Mid-cap investors see Eastern promise in the third quarter

Turbulence in Japan made the country’s biopharma industry a relatively safe haven – but clinical success or setbacks dictated the fortunes of most mid and small-cap players.

Investors hoping to make money from mid-sized drug developers could do worse than look east. Building on a strong performance in the second half, Japanese groups dominate the chart of the mid-cap biopharma players with the biggest share price gains in 2018 so far.

Macro trends are likely behind this, with investors taking shelter in the relative safety of biopharma during a tumultuous year for the overall Japanese stock market. Still, it was an old-fashioned data drop that bolstered the biggest riser, Eisai.

A new analysis from a failed phase II trial of the company’s Biogen-partnered Alzheimer’s project, BAN2401, was greeted with excitement by investors, though enthusiasm was tempered by the full data a few weeks later (Full BAN2401 reveal gives Biogen a reality check, 26 July 2018).

Meanwhile, Daiichi Sankyo, Taisho Pharmaceutical and Sumitomo Dainippon Pharma built on gains made during the first half of 2018 – the last despite a US FDA rejection for its ADHD candidate dasotraline in August.

This meant that only one US group, Neurocrine Biosciences, made it into the top five mid-cap risers. The company benefited from strong second-quarter sales of its tardive dyskinesia therapy Ingrezza and US approval of the Abbvie-partnered Orilissa (elagolix) in endometriosis in July.

Mid cap ($5-25bn): top risers and fallers in 9 months
  Share price (local currency) Market capitalisation ($bn)
  9-mth chg Sep 28 9-mth chg
Top 5 risers
Eisai (¥) 72% 29.4 12.3
Daiichi Sankyo (¥) 68% 31.3 12.5
Neurocrine Biosciences ($) 58% 11.1 4.2
Sumitomo Dainippon Pharma (¥) 56% 9.3 3.3
Taisho Pharmaceutical (¥) 54% 11.2 3.9
Top 5 fallers
Exelixis ($) (42%) 5.3 (3.7)
Alnylam Pharmaceuticals ($) (31%) 8.8 (3.9)
Incyte ($) (27%) 14.6 (5.3)
Alkermes ($) (22%) 6.6 (2.0)
Recordati (€) (21%) 7.1 (2.0)

Among the fallers the case of Alnylam, which had ostensibly good news in the third quarter, illustrates the difficulties faced by mid-sized players working alone. The company’s stock fell on both the US and European approval of its lead project, the amyloidosis therapy Onpattro, and a phase III win with its follow-up project givosiran did nothing to stem the losses.

Onpattro’s FDA nod came in a narrower patient population than hoped, alongside concerns about cardiac adverse events, and the givosiran data also raised safety fears. Investors and potential acquirers might have come to the same conclusion: at a market cap of $8bn, Alnylam looks overvalued.

Exelixis has also had a hard time going solo with its renal cancer therapy Cabometyx, and the group’s stock fell in September with the success of another rival – this time Pfizer/Merck KGaA’s Bavencio, which posted a topline win in the Javelin Renal 101 study. Full data will be reported at this month’s Esmo meeting in Munich (Esmo 2018 preview – Another first-line renal cancer showdown, October 2, 2018).

Incyte and Alkermes are still suffering from respective clinical setbacks earlier this year, while Italy’s Recordati disappointed investors with a cut-price deal with the private equity firm CVC.

Think small

As usual, small-cap companies produced the biggest gains – and the largest losses. But investors with an appetite for risk have been celebrating an unlikely win for Amarin’s fish oil Vascepa in its cardiovascular outcomes trial, Reduce-It.

There are still questions about the size of Vascepa’s absolute benefit, and details will be revealed at the American Heart Association meeting in Chicago in November. But if the detailed data impress, Amarin could attract the interest of a bigger player.

Still, the company was not the biggest riser in the first nine months of 2018. That honour went to Arrowhead, whose stock jumped in early September on promising early results with ARO-HBV, a potential functional cure for hepatitis B.

Showing just how fleeting stock market success can be, however, these gains were cancelled out by last week’s deal with Johnson & Johnson that, at just $175m in up-front cash, cast doubts on huge expectations for the project.

Meanwhile, Sarepta continued to rise despite a clinical hold for its DMD microdystrophin gene therapy project, lifted in September; and Reata impressed with mid-stage data with its rare kidney disease candidate bardoxolone.

Small cap ($250m-5bn): top risers and fallers in 9 months
  Share price (local currency) Market capitalisation ($m)
  9-mth chg Sep 28 9-mth chg
Top 5 risers
Arrowhead Pharmaceuticals ($) 421% 1,687 1,412
Amarin ($) 306% 5,356 4,270
Mirati Therapeutics ($) 230% 1,524 1,110
Sarepta Therapeutics ($) 190% 10,731 7,116
Reata Pharmaceuticals ($) 189% 1,940 1,374
Top 5 fallers
Edge Therapeutics ($) (91%) 26 (263)
GTX ($) (88%) 38 (240)
Sosei (¥) (87%) 938 (942)
Faron Pharmaceuticals (€) (87%) 42 (252)
Celldex Therapeutics ($) (84%) 73 (328)

As is usually the case, the small-cap fallers were dominated by companies with clinical blow-ups. Edge Therapeutics, Faron and Celldex continued to flatline after their respective setbacks earlier in the year with EG-1962, Traumakine and glembatumumab vedotin.

GTX and Sosei joined this unenviable club in the third quarter, the former with the failure of its stress urinary incontinence project enobosarm, in the placebo-controlled Astrid trial, and the latter with the suspension of its phase I Alzheimer’s project HTL18318 after safety concerns in a primate study.

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