The number of new drugs approved by the FDA last year may have been down considerably, but some of them were humdingers. Eight are projected to hit blockbuster status 5 years out, and the entire group of 33 is forecast to have fifth-year projected sales of $25.4 billion. That is 50% more than the record breaking group of 43 drugs approved in 2012.
One reason 2013 will return such outstanding revenues is because of the launch of Gilead Sciences' ($GILD) oral hepatitis C therapy Sovaldi, explains a new report from EP Vantage based on data from drug information specialist EvaluatePharma. The market-disrupting treatment is expected to "smash drug launch records," the report said, with sales forecast to reach $5.221 billion in 2018. While that may be the consensus, some analysts are projecting that much or more in revenue this year from a drug that is already is outpacing many forecasts.
Add to the forecast spreadsheet Biogen Idec's ($BIIB) new multiple sclerosis treatment Tecfidera and Roche's ($RHHBY) breast cancer drug Kadcyla, and the revenue potential of last year's crop of drug approvals becomes readily apparent. Both of those are forecast to exceed $3 billion in sales 5 years out.
There were other factors at play that turned 2013 into a bull market year for the industry. The report notes that the notoriously cautious FDA has has become more "predictable and timely in its decisions" but no less stringent about safety and efficacy. Its hard look at the heart risks of diabetes drugs, which ensnared Novo Nordisk's ($NVO) potential Lantus competitor Tresiba last year, is a reminder of that. Some drugmakers moved into drugs for rare illnesses where the FDA is anxious for new products, which EP Vantage says may account for improved rates of approvals. Combined, these factors spawned an environment that investors found reassuring and exhilarating.
The result is that the top-performing companies, share-price wise, saw stock prices grow more than 100% last year. Even the worst-performing stocks saw some growth. Biotech companies were the all-stars of the year, with Celgene ($CELG), Gilead Sciences and Biogen Idec making up the top three in stock growth. They recorded 115%, 105% and 91% growth in share price respectively. Bristol-Myers Squibb ($BMY) and newcomer AbbVie ($ABBV) filled out the top five with share-price growth of 63% and 50%. At the tail end, even Eli Lilly ($LLY) eked out 3% growth.
"In a low-interest-rate environment, you want to look for companies that can return double-digit sales and earnings growth. And that is the big biotechs," Andy Smith, chief investment officer of Mann BioInvest told EP Vantage. At a valuation of $115 billion at year-end, Gilead was worth more than Big Pharma players like Bristol-Myers Squibb ($88 billion) and AstraZeneca ($75 billion), and twice the value of Eli Lilly ($57 billion), EP Vantage points out.
But the entire industry saw investor excitement, with no shortage of drugmakers worth more than $30 billion at the beginning of the year. That group as a whole added $531 billion to their combined market cap.
While the traditional Big Pharma players remain more cautious than biotech's when it comes to dealmaking, the fact that most have their significant patent cliff issues in the rear-view mirror should help propel valuations. Some big branded drugs still face generic launches, specifically Novartis' ($NVS) heart drug Diovan, Teva Pharmaceutical Industries's ($TEVA) MS drug Copaxone and AstraZeneca's ($AZN) upset stomach treatment Nexium. But the nature of those drugs mean generic erosion may not be as great as for some of those that have already fallen off the patent cliff. Based on analyst estimates, EvaluatePharma data suggests 36% of sales will be lost to generics in 2015, compared with 70% in 2012, the benchmark for generic losses.
That bodes well for another strong year for biotech and pharma stock valuations. BioInvest's Smith reminds people that the bull market will not go on unchecked, but for now, he thinks valuation rave remains safe. "You don't want to be the first one to leave a party, but you want out before the cops arrive," he tells EP Vantage, "I can't hear any sirens yet."
- get the EP Vantage report here
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