The Biotechnology sector remains one of the top performing sectors this year with the benchmark Nasdaq Biotechnology Index of biotech stocks, as represented by the biotech ETF (IBB), gaining 17% in the first half. The index though still remains ~29% down from its all-time high achieved in mid-2015. In comparison, the S&P 500 (SPY) was up 8%, and the Nasdaq Composite (QQQ) up 14%, in the first-half.
In our timely article, Biotech’s Best Chance, and its follow-up Biotech’s Best Chance, we had outlined a number of imminent reasons for a Biotech rally to ensue. The arguments remain compelling, particularly the emerging FDA focus, and support higher valuations ahead.
Improving Sentiment for Biotech Stocks
The industry is benefiting from improving news sentiment as the “getting away with murder” kind of comments from the President are being gradually replaced with news on clinical successes, particularly in the new field of personalized medicine. The recent focus on the innovative Chimeric Antigen Receptor T-cell (CAR-T) therapy, as Novartis (NVS) edged closer to an FDA approval following a recommendation by the FDA’s advisory committee, has generated considerable positive coverage for the sector. The CAR-T therapy extracts healthy T-cells from a patient’s own immune system and after modifications to target cancer cells, reintroduces the T-Cells back into the patient. Other players pursuing success in CAR-T therapy include Kite Pharmaceuticals (KITE), Bluebird (BLUE), Juno (JUNO) and Cellectis SA (CLLS).
Earlier this week, Vertex Pharmaceuticals (VRTX) disclosed impressive data on its Phase 1 and 2 trials for its triple combination regimen to treat cystic fibrosis. The strong efficacy, particularly in lung capacity, was remarkable and if the trial results are replicated in Phase 3 it can provide relief to 90% of the cystic fibrosis patients besides expanding into a significant multi-billion opportunity for the Company. A similarly ambitious combinations program is also being pursued by the partnership of Galapagos NV (GLPG) and AbbVie (ABBV).
Making progress on some major, high-profile diseases, along with the absence of hostile tweets from the White House, has begun to improve the general perception around the biotech sector.
FDA’s Focus on Faster Decisions – a key industry-friendly regime
The easing political pressure on the health care sector (XLV) has been instrumental in biotechnology’s recent strong performance. As mentioned in the earlier article, a draft of the Executive Order, expected to be issued over Summer, focuses on bringing drug prices down by principally streamlining the drug approval process. The industry’s much-disliked and feared scenario of a drug price negotiation with Centers for Medicaid and Medicare is not expected to be part of the price-reduction strategy, consequently easing the pressure the industry has faced since late last year. If this is how it eventually turns out, it will be an industry-friendly set of policies.
