Biotech ended 2019 on a tear, buoyed by renewed dealmaking and unexpectedly positive trial results for several smaller companies.
But, entering an election year, the industry appears at a crossroads, where excitement over clinical breakthroughs like gene therapy meets intensifying questions over how well the industry is upholding its social contract.
That tension will be on display next week at the closely watched J.P. Morgan Healthcare Conference, typically viewed as the "start" of the industry's new year.
While major deals are always anticipated, the meeting is also a venue for scores of aspirational announcements and minor updates. With that in mind, here are five broader biotech trends to focus on this year.
A new group of biotechs makes the case to be the sector's next leaders
Bristol-Myers Squibb's acquisition of Celgene removed one of the biotech industry's original members.
Amgen, Biogen and Gilead remain independent, as do Regeneron and Vertex, two other early biotechs that have made it through a decades-long gauntlet of drug development and marketing as autonomous companies.
Behind them are a slate of mid- to larger-size biotechs — now worth between roughly $10 and $20 billion — that are vying to become the sector's new standard bearers.
Some, like Seattle Genetics, Alnylam Pharmaceuticals and Sarepta Therapeutics, this year won approval for their second-ever drugs. Others, like Alexion Pharmaceuticals and BioMarin Pharmaceutical, have been multi-product companies for some time, but are in the midst of writing new corporate chapters.
Alexion, for example, in late 2018 won U.S. approval for Ultomiris, the successor to its top-seller Soliris, and this year continued an acquisition streak with a nearly $1 billion buy of Achillion Pharmaceuticals.
BioMarin, long a rare disease drug specialist, achieved a major milestone when it submitted to the Food and Drug Administration valrox, its gene therapy for hemophilia A. Should it win approval in 2020, which is expected, BioMarin would cement its status as a leading gene therapy company.
Biotechnology platforms mature, yielding positive data, new drugs
Biotechs were once defined by the type of drugs they developed — large molecule therapies produced from living cells. Now, after four-plus decades, these so-called biologics are somewhat old hat, the staple of drugmakers the industry over.
Taking their place at biotech's cutting edge are a range of more complex drug platforms, from new twists on monoclonal antibodies, to nucleic acid therapies and gene-based medicines.
This past year featured advances in each, helping to validate still-emerging technologies and to deliver on the potential of those that have already been the focus of years of research.
In RNA interference, a pioneering approval last year for Alnylam's Onpattro was followed by a Food and Drug Administration OK for the company's second drug, Givlaari. Partnerships between big pharmas and RNAi specialists Dicerna and Arrowhead Pharmaceuticals, as well as a nearly $10 billion acquisition of The Medicines Company by Novartis, suggest larger drugmakers are newly interested as well.
Pharmas were eager to expand in gene therapy, too, with Spark Therapeutics, Nightstar Therapeutics and Audentes Therapeutics all snapped up. A successful launch so far for Novartis' Zolgensma, meanwhile, suggests the expensive therapies could have a viable market, although whether they'll live up to currently outsized expectations is still unclear.
The American Society of Hematology's conference in December also attracted attention, as rival approaches to treating multiple myeloma signaled new opportunities for both CAR-T cell therapy and bispecific antibodies.
M&A sustained the sector through an up-and-down year
Entering the fourth quarter of last year, biotech's fortunes were turning south. Shares in one sector-wide stock index had fallen sharply, erasing gains made earlier in the year. A dearth of positive news, coupled with continued tensions over drug pricing, appeared to sap investor enthusiasm.
"For many months in 2019, biotech traded as if it were a forgotten sector," wrote analysts at RBC Capital Markets in a year-end note to investors. "Then, in what seemed like the blink of an eye, the entire group reversed course."
Surprising clinical successes played a role in the rebound, but more consequential was a spate of deals that emphasized biotech's upside.
The late burst of activity brought 2019's M&A totals to decade highs, although Bristol-Myers' $74 billion buyout of Celgene and AbbVie's $63 billion acquisition of Allergan accounted for a large part of the overall sum.
Still, there were 12 deals worth or surpassing $1 billion in value, three more than in 2018.
Wall Street analysts expect the trend to continue, at least for the next few quarters, as large pharmaceutical companies narrow their research focus down to select therapeutic areas they hope to lead.
"These re-focused companies are typically in 3 or 4 main therapeutic areas and require a steady stream of new products and development programs in those areas to sustain their long-term growth," wrote analysts at SVB Leerink.
Should M&A dry up, however, biotech could be exposed in a year when political scrutiny figures to run high. Next week's J.P. Morgan Healthcare conference, always an industry barometer, will be an important gauge of how 2020 might shape up.
Investment flowed into biotechs in 2019. Will it continue?
Drug development is notoriously capital intensive and, with more biotechs in existence than ever before, the industry requires a steady flow of investment to keep laboratories churning out new medicines.
Venture capital carries biotechs through the early years, but companies quickly turn to initial and secondary share offerings to fuel their growth. By RBC's count, nearly $33 billion was invested in biotech last year, about two-thirds of which came via secondaries. That's down from 2018, but still strong compared to 2017 and 2016.
The question is whether it will continue.
"Investors are likely to be more cautious about an industry that will once again be a target for criticism and complaint during the run up to the 2020 elections," wrote analysts at SVB Leerink in a note to investors.
Strong performances from Democratic presidential candidates judged to be more critical of the industry could moderate investment, as was seen in 2016 when Hillary Clinton won the party's nomination.
And were a recession to occur, biotech could be harder hit.
RBC estimates more than 200 public biotechs will need to raise money in 2020, about half of which lack sufficient funds to carry them through the entire year without tapping investors for more.
"Should there be signals of a recession in 2020 and access to capital diminishes, companies with less robust balance sheets could be susceptible to downside," RBC analysts wrote.
Smaller companies don't need big pharma to launch their drugs
Biotechs spend years and hundreds of millions — if not billions — of dollars to bring a new medicines to the Food and Drug Administration. Yet, more often than not, the agency's regulatory approval spurs a downward slide in the company's share price.
The peculiar pattern is due to investor skepticism that small biotechs, having focused on R&D for so long, will be ill-suited for the task of actually selling their product.
Several smaller companies, among them GW Pharmaceuticals, Karyopharm and Acadia Pharmaceuticals, have beaten expectations with sales of their new drugs. Larger player Neurocrine, meanwhile, has proved capable of holding its own against rival Teva.
This year will test whether others can succeed too.
Global Blood Therapeutics just secured approval of its sickle cell drug Oxbryta, adding a needed option for patients with the blood disease. Amarin, having won a long-sought label expansion for its fish oil-derived pill Vascepa, is expected to capitalize on a large heart drug market.
Regulatory decisions are also expected for drugs from Intercept Pharmaceuticals, Aimmune Therapeutics, Esperion Therapeutics, Biohaven Pharmaceuticals and Epizyme. Should they stay independent, investors will monitor their product launches closely.