Asia wins 2017’s mid-cap race

A cooling of the M&A climate allows Asia-based groups to come to the fore.

To make serious money out of mid-cap biopharma last year you should probably have invested in Asia. This seems to be the lesson of the past 12 months’ share price movements for companies capitalised at $5-25bn, which reveals Vertex and Ipsen as the only non-Asian companies among the leading quintet.

But Asian markets can be fickle, so this is unlikely to represent sound long-term advice. And not only Asian ones: the year’s small and mid-cap fallers show various western biopharma groups punished heavily for regulatory setbacks, poor business development decisions and generally falling behind competitors.

Some might also argue that the more than doubling in the share price of South Korea’s Celltrion was overdone. The group’s main success was securing a positive EU regulatory opinion for Herzuma, a biosimilar version of Herceptin; one Herceptin biosimilar, Merck & Co/Samsung Bioepis’s Ontruzant, is already approved in the EU but is not launched.

Chugai, majority owned by Roche, proved to be a better way to trade on the success of the haemophilia A therapy Hemlibra than did its Swiss parent. And China’s Jiangsu Hengrui Medicine reaped the rewards of a modest licensing deal covering its anti-PD-1, SHR-1210/INCSHR1210, with Incyte – another possibly overblown move.

As for non-Asian winners, Vertex cemented its perceived lead in cystic fibrosis, the best efforts of Galapagos/Abbvie notwithstanding. And Ipsen benefited from buying out Merrimack’s irinotecan formulation Onivyde and a deal with Exelixis, in which Cabometyx scored a remarkable success in first-line renal cancer.

Mid cap ($5-25bn): top risers and fallers in 12 months
  Share price Market capitalisation ($bn)
  12-mth chg YE 2017 12-mth chg
Top 5 risers
Celltrion 106% 24.0 12.9
Vertex Pharmaceuticals 103% 37.9 19.6
Chugai Pharmaceutical 72% 28.6 10.5
Jiangsu Hengrui Medicine  52% 29.3 13.5
Ipsen 45% 9.8 3.5
Top 5 worst performers
Mallinckrodt (55%) 2.1 (3.1)
Opko Health (47%) 2.7 (2.4)
Lupin (40%) 6.1 (3.9)
Hikma Pharmaceuticals (40%) 3.6 (2.0)
Tesaro (38%) 4.5 (2.7)
Source: EvaluatePharma

Ipsen’s Onivyde buy explains why Merrimack appeared among the small-cap biotechs that lost the most in 2017. Part of the $575m received from Ipsen was paid out as a special dividend to Merrimack investors, and after that was reflected in the market cap the group started trading from a new level.

Mid-cap fallers included Mallinckrodt, punished for flatlining sales of H.P. Acthar gel; Hikma, hurt by revenue forecast cuts and US delays to generic versions of Advair; and Tesaro, the victim of a 2017 drift as its newly launched ovarian cancer drug Zejula struggled in the face of competition from Astrazeneca’s Lynparza.

Real money

Of course, for those with a taste for volatility the real money was to be made trading smaller biopharma groups. Among companies capitalised at $250m to $5bn Sangamo and Esperion climbed fivefold, while Nektar, Immunomedics and Spectrum rose over 300%.

On the downside, in addition to Merrimack the stock of Forward Pharma also collapsed – another result of paying out a one-off windfall as a special dividend. Novan suffered a clinical setback with its acne candidate SB204, while Adocia lost Lilly as a partner for BioChaperone Lispro.

Small cap ($250m-5bn): top risers and fallers in 12 months
  Share price Market capitalisation ($m) 
  12-mth chg YE 2017 12-mth chg
Top 5 risers
Sangamo Biosciences 438% 1,386 1,171
Esperion Therapeutics 426% 1,725 1,443
Nektar Therapeutics 387%  9,404 7,529
Immunomedics 340% 2,457 1,754
Spectrum Pharmaceuticals 328% 1,908 1,551
Top 5 worst performers
Novan Therapeutics (84%) 67 (344)
Curis (77%) 115 (275)
Forward Pharma (77%) 347 (356)
Merrimack (74%) 137 (389)
Adocia  (73%) 116 (289)
Source: EvaluatePharma

Sangamo and Esperion were both recovery stories, the former receiving a massive boost from a technology-validating deal with Pfizer in May. The case of Spectrum is more curious: the group surged on the promise of its pan-Her inhibitor poziotinib in a small NSCLC niche, before firing its chief executive, Rajesh Shrotriya.

Spectrum’s late surge enabled the group to overtake Puma, a small-cap front-runner at the end of the third quarter whose stock faded in November.

All that said, one company is not captured in the 2017 numbers by virtue of having been taken over: the $11.9bn acquisition of Kite Pharma by Gilead in August cemented that group’s 304% share price appreciation on the year. Had Kite had a standalone existence at the end of 2017 it would have graduated to the mid-caps according to this classification.

It is successes such as these that keep biopharma investors coming back for more, irrespective of the sector’s obvious failures. After a year in which M&A activity cooled they will be hoping for a recovery as the JP Morgan conference gets under way this week.

To contact the writers of this story email Jacob Plieth or Edwin Elmhirst in London at news@epvantage.com or follow @JacobPlieth or @EdwinElmhirst on Twitter

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