Key pharma and biotech trends for 2018

There was a broad swath of highs and lows through 2017, with a series of truly innovative approvals and clinical successes, paired with a fair share of disappointments, condemnation and confusion. As the dust settles on a bumpy 2017, what key factors will be tipping the scales for the major players in 2018?

CAR-T commercialisation

The jury's still out on whether or not CAR-T therapies can be commercially, as well clinically successful- particularly after media reports near the end of the year suggested limited patient access for Gilead Sciences' Yescarta, in part due to a poor reimbursement environment. Given the complexity of both the treatment course and its reimbursement, companies like Gilead and Novartis will likely be blazing new ground on more innovative contracting models that limit upfront costs for insurers. That said, Jefferies analysts noted that the drug developers appear hesitant to get these contracts started themselves, presumably hoping to dodge a bullet when it comes to reimbursing payers. "There has been interest from the payer on entering into an outcomes-based contract with both Novartis…and Gilead…however both companies have been cautious into entering into these," Jefferies analysts wrote.

The path of least resistance for CAR-T coverage therefore appears to be outpatient administration, suggesting that Novartis and Juno Therapeutics, should it see an approval for JCAR107, would have the best chance of success in the marketplace. That said, some key opinion leaders argue that Gilead's Yescarta, Novartis' Kymriah and Juno's JCAR017 all have equal potential as an outpatient therapy.

While we head down the rocky road of payer negotiations for the competing therapies, there is a surprising light at the end of reimbursement tunnel, at least for Novartis; the Institute for Clinical and Economic Review (ICER) released a draft analysis in December finding that Kymriah's list price and efficacy meets the appropriate cost-effectiveness thresholds, which the company is sure to use as a tool in payer negotiations.

M&A – a revival?

"Cautious optimism" is the theme for M&A in 2018, as investors reflect on a lacklustre 2017 that failed to execute on anticipated acquisitions for companies like Loxo Oncology, Incyte, and Tesaro.

With a relative dearth of activity in late-stage pipelines scheduled for next year- according to Morgan Stanley, only five "key" Phase III readouts are on the docket from large cap companies- M&A activity may be a necessary evil to keep approvals coming in for pharmas. However, that pessimistic observation can also be viewed with optimism, with Jefferies analysts noting that some high-profile readouts in 2019- including Phase III data from Vertex's triple combinations for cystic fibrosis, Galapagos' Phase III filgotinib data, and bluebird's pivotal readout for bb2121 in multiple myeloma- could have buyers working ahead to make their purchases before values increase further.

2017 was also punctuated with consistent complaints about overpriced assets in the biotech marketplace. Prices could be coming back towards acceptable levels in 2018, with analysts at Credit Suisse noting that the value for many small to mid-cap biopharmas have seen their share prices pull back since October- which it's hoping will be a sign that all parties can come back to the negotiation table.

The end of 2017 also brought in several deals that many hope will be a harbinger of good things to come for 2018. In a year punctuated sparsely with major acquisitions, including Gilead's $12-billion take-out of Kite Pharma, investors did see a glimmer of hope in the last weeks of 2017, with Roche buying Ignyta for $1.7 billion, followed quickly by Mallinckrodt scooping up Sucampo for $1.2 billion.

US tax reform

Of course, speculation around M&A activity goes hand in hand with tax reform in the US. With the much-anticipated measure to codify repatriation and a reduced corporate tax rate now official, hand wringing can now begin in earnest to see how biopharma plans to spend the proceeds. The biggest beneficiaries of the reform- i.e., those with the most offshore cash- include Amgen, Gilead and Celgene.

But while tax reform will certainly be a positive for M&A activity, it still may not be sufficient. Previous tax holidays have been associated with more share buybacks than company buyouts, and Pfizer has already kicked off a $10-billion share repurchase programme.

US drug pricing debate – political risk?

The good news is that biopharma has survived another US election cycle and an increasingly vitriolic political environment focused on drug pricing. The bad news is that we're headed into another round, with midterm elections in 2018. But with signs pointing towards a defanging of the President's Twitter feed, at least as far as drug pricing is concerned, it seems unlikely that the tone of public debate will reach the fever pitch of 2015.

The existing controversy is not disappearing anytime soon, however, leaving companies like Amgen and Biogen struggling to maintain their pricing power for older biologics.  Amgen had already conceded to lower net selling prices for Enbrel in 2017, suggesting that despite some publicised price increases, it is still the victim of larger rebates. This is part of the reason why many analysts are predicting stronger stock performance from small and mid-cap biotechs, with their innovative pipelines and lower generics/biosimilar pressure, relative to their large-cap counterparts.

While drug pricing won't be coming off the radar anytime soon- and with Spark's pricing of Luxturna  approval sure to kick off another debate- 2018 may be able to bring a more rational discussion of politics over large stock swings tied to headlines.

Will PBMs still be the gatekeepers to new drugs?

Pharmacy benefit managers (PBMs) have already set strong precedents for their ability to place a stranglehold on new drug launches, as products like Amgen's Repatha struggle to make headway in the face of restrictive utilisation criteria. Analysts at Morgan Stanley contend that payers and PBMs don't have any reason to switch gears now, and will continue with their tried-and-true strategies of prior authorisations, step-edits, and cost sharing to keep their costs down.

The new year could also bring increased utilisation of cost-benefit analyses, particularly for the US payers that lack a federal agency to evaluate cost-effectiveness of new drugs. Organisations like ICER could therefore be seeing an uptick in importance and prestige as their analyses are increasingly used in payer decision-making. As per usual, in this case the best defence is a good offense- that is, drugs with the greatest efficacy and the least competition will have the most legs to stand on in the face of payer restrictions.

Outcomes-based contracts should also gain steam in 2018, with Jefferies analysts modelling up to 30 percent of drugs covered under such contracts this year, compared to 15 percent in 2017.  Companies will also be looking towards Spark's recent announcement on outcomes contracts for the newly-approved Luxturna as a blueprint for how to launch and secure reimbursement for an $850 000-drug.

However, 2017 did bring in some nascent targeting of PBMs as the destructive middlemen taking a cut from high drug prices, rather than the stalwart negotiator bringing prices down for patients. If this targeting gains momentum in the public consciousness, it could bring about a sea change in the current reimbursement model.

Will biosimilars finally pick up steam in the US?

The US remains far behind the EU in its biosimilar adoption rates; according to Morgan Stanley, no more than 10 biosimilars have been approved in the US in the past 8-10 years, and only up to five of those have been commercialised- in contrast to the 24-plus launches across Europe.

As a result, biosimilars have yet to make a dent in the bottom lines at companies like Johnson & Johnson, an effect compounded by a rush of FDA rejections last year for biosimilars. Coherus and Mylan have demonstrated that Neulasta is a tough nut to crack, each being handed complete response letters in 2017. Pfizer was then hit with a rejection for its Epogen biosimilar, despite a positive advisory committee vote. 

Lengthy legal battles certainly aren't helping what is already a lengthy approval process for biosimilars. Paired with the exclusionary contracts in use to block biosimilars from formularies, currently the subject of a lawsuit between Pfizer and Johnson & Johnson, the barrier to entry for biosimilars in the US has yet to significantly lower. Morgan Stanley argues that further progress on key barriers- including physician uptake, regulatory uncertainty, and litigation roadblocks- will be necessary to break ground on the lucrative marketplace.  The FDA and CMS have taken a few fledging steps on these fronts, and will hopefully bring more in 2018- this will be particularly important given some upcoming patent expirations in 2018, with Credit Suisse estimating $20 billion in biologics losing exclusively this year.

How much help from the FDA is too much?

While biosimilars have faced some tough regulatory hurdles in 2017, generic approvals from the FDA set a gangbuster pace in 2017, with new molecular entities following right behind. The appointment of Scott Gottlieb as commissioner is largely credited with the influx of new products and quicker timelines, and possibly even with reduced regulatory standards. While there wasn't exactly a shortage of controversial approvals in 2016, the agency has spotlighted some ground-breaking approvals in 2017, with two approved CAR-T therapies now joined by the first ever in vivo gene therapy.

But the gangbusters pace for approvals has contributed to the challenges now facing the generics market, meaning that investors will be watching to see if the quick approvals eventually lead to too much of a good thing.

Competition heats up in first-line NSCLC

Pharmas will be eyeing the readouts of various immuno-oncology combinations in non-small-cell lung cancer (NSCLC) this year, as competing combos hope to unseat Merck & Co.'s Keytruda from its market-leading position as a first-line treatment- and hopefully, provide some additional clarity on how to predict responder populations.

Roche scored big wins in NSCLC in 2017, presenting positive results for the IMpower150 trial of Tecentriq in combination with Avastin and chemotherapy that could present a challenge to Keytruda's leading position in the US. While the combo met a progressive-free survival (PFS) primary endpoint, it's still looking ahead to a more definitive overall survival (OS) analysis in the first half of 2018. Further details are also likely to come from the IMpower130 trial, conducted without Avastin, which should provide a simplified comparison to Keytruda's efficacy in the Keynote-021 trial- at least, until Merck releases data from Keynote-189, a larger version of the study that should help it gain traction with the EMA.

In the meantime, Bristol-Myers Squibb and AstraZeneca are both on salvage missions, hoping to demonstrate that checkpoint inhibitors combined with CTLA-4 inhibitors can beat out the 'chemo-combos.' Bristol-Myers Squibb will present data in the first half from Checkmate-227, evaluating Opdivo in combination with Yervoy - a must-win if the company hopes to pick up any traction in the indication following the failure of Opdivo monotherapy.

AstraZeneca is in a similar conundrum, having convinced investors to wait for data from an overall survival endpoint in the MYSTIC study after it whiffed with Imfinzi plus tremelimumab on a PFS endpoint. With the fate of MYSTIC likely tied to Checkmate-227, investors will be keenly watching for updates from each study for read-through to the other. Even Merck has gotten in on the checkpoint/CTLA-4 action, having recently started the Keynote-598 study of Keytruda in combination with Yervoy, giving it an extra line of defence should its final results for Keynote-189 miss the mark. However, investors will likely be waiting for that readout well beyond 2018.

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