Biotech Stocks to Watch for 100%+ Gains In 2016
A tweet from Hillary Clinton last Monday announcing forthcoming proposals to halt escalating drug prices caused biotech stocks to fall on Wall Street. The NASDAQ Biotech Index fell more than five percent, losing the equivalent of $15.0 billion in a matter of hours.
The former Secretary of State and candidate for the Democratic presidential nomination used the social network to unveil her plan to curb the soaring prices of biotech treatments, a trend she described as “outrageous.” She was reacting to a New York Times article, stating that Turing Pharma had recently increased the price of its antibiotic, Daraprim (targeting toxoplasmosis, malaria), from $13.50 dollars to $750.00 dollars!
A complete treatment of Harvoni, made by Gilead Sciences Inc. (NASDAQ:GILD) for a drug against hepatitis C costs $94,500 in the United States, or $1,000 per tablet. Therefore, it should not be a surprise when Marbin Shkrali, CEO of Turing Pharma, said he would raise the price of Daraprim by 5,000%.
Biotech Stocks: Companies and Cancer Therapies
Biotech companies whose therapeutic breakthroughs in the treatment of cancers, hepatitis C, or rare and orphan diseases make them popular with investors. They are also unencumbered by regulations regarding the pricing of their drugs. It’s no wonder their soaring stock market valuations are the envy of other industry groups. But which are the biotech stocks to watch in 2016?
U.S. hedge fund manager Kyle Bass is committed to biotech and pharmaceutical companies, having developed a particular attraction to affordable medicines. It may sound like Bass is socially committed. But like any real investor, he is motivated by greed because biotech stocks deliver. Bass, the founder of Hayman Capital Management, expects to influence the prices of many pharmaceutical companies, making money on short and long selling.
Bass plays on discrepancies in the arrangements between the main pharmaceutical companies with generic companies. The manufacturers of generic drugs (generics) take advantage of expired patents to sell essentially copies of popular brands. Bass also files petitions against biotech and pharma companies who make mistakes on dosage indications.
Bass is also the founder of the Coalition for Affordable Drugs, which has already filed more than 20 petitions against pharmaceutical companies in the U.S. Patent Office over pricing issues. Sometimes Bass makes mistakes. And as an investor, you can benefit not necessarily by following his trading directions, but by noting on which companies he decides to direct his appetite.
As Business Insider reported, in August, Bass bet against Acorda Therapeutics, Inc. (NASDAQ:ACOR), a company from the United States focusing on neurological disorders. With this bet, he filed a complaint with the FDA which was promptly rejected. Bass also applied his strategy with a petition against the U.S. biotech group Biogen Inc. (NASDAQ:BIIB) with its multiple sclerosis drug Tecfidera. (Source: Kyle Bass’ war against the US pharmaceutical industry has officially begun, Business Insider, February 10, 2015.)
The two negative results have certainly put a question mark over the success of Bass’ strategy, as have his petitions against Roche Holding AG (OTC:RHHBY), Celgene Corporation (NASDAQ:CELG), Jazz Pharmaceuticals plc (NASDAQ:JAZZ), Anacor Pharmaceuticals, Inc. (NASDAQ:ANAC), and Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR). Celgene fought back against Bass, issuing a complaint, citing Bass’s efforts as abuse.
Bass does not see himself as morally accountable because he claims his schemes ultimately serve the public—even if they sometimes make him a lot of money. As it happens, the biotech stocks being pursued by the billionaire hedge fund manager should also be of interest to investors.
Biotech Stocks for 2016
Acorda Therapeutics, Inc. (NASDAQ:ACOR)
Established in 1995, Acorda Therapeutics develops therapies targeting neurological disorders that disrupt many functions. The company offers three FDA-approved therapies on the market. Such includes its Ampyra-brand tablets as well as other novel neurological therapies. The company is a member of the Russell 2000 Index, a promising indicator of financial health in the small-cap market.
Acorda, which dropped to a 52-week low last Friday on the NASDAQ, is nevertheless an opportunity. The biotech is working to bring a number of clinical and preclinical-stage therapies to the market, addressing such disorders as post-stroke recovery deficits, epilepsy, heart disease, Parkinson’s disease, spinal cord injury, and multiple sclerosis.
Acorda Therapeutics grew sharply in August after the U.S. Patent Office dismissed a patent infringement suit, as reported by The Wall Street Journal, against a multiple sclerosis drug launched by Bass. (Source: Acorda Therapeutics Shares Surge After Denial of Patent Challenge, The Wall Street Journal, August 24, 2015.)
Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Jazz Pharmaceuticals, a Dublin-based company that also trades on the NASDAQ, is also the object of Bass’s hedge fund’s attention. The company saw revenues increasing 15% in the second quarter of 2015 thanks to its Xyrem product, which accounted for 75% of sales. Jazz has lost some steam in the markets lately but it will be a major biotech stock for 2016.
Jazz identifies, develops, and sells pharmaceutical products. The FDA approved Xyrem (Sodium Oxybate), also known as GHB Gamma Hydroxy Butrate or more infamously as the “rape drug.” It is a hypnotic anesthetic, which causes amnesia from the time a patient inhales it to awakening. Paradoxically, Xyrem has been found to be highly effective in treating major sleep disorders, namely hypersomnia (also called cataplexy). Xyrem, when used properly and under medical supervision, is a sleep regulator and prevents drowsiness during the day.
Sponsored Content: 100% Profit in Your Pocket Every 14 Days or Less?
About a year ago, FiercePharma hinted that Jazz is a hot takeover target in the renewed M&A interest throughout the biotech sector. Jazz Pharmaceuticals is indeed an appetizing morsel. The company has itself become a takeover target, even as it is famous for highly strategic acquisitions. (Source: Who will be first of 2014 to be bought? Some say Jazz, FiercePharma, September 28, 2015.)
Jazz paid just $1.0 billion for the Italian firm Gentium, largely because of its EU-approved orphan drug. Defitelio is a treatment for obstructed veins (VOD) in adults and children undergoing therapy resulting from stem cell transplants. In European Union countries, Defitelio was the first treatment approved for this deadly disease. Gentium started marketing Defitelio at the end of 2013.
Defitelio is just one of the items that draw investors’ interest toward Jazz. Jazz also benefits from its base in Ireland, where it can take advantage of a low tax rate. The company actually moved to Ireland from Palo Alto, California after merging with Azur Pharma in 2011. Michigan-based Perrigo plc bought Ireland-based Elan for $8.6 billion largely to get a foothold in the country to save on tax costs.
Takeovers of smaller biotech firms developing unique formulations have helped even the major biotech companies gain significant market share. French major Sanofi SA (ADR) (NASDAQ:SNY) bought U.S. biotech Genzyme for $20.0 billion. The French giant was after Cerezyme, a therapy developed in the 1990s that treats Gaucher disease. In 2015, the treatment can cost up to $300,000 dollars a year.
Biotech Stocks to Watch in 2016: Rare and Orphan Diseases
Global sales of treatments for rare and orphan diseases such as Gaucher are expected to reach $176 billion by 2020, according to research firm EvaluatePharma. Therefore, it does not come as a surprise that there are maneuverings in the sector among big pharma companies seeking to offset the decline in revenues sealed by the loss of patents with more specialized drugs. (Source: World Preview 2014, Outlook to 2020, Evaluate Pharma, June 2014.)
Similarly, the Swiss giant Roche bought Genentech, which recently received approval from the FDA for a breakthrough therapy for hemophilia, an illness worth some $11.0 billion to drug makers. (Source: Roche hemophilia drug wins fast-track FDA designation, Reuters, September 4, 2015.)
Roche said that what its Genentech unit calls ACE910 obtained the fast-track designation ahead of separate Phase III trials targeting hemophilia ‘A’ patients in 2015 and 2016. Roche intends to challenge the market dominance held by Novo Nordisk and Baxalta in this area.
Shire plc (ADR) (NASDAQ:SHPG)
Pfizer Inc (NYSE:PFE) and GlaxoSmithKline plc (ADR)(NYSE:GSK) have strengthened their specialized divisions. Nevertheless, the latest major operation to date is Britain’s Shire $30.0 billion takeover bid for the U.S.-based Shire plc (ADR) (NASDAQ:SHPG) for Baxalta Incorporated (NYSE:BXLT). Shire is certainly one of the best biotech stocks for 2016.
Shire wants to take full advantage of the recent focus on rare disease treatments by going after Baxalta, which rejected the offer last August. Shire is not giving up. It’s ready to offer more if necessary and if it secures approval from shareholders.
Baxalta Incorporated (NYSE:BXLT)
Baxalta, based in Illinois, split from Baxter International last July. The company specializes in hematology and immunology, employs some 16,000 people, and generated $6.0 billion in revenues in 2014. Shire has moved its headquarters to Ireland for aforementioned reasons, said that the new group, with 37% held by Baxalta shareholders, would generate some $20.0 billion in revenue by 2020.
“We believe that the proposed merger Shire and Baxalta would be strategically and financially relevant for our two companies, […] creating the world leader in biotech rare diseases,” said Flemming Ornskov, the CEO of Shire. Ornskov noted he would prefer a negotiated deal, which leaves the door open to a more hostile approach if necessary. Shire also brought the Ireland tax benefits into the mix, saying the group resulting from the merger would be taxed to the tune of 16-17% (in Ireland) while Baxalta currently has a tax rate of around 21-24%.
Ornskov explained his company’s motivation as being rooted in Shire’s strategy to become the world leader in treatments for orphan diseases. Shire’s boss said that he has already tried to contact Baxalta’s President and CEO, Ludwig Hantson, since early July.
“Therefore, you leave us no choice but to inform your shareholders our proposal. We think they deserve to be studied,” he wrote in a letter sent to Ludwig Hantson on August 4th.
Shire has been very active on the front of mergers and acquisitions lately, having already acquired another U.S. laboratory, Foresight Biotherapeutics, for $300 million, following the acquisition in January of NPS Pharmaceuticals for $5.2 billion.
Shire is also rumored to have been looking at European biotech firms such as Switzerland’s Actelion, one of Europe’s last independent biotech companies. One of the reasons that rare disease treatments have become the darlings of the biotech industry is that they also benefit from public research funds, tax credits, a lengthening of the duration of patents, procedures of expedited testing, and approval in many countries.
Typically, manufacturers conduct tests on thousands of patients and then endure a long and expensive approval process (which can cost up to a billion dollars) with health authorities. In the case of rare diseases, tests are performed on only dozens of people. Moreover, the approval rate for rare disease drugs is higher.
In 2014, 17 of the 39 drugs approved by the USFDA targeted the treatment of rare and orphan diseases. Technological breakthroughs, including the sequencing of the human genome, is also instrumental in the interest in rare diseases, one of the main research areas targeted by many biotechnology stocks
Researchers now have more sophisticated tools and resources such as robots that can project thousands of molecules per hour to find the most effective treatment. Patients’ associations have also made it easier for researchers by raising funds and presenting them lists of patients willing to participate in studies.
Far from being confined to specific diseases, drugs against rare diseases have the advantage of being used in the treatment of other conditions. This is the case of Rituximab, jointly developed by Genentech and Biogen. First approved in 1997 for the treatment of lymphomas, it’s now also prescribed for the treatment of severe forms of certain autoimmune diseases such as anemia, rheumatoid arthritis, or forms of organ transplant rejections. (Source: The role of rituximab in adults with warm antibody autoimmune hemolytic anemia, Blood Journal, May 21, 2015.) Rituximab has generated sales of around $3.0 billion in 2014 and these are expected to double this year to $7.0 billion according to analysts. (Source: Biosimilars of rituximab, GaBi Online, July 3, 2015.)
NewLink Genetics Corporation (NASDAQ:NLNK)
Apart from rare and orphan diseases, treatments for viral disease, which have tremendous socio-economic impact, are also set to grow significantly over the next few years. NewLink Genetics Corporation (NASDAQ:NLNK) is one of these.
Having secured support from Merck & Co. Inc. (NYSE:MRK), NewLink may have the ultimate solution to dealing with Ebola, delivering a vaccine, known as VSV-EBOV, which can move directly from the experimental phase to pharmacy shelves. VSV-EBOV actually has Canadian public health roots only to be licensed by NewLink, which developed the vaccine candidate under an exclusive licensing agreement with Merck.
“We hope the interim data published today contribute to the successful registration of our vaccine candidate, which we believe can play an important part in diminishing the threat of Ebola,” said NewLink’s chairman, CEO and chief scientific officer Dr. Charles Link. The World Health Organization (WHO), based on results suggesting the vaccine is 100% effective, is ready to back a vaccination campaign for all persons who have been or are in contact with Ebola patients. (Source: NewLink Genetics and Merck vaccine shown to be 100% effective against Ebola, Proactive Investors, July 31, 2015.)
In June, Tekmira Pharmaceuticals, a Canadian firm, suspended clinical trials of a drug compound to fight the Ebola virus disease previously seen as promising. Apart from Tekmira and the successful NewLink, companies developing treatments for Ebola include BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX) and Sarepta Therapeutics.