After a year marked by high drug prices and worries over efforts to regulate those prices, the biotech sector is roaring into 2020.
The indexes and exchange-traded funds that track biotech pulled off a buzzer-beater in 2019, entering the fourth quarter of the year well behind the S&P 500, and then taking off. The iShares Nasdaq Biotechnology ETF (ticker: IBB) was up 3.18% on the year as of Sept. 30, while the S&P 500 was up 18.7%.
Now, as the fourth quarter nears its end and the end of the decade approaches, the iShares Nasdaq Biotechnology ETF is up about 27% on the year, just a hair behind the S&P 500, up about 29%.
The year in biotech started hot, with news on the first Thursday of the year that Bristol-Myers Squibb (BMY) would purchase one of the stalwarts of the biotech sector, the large-cap firm Celgene. The $74 billion deal, which didn’t close until November, wasn’t initially popular with investors: Bristol-Myers shares plunged, and activists tried to derail the deal. But the board won out in a shareholder vote in April, and the Federal Trade Commission was mollified in August with the sale of Celgene’s psoriasis drug Otezla to Amgen (AMGN) for $13.4 billion.
After the extraordinary sums at play in the Bristol-Myers deal, the rest of the year’s mergers and acquisitions felt like an afterthought. Pfizer’s (PFE) pickup of Array BioPharma for $10.4 billion? Eh. Eli Lilly’s (LLY) deal to buy Loxo Oncology for $6.6 billion? Sigh. Roche’s (RHHBY) pickup of Spark Therapeutics for $4 billion? Call me back when you’ve got some real news.
No, by the middle of the year, the real eye-poppers were the prices of the new drugs rolling out of the biotech sector. Zolgensma, the $2.1 million gene therapy sold by big pharma firm Novartis (NVS), which acquired it when it bought the biotech AveXis in 2018, is the most expensive drug ever sold. Alexion’s (ALXN) new drug Ultomoris, which treats a blood disorder, costs $458,000 a year. In October, the Institute for Clinical and Economic Review singled out three large-cap biotechs, saying their price increases were unsupported by any new research, including a 23.1% average net price bump for Gilead’s (GILD) Truvada between 2016 and 2018.
With the increase in drug prices came talk of drug price regulation. The Trump administration pursued a raft of initiatives, including an effort to force pharmaceutical companies to say the price of drugs in TV ads. That effort was stymied by the courts, and others also fell by the wayside. Now, analysts argue that major drug price legislation is unlikely before the 2020 election.
The lifting of those fears appears to have been key to the revival of the sector’s fortunes toward the end of the year. Additional help came from one of the oddest turnarounds in the recent history of the sector. In March, Biogen shares fell from $320 to $220 after the company announced that it had ended two Phase 3 trials of its Alzheimer’s drug, aducanumab, when the drug failed a so-called futility analysis. In October, the company said it was submitting the drug for Food and Drug Administration approval anyhow, citing new data that came in after the futility analysis. The stock shot back up, and is trading around $300. Analysts remain sharply divided on whether the FDA will eventually approve the drug.
Meanwhile, a string of drug approvals kept the sector strong through the end of the year. The FDA approved a label expansion for Amarin’s (AMRN) fish oil-derived drug Vascepa that will allow it to be used to reduce the risk of cardiovascular events like heart attack and stroke. And Sarepta Therapeutics (SRPT), which crashed in August after the FDA denied approval of its Duchenne muscular dystrophy drug, soared in mid-December when the agency reversed course.
Now, analysts say that the late-season surge will continue next year. In a note out Dec. 13, Credit Suisse analyst Evan Seigerman argued that the performance of the biotech sector will be strong in 2020, even if the election brings worrying headlines.
“While we get the sense that biotech investors are cautious into 2020 with the election and broader macro concerns, we believe that macro issues are unlikely to have material fundamental impact,” Seigerman wrote