BCTW Ep 14 13JUL2020 

Jeff Cranmer: After the sudden COVID-driven market declines that closed out the first quarter, biotech stocks rebounded in the second quarter with a force that has put shares up year-to-date. On this edition of BioCentury This Week, we'll discuss what's in store for biotech in the third quarter as well as hydroxychloroquine: the sequel, and a $1 billion initiative to combat anti-microbial resistance. 

[00:00:26]I'm Jeff Cranmer, Executive Editor of BioCentury and I'm joined by my colleagues:  

[00:00:31]Simone Fishburn: Simon Fishburn, Editor in Chief, 

[00:00:32] Steve Usdin: Steve Usdin, Washington Editor,  

[00:00:34]Stephen Hansen: Stephen Hansen, Associate Editor.  

[00:00:36]  Jeff Cranmer: Stephen, the biotech markets have been on a tear since the start of the second quarter. You've spent the past few weeks talking to more than a dozen buysiders for our quarterly financing preview package. What's behind the run?  

[00:00:49]Stephen Hansen: Well, I think it's interesting what really was driving it was this flow of money that we saw pouring into the sector in the second quarter of the year. It was a situation where we saw $6.6 billion coming in over the course of three months. You know, to give a bit of context here... that was the largest in-flow that we've seen in over a decade. 

[00:01:07]  You know, if you think back to the momentum driven years of 2013, 2014, 2015... Even then you know, in the first quarter of 2015, the previous high... we had $5.3 billion dollars of money coming into the sector. So, it was one of these times where there was just a flood of money coming in that really helped to push the sector up. 

[00:01:25]  Steve Usdin: One of the things I wonder is we've seen also record FDA approval levels despite the pandemic. I think it's the highest number of FDA approvals in years, maybe in five years. Do you think that that's one of the things that's stimulating the investor enthusiasm for the sector? 

[00:01:41]Stephen Hansen: Yeah, that was definitely something that investors were pointing to...  that there's this renewed interest in the innovation cycle that's going on in the sector. You're seeing all these new drugs getting improved, new modalities... That's part of the reason why people think some of this money might be sticking around for the longterm. Part of what investors were saying was that a lot of this is being driven by the fact that because the economy has had to shut down, there really isn't a lot of places to put your money where you can find growth. 

[00:02:05] So, healthcare and tech have really been the two main places that investors have been sort of flocking [towards, trying] to get return for their money. But, there definitely is something to be said for the innovation cycle and the fact that there is just a lot more interest in the sector than there maybe would have been 5 -- [maybe] 10 -- years ago. 

[00:02:22]Simone Fishburn: I think one of the things that's also interesting... So yeah, on the one hand you've got generalists, where else are they going to go? And you've got all this attention coming to buyout the biopharma industry. A lot of the investors were saying it's safe. But Steve, to your point about the approvals, what our colleague Lauren Martz also looked at was the launches.  

[00:02:39][Of the] small molecules and biologics that were approved in the first half, the launches for only three of them were disrupted by COVID, which you might've expected that would be more given the various disruptions going on. But even more interesting is the way that people are adapting to virtual launches -- [which is] what they're calling [them]. So you don't have salespeople walking around into doctor's offices right now. And so companies are adapting to virtual launches and then investors have to adapt their projections to that. So, I think two really interesting ones that stood out were the oral CGRP inhibitor from Biohaven. 

[00:03:14] This is a migraine -- or as Americans I think say migraine, right -- and that's from Biohaven. That company has nearly tripled in value since March, at least partly due to the launch of its therapy, which had better than expected sales. And I think another really interesting one is Horizon Therapeutics, which pretty much shattered expectations. They guided to full year. Guidance was $30 to $40 million. Their sales in the first quarter were $23.5 million. So they've now increased their guidance from $30 to $40 million to more than $200 million on the back of this launch. 

[00:03:49] So I think that the marriage of PDUFA dates of companies getting their molecules approved and organizations switching to this new virtual model of launches is very interesting and something that I think will probably stick at least in part in and beyond the pandemic.    

[00:04:07] Stephen Hansen: And of course Horizon's drug is for thyroid eye disease ,Tepezza.  

[00:04:11]Jeff Cranmer: Sounds good. Well, one thing that I'm curious about, Steven, is these generalists.   How long do you expect them to stick around?  

[00:04:19] Stephen Hansen: Well, as, we mentioned before, part of the issue is the fact that they don't have a lot of other places to go in this sort of economy. And so, after sort of piling and after everything sort of crashed in March, there's quite a bit of expectation that they'll stick around at least probably until the end of the year. But a lot of that really depends, at least from the investor's perspective. What they see generalist looking at is their level of confidence in the economy returning. 

[00:04:42] And, you know, there's a lot of debate around whether that's going to be related to a vaccine or a therapy, but the expectation is that if they start seeing some data or start getting some real confidence that the economy can start to return to normal, that will be the trigger point for them to be able to move back into some of these sectors that have really been down and that are much more cyclical and could be viewed as better value plays. 

[00:05:04] And so really, if the thinking is that the rotation out of biotech may be biotech's own doing... that basically good data from a vaccine that could be widely available may be the signal to the broader markets to start that rotation out. 

[00:05:17] But, that's the debate is whether it could be something earlier than that,  if antibody data were to prove better than expected, or if it will be sort of through a vaccine.  

[00:05:26] Jeff Cranmer: Well, one place that we're really seeing the impact of this influx are the record numbers in money raised in secondary offerings -- or as we call them at BioCentury, follow-ons -- as well as IPOs. Do you think that these capital raises will continue in the run up to the U.S. presidential election this fall season?  

[00:05:45]Stephen Hansen: Yeah, typically this sort of an election year is when you have companies raising money in the first half and then everybody hunkers down in the second half and just tries to hide because historically biotech has been a bit of a punching bag during an election period. 

[00:05:58]But, at least from an investor's perspective and a few bankers that we spoke to, there doesn't seem to be any reason to believe that this is going to quit. I mean, the numbers were pretty astounding, it was $7.5 billion raised through 34 IPOs, which is nearly double the previous high total that we'd seen in any quarter in the past decade. 

[00:06:15]And then the same thing for follow-ons -- you know, nearly $15 billion raised in this past quarter. Which is nearly $4 billion more than what we had seen in any other quarter in the past decade, again.  

[00:06:26] Simone Fishburn: It's a bold, bold person who makes any predictions in 2020, I can say. But go ahead, Stephen, tell us.  

[00:06:33]Stephen Hansen: I doubt anyone is going to expect that same level of financing, but there are 57 companies in the IPO queue, 32 of them which joined you know, in roughly the past five to six weeks. So, I don't think they were jumping in just to wait until 2021. So, I think we'll see more of those companies coming out even as we get closer to the election, which you just never would have expected in years past. 

[00:06:53]Jeff Cranmer: Well, speaking of the unexpected... I thought the hydroxychloroquine story was over. Steve, why is it back?  

[00:07:01] Steve Usdin: So here's what happened. President Trump and senior White House officials are pressuring FDA Commissioner Stephen Hahn to grant a second emergency use authorization to hydroxychloroquine. They're basing their request on an observational study that found a survival benefit for the drug. But that study was flawed and it's outweighed by more reliable, randomized controlled studies that found no benefit. 

[00:07:21]What I wrote is that this threatens Hahn's and more importantly, FDA's credibility. If he bows to the pressure, it'll raise questions about other actions, especially if and when FDA authorizes COVID-19 vaccines. And regardless of what happens with hydroxychloroquine, the whole episode highlights a tremendous problem. 

[00:07:38]Trump and the White House have put loyalty to the president ahead of public health. They've launched a tax on Tony Fauci and on the CDC. So when Hahn has to make tough decisions on COVID-19 vaccines, he's not going to have any doubt what's in store for him if he crosses the White House. 

[00:07:53] Hahn of course he could mitigate some of these concerns    for example, by speaking out in support of Fauci now and for science, but that would take a great deal of courage.  

[00:08:01]Simone Fishburn: Steve, Hahn is not the first and certainly not the only government official to have to navigate tricky political bosses. So, he does have his job to lose at this but what are his options?  

[00:08:15]Steve Usdin: Well as I said , one of his options would be to speak out now in favor or in support of Tony Fauci and in support of science. That would take a lot of courage for him to do it, but I think it would give people a lot of enthusiasm or confidence that he's come down on the side of public health.  I think here's the bottom line instead of summoning the political will to fight the Coronavirus, as other countries have done, what's happening United States right now is that the government is fighting its own scientists and science itself. And, we're all living with the consequences.  

[00:08:45] One of those consequences is that there's a divergence between the incredibly rapid development of vaccines and therapies on the one hand and -- frankly -- disastrous public health response on the other. I think the real danger from the pressure on FDA to grant Emergency Use Authorization for hydroxychloroquine , on the attacks on Fauci and on the attacks on CDC is that we might see a convergence of the two things now that the politics of the public health response could intersect with the development of effective drugs and vaccines. And that would be a real tragedy... 

[00:09:17]Jeff Cranmer: Yes, it definitely would. It's certainly been a pretty disastrous response. But on the bright side, COVID-19 wasn't the only infectious disease story last week. Steve, you wrote about how pharmas are chipping in $1 billion dollars for a fund to invest in biotechs that are developing antibiotics. 

[00:09:35]Why are they doing this? And will it be enough to revive antibiotics?  

[00:09:39]   Steve Usdin: Really, it's a cry for help. The market for antibiotics is dysfunctional. One of the measures of the dysfunctionality of that market is that at least two public companies that developed antibiotics for resistance organisms declared bankruptcy because there was no market for their products. 

[00:09:57]So pharma companies have stepped in. They say they're going to put up a billion dollars. It's going to help companies get from the end of phase one all the way through to approval. The companies that are investing in this AMR action fund though, when I spoke with them completely acknowledged that this is not going to be sufficient to solve the problem. 

[00:10:13]Those bankruptcies happened after companies had gotten FDA approval. So what's really needed are solutions to fix the broken market. Without that, companies are going to get from Phase I to Phase III and to approval using the funds from the AMR action fund. And then they're just going to go bankrupt again. 

[00:10:31]One of the more dramatic things that we're going to report in BioCentury today is that there's a generic company, Cipla, bought rights to one of the antibiotics that Achaogen had developed -- Achaogen was one of the companies that went bankrupt. So Achaogen raised about half a billion dollars to bring that antibiotic to market, got FDA approval. Cipla paid $16 million for that antibiotic for the rights to market it in Europe and now they've withdrawn their application and said, you know what? There isn't even enough market to justify it. We can't figure out any way we can make any money on this.  

[00:11:03]Simone Fishburn: So Steve, have you gotten any sense from the people you're speaking with that this pandemic has -- I won't say raised the stakes, but made this issue more of a reality or made the real possibility of an antimicrobial resistance emergency more actionable, more real to politicians or the people who in fact need to institute what we're calling pull incentive policies?  

[00:11:30]Steve Usdin: You know, I like to think that that was the case, but I heard the same story during the Ebola crisis, during the MERS crisis, during the SARS crisis, during Zika... While these things were going on, people said "Oh, as soon as this is over, we're going to turn to AMR. This has really highlighted the need to create pull incentives to make products for AMR happen. The world kind of shrugged and went back to whatever...  

[00:11:53]Simone Fishburn: So who needs to do it? Is this a government level activity? Is this something that either the Biden administration or Trump's next administration  need to set up the road [for] -- I dunno, Moonshot or whichever taskforce fancy name that needs to be done? 

[00:12:07]Steve Usdin: Yeah, it's not a moonshot and it's not a taskforce but it is something that only government can do. And it's probably something only that governments plural can do. There probably isn't any single government that can do it, but there are ideas that have been out there for decades and some of them are being discussed in Congress. There's a piece of legislation that Senator Michael Bennet from Colorado was working on called the PASTEUR act, which would create a subscription model -- kind of what Former FDA commissioner Scott Gottlieb has called a Netflix model for antibiotics. 

[00:12:35]And he's talking about rewards of you know, up to $3 billion for creating an antibiotic that meets a high public health need. The UK has created a pilot scale project of a subscription model that's on a much more modest scale. What's needed is for other countries around the world basically to pick up on the challenge and do these things. 

[00:12:55] One of the things that the world should have learned from COVID-19 is that these numbers you know, a $1 billion, $2 or $3 billion dollar rewards for developing antibiotics that address AMR sounds like a lot of money, but it's really nothing comparedt to the economic and especially the human costs of failing to act. 

[00:13:13]Jeff Cranmer: All right. I think that's about all that we have time for this week. Thank you Steve, Stephen and Simone for joining in today. All of BioCentury's coverage is available at biocentury.com. If you're interested in our free Coronavirus coverage, that is available at biocentury.com/coronavirus. And all of our podcasts are available at our website as well as on Spotify, Stitcher, Apple and Google. 

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