Wednesday, November 28, 2012

Big Pharma Round Up

As a diversified investor it is not good practice to avoid certain sectors but if there is a sector that I’ve found many private investors hate investing in it is biotech and pharmaceuticals. I suspect this is because overly bullish assumptions and predictions always seem to be baked into these stocks only for investors to get bitterly disappointed when the downside of randomness kicks in. Trials fail, drugs don’t get approved, launches aren’t as successful as expected, rivals have better results and while all this is going on the stocks tend to experience volatility based on nothing more than sentiment and speculation. With this in mind I decided to look back at some of the big events expected for the first half of 2012 and see how they actually panned out.

In this article I will focus on Pfizer (NYSE: PFE) and Bristol Myers Squibb (NYSE: BMY).


Starting with Pfizer there were four major events expected.

Product Indication Class Event Outcome
apixaban(Eliquis) Atrial Fibrillation  anticoagulant  FDA Action/European Review  Complete response letter issued, decision due March 2013. Recommended for approval in Europe.
axitinib (Inlyta) Oncology  small molecule kinase inhibitor  FDA Action Priority Review Approved for treatment of renal cell carcinoma
bapineuzumab Alzheimer's  monoclonal antibody  Phase III Data  Failure
tofacitinib Rheumatoid Arthritis  janus kinase inhibitor  FDA Panel/Action  Extended action decision due November 2012

It had one success (Inlyta), one failure (bapineuzumab) and two delays. As ever with pharma the patience of a Saint is needed. The two biggest drugs (Eliquis and Tofacitinib) saw potential approvals delayed until November and March next year respectively. Both are expected to be blockbusters.

Tofacitinib is also under trial for ulcerative colitis and Pfizer hopes to get it approved for a range of indications in the future, but there are concerns over its safety profile. Therefore getting approved for RA in November is not the only aim. Investors will watch closely to see how it is going to be labeled.

The delay for Eliquis is perhaps not unexpected given the size of the trial and the mass of data collected. No matter, it is widely believed to be more efficacious and safer than its Johnson & Johnson’s (NYSE: JNJ) Xarelto and Boehringer Ingelheim’s Pradaxa. If approved, it will likely see strong sales growth.

The delay will no doubt please JNJ shareholders whose rival drug Xarelto is only just establishing sales. Its partner Bayer has been forecasting peak sales of over Euro 2 billion for Xarelto even after the FDA refused to expand its indications. If these sorts of numbers are baked into JNJ’ forecasts and Eliquis (if approved) starts to grab market share then this will be a blow.

As for bapineuzumab little was expected, little was delivered. I’ve lost count of the hundreds of millions that have been spent on the beta-amyloid theory. Perhaps it just doesn’t work?

Bristol Myers Squibb

Key events here.

Product Indication Class Event Outcome
apixaban (Eliquis)
Atrial Fibrillation
anticoagulant FDA Action/European Review Complete response letter issued, decision due March 2013. Recommended for approval in Europe.
daclatasvir Hepatitis C NS5A inhibitor Phase II data Successful trial
daplagliflozin Diabetes SGLT2 inhibitor FDA Action FDA rejection. European approval recommended

Management can be forgiven for wanting to take their vacations in Europe this year because they have had two recommendations for approval there while the FDA has delayed one (Eliquis) and rejected another (Daplagliflozin). I’ve discussed the former above but the latter was rejected with fears even expressed over the possible increased risk of cancer with it. None of which has stopped Johnson & Johnson and others from developing SGLT2 inhibitors. Indeed JNJ recently reported positive results in Type 2 diabetes patients for its version called canagliflozin. Unfortunately, this drug too has side effects including low blood pressure.

Bristol Myers had better fortunes with daclatasvir in combination with its protease inhibitor asunaprevir. The trial managed to achieve detectable results with 77% of difficult-to-treat hepatitis C patients. Daclatsvir is expected to be filed for approval in Japan next year and Medivir is trialing it in combination with its own protease inhibitor Simeprevir.

Where Next?

Across the six major events forecast for 2012, one of the two trials proved successful while only one of the four FDA approval processes was successful on time.  Two were delayed and another rejected. That is two successful outcomes out of six.

Pfizer shareholders should be looking for the labeling on tofacitinib (if approved) as it will give a marker as to its potential in other indications.  Inlyta has now received European approval but few expect iit to be a blockbuster like tofacitinib or Eliquis. Bristol Myers also has high hopes with Eliquis and with daclatasvir progressing well in development as there are plenty of upside catalysts for both stocks.

Pharmaceutical investors shouldn't get too down when events don’t turn out as planned particularly when prospects remain excellent at both companies. This is all part and parcel of investing in the industry and patience is required. It is not a sector for those with an itchy trigger finger.

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