As years go 2007 will be the one remembered as the one where the credit markets closed, casting a pall of uncertainty not only in the pharmaceutical and biotechnology sector, but across the whole market.
It will also stick in the mind as the year when the share prices of many big pharma companies fell to levels not seen for two to five years.
But while big pharma has in general suffered, with the notable exceptions of Merck & Co, up 36% so far this year, it has once again fallen to the small to mid cap biotechnology stocks to provide some of the biggest share price gains this year.
Interestingly, the companies within the top 10 share price rises this year are all biotechnology companies, with market caps not above $5bn. Conversely, the companies within the top 10 share price falls, also share these characteristics of being small biotechnology stocks, proving that the volatility associated with the sector is not likely to go away anytime soon.
Topping the list this year for share price gains and pleasing shareholders was Onyx Pharmaceuticals, whose shares experienced a dizzying five-fold increase to $54.69. All of the uplift has come from the US approval for the group’s lead product, Nexavar, in liver cancer.
The drug, which is also being looked at in non-small cell lung cancer and breast cancer, got investors excited because it is the first medicine to extend the life of patients with liver cancer.
While the good times of three-figure share price increases look to be largely in the past with this stock, there could be some further uplift when the data from the lung cancer trials are published late next year. The group could also use some of its strengthened stock to start making acquisitions.
During the year the ability to get a drug through the increasingly tough FDA approval process was one of the biggest factors in lighting the fuse under share prices.
Other FDA winners included BioMarin, which filed Kuvan, the only marketed treatment for rare genetic disorder phenylketonuria, firmly propelling the group into the rare category of a profitable, stable biotechnology company.
Innovation wins the day
In a world where big pharma was struggling with innovation, smaller companies that could demonstrate novel treatments or approaches to hard to treat diseases were also rewarded by the market.
Relative newcomer Cougar Biotechnology saw its shares come in second highest this year on the back of a new and so-far successful treatment for prostate cancer. This indication graveyard was the final resting place for a number of bigger and older companies’ hopes, including GPC Biotech and Novacea.
Ardea Biosciences’ new treatment for HIV that works across a wide range of HIV virus types and has a high genetic barrier to resistance also took investors' fancy, despite its early stages. The group also benefited from the interest in the disorder that has been generated by the performance of other HIV specialist Gilead, showing that some expect Ardea to follow in the larger group’s footsteps.
It pays to please
Unsurprisingly, most of the companies who did not shine this year were punished for either clinical failure or disappointing the market.
Bottom of the heap was AtheroGenics, whose partnership with AstraZeneca ended abruptly in April after the drug for atherosclerosis they had been jointly working on failed in a phase III trial. To add to the group’s misery NASDAQ has recently issued the beleaguered AtheroGenic a non-compliance letter because its shares were no longer valuable enough to trade on the exchange.
AtheroGenics is unlikely to be able to dig itself out of this hole, as it has a convertible bond looming and if upcoming data for its diabetes treatment is not positive, bond holders could end up owning the company.
Amarin, like other small biotechnology companies, paid the price for not only failure, but having little else in the locker to compensate. When the group’s treatment for Huntingdon’s Disease, Miraxion, failed in March, the shares headed south.
The great escape?
Another company that disappointed this year was Vernalis. The group had been held up as a great white UK hope, and looked as if it would become a truly integrated biotechnology company, developing and selling its own drugs.
That dream turned into a nightmare when the FDA decided in October that the risks of Frova, its treatment for preventing menstrual migraine, outweighed the benefits of prescribing the drug.
The arguments that the group was cruelly robbed by the over cautious US regulator have not helped Vernalis’s shares, and the next task for the group will be to find some way of striking a deal with Endo, to whom it owes $50m. If it survives that, next on the list will be raising money to ensure that it has some chance of growing its way out of a rut.
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