotechnology Select (XBI). Biotech investing is volatile and high-risk. Investors should pursue a concrete investment strategy preferring a portfolio approach by investing in a basket of promising biotech companies that can assist in managing risk and overcoming mistakes.
The post Biotech Bonanza – Second Half Outlook 2020 appeared first on Prudent Biotech.

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide…

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Glimpse Of Sanity: Dartmouth Returns Standardized Testing For Admission After Failed Experiment

In response to the virus pandemic and nationwide Black Lives Matter riots in the summer of 2020, some elite colleges and universities shredded testing requirements for admission. Several years later, the test-optional admission has yet to produce the promising results for racial and class-based equity that many woke academic institutions wished.

The failure of test-optional admission policies has forced Dartmouth College to reinstate standardized test scores for admission starting next year. This should never have been eliminated, as merit will always prevail. 

"Nearly four years later, having studied the role of testing in our admissions process as well as its value as a predictor of student success at Dartmouth, we are removing the extended pause and reactivating the standardized testing requirement for undergraduate admission, effective with the Class of 2029," Dartmouth wrote in a press release Monday morning. 

"For Dartmouth, the evidence supporting our reactivation of a required testing policy is clear. Our bottom line is simple: we believe a standardized testing requirement will improve—not detract from—our ability to bring the most promising and diverse students to our campus," the elite college said. 

Who would've thought eliminating standardized tests for admission because a fringe minority said they were instruments of racism and a biased system was ever a good idea? 

Also, it doesn't take a rocket scientist to figure this out. More from Dartmouth, who commissioned the research: 

They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds.

All the colleges and universities that quickly adopted test-optional admissions in 2020 experienced a surge in applications. Perhaps the push for test-optional was under the guise of woke equality but was nothing more than protecting the bottom line for these institutions. 

A glimpse of sanity returns to woke schools: Admit qualified kids. Next up is corporate America and all tiers of the US government. 

Tyler Durden Mon, 02/05/2024 - 17:20

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…

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To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….

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Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 

 

About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. www.insilico.com 


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