Which biopharmas are best positioned for 2018? Leerink pegs Vertex and Alexion

Although 2017 wrapped up with a couple of pieces of good news for the biopharma industry—namely record FDA approvals and an impending business-friendly tax package—it was by and large a tough year for drug developers.

Investors shunned Big Pharma companies facing new generic or branded competition on blockbuster drugs, and insurers mounted loud protests about the price tags on newer products, raising doubts about the potential for meaningful top- and bottom-line growth. This year is expected to bring more of the same, analysts predict.

But some companies are well positioned to weather those challenges—and perhaps even emerge as top acquisition candidates. The analysts over at Leerink have two top picks: cystic fibrosis powerhouse Vertex Pharmaceuticals and embattled orphan drugmaker Alexion Pharmaceuticals. They’re each facing different challenges, but both could benefit this year from action that's as yet underappreciated, wrote Leerink analysts in a Tuesday note to investors.

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The Vertex story is the more straightforward of the two: It owns the CF category with its two marketed drugs Kalydeco and Orkambi, Leerink pointed out. The company’s only serious competitor, Galapagos, is many years behind and “has not yet proven similar efficacy to Vertex products in clinical trials, while other rivals are in very early stages of development,” Leerink wrote. What’s more, Vertex could win FDA approval this quarter for its tezacaftor/ivacaftor combo treatment for CF.

Leerink analyst Geoffrey Porges had long speculated that Gilead might buy Vertex, but that seems unlikely in light of the former’s $11.9 billion buyout of CAR-T maker Kite last year. Still, Vertex could become a major M&A player this year, either by buying small assets to expand its portfolio beyond CF or by becoming a takeout target itself, Leerink suggested.

Porges also noted that Vertex hasn't had to rely on price increases for growth. It only hiked prices on its CF franchise once, driving growth via new approvals to treat CF subpopulations and other positive developments that have boosted unit sales.

RELATED: As Vertex works through CF combos, it's looking to Gilead's example: executive

Volume growth has also helped Alexion, whose revenues increased around 20% over the last two years on the shoulders of Soliris, its drug to treat a rare blood disorder called paroxysmal nocturnal hemoglobinuria (PNH). But the company has had a couple of tough years, thanks to an investigation into questionable sales practices. Top management left after that, and Baxalta veteran Ludwig Hantson, Ph.D., took over last March and embarked on a $250 million cost-cutting plan. Now activist investor Elliott Management is using its large stake in the company to pressure Hantson to weigh strategic options for the company, such as a sale.

Porges stops short of calling Alexion a prime takeover target for this year, though an acquisition wouldn’t be a complete surprise. That said, a better confidence-booster could come from the company’s second-generation PNH drug, which is expected to produce phase 3 trial results around midyear. If it’s approved in 2019, it should “extend the terminal cash flow horizon for Alexion’s key franchise from mid-2020s to the mid-2030s,” Leerink wrote in its note to investors.

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And for investors who don’t want to risk investing in companies with limited product portfolios, Leerink did serve up one more company to keep an eye on in 2018: Regeneron. In an earlier note, which the firm sent out in mid-December, Porges predicted that Regeneron’s blockbuster macular degeneration drug Eylea would produce “secure and sustainable” growth of 10% a year for at least the next two years and that momentum on eczema newcomer Dupixent will build, transforming that drug into a $5 billion hit by 2020.