According to Dr. Daniel Koller, Head Investment Management Team BB Biotech, at Bellevue Asset Management, resilience is evident amidst the current uncertainty in biotech. In this Q&A Koller explains to us why he believes that the biotech sector will emerge stronger in 2024.
2023 was not an easy year for biotech investors, how is the industry reacting now?
After a challenging year on the stock markets in 2023, which was mainly caused by rising interest rates, the capital markets have now found favour with biotech companies again, as the prospect of falling interest rates has sparked renewed interest.
While the majority of investors favour large biotech companies, pharmaceutical giants are courting and buying smaller biotechs in order to further expand their pipelines and technology access. The recent pick-up in acquisition activity, along with a stronger capital market that is making it easier for companies to raise working capital again, is not only supporting the sector but also demonstrating that biotechs are very attractively valued and that strong innovation remains the hallmark of smaller and mid-sized biotech companies.
In addition, while the US Food and Drug Administration (FDA) approved 37 drugs in 2022, this figure had already risen to 55 by 2023, and experts are expecting similarly high approval figures for 2024.
How do these trends affect biotech financing?
We anticipate a more dynamic financing landscape in 2024, marked by increased fundraising, more PIPE transactions and potentially more IPOs. We are therefore also monitoring the flow of funds into public biotech investment funds, as we expect inflows in view of the renewed market confidence and promising returns.
Venture capital financing, which has declined to a multi-year low, shows potential for a turnaround too.
How are companies responding?
Companies are focused on navigating volatile capital markets, adapting to continued high capital costs, and strengthening their finances for future investments in pipeline projects and product launches.
Co-operation agreements, including joint ventures, and M&A activities are increasing, especially in areas like obesity, autoimmune diseases, and oncology, and we expect this dynamic to continue in 2024 and beyond.
Product launches are also an important source of impetus.
Can you name a highlight?
I’m excited to see how the market receives innovative products such as the ground-breaking gene editing therapy Casgevy. This is a gene editing therapy developed by Crispr Therapeutics and Vertex, which was recently approved for treating sickle cell disease and beta thalassaemia. We’re talking, here, about a personalised gene therapy for the treatment of severe genetic diseases, which is administered only once, but involves a complex treatment procedure. Also of interest will be the publication of the results of important feasibility studies on cutting-edge technologies, including in vivo gene editing.
One of BB Biotech’s core investments is Moderna. The company was on everyone’s radar during the pandemic and was a leader in vaccine development.
What does Moderna’s pipeline look like?
I would like to highlight two areas here. I expect the development of a second prophylactic vaccine, an RSV vaccine, which is planned for approval in 2024. We are also closely following the progress of therapeutic vaccines, including personalised cancer vaccines, and Moderna’s efforts to develop mRNA-1083, a covid vaccine targeting influenza and Covid-19.
Are there any other highlights that investors should have on their radar?
Alnylam, our investment in the RNAi field, is expected to present important data from a late-stage clinical trial of vutrisiran in patients with TTR cardiomyopathy, which could potentially give the company access to more common diseases and thus to a larger patient population in addition to the market for extremely rare diseases.
Ionis Pharmaceuticals is pursuing a similar commercial path with its latest antisense oligonucleotide therapy, targeting a broader spectrum of diseases in the coming years.
New chemical entities, such as PROTACs and LYTACs, are driving clinical development. They target intracellular and extracellular protein degradation respectively and even offer promising potential as possible orally administered therapies.
Meanwhile, cell-based treatments, including CAR-T therapies, are being explored beyond oncology for the treatment of severe autoimmune diseases, with initial clinical results justifying investment in further clinical development, as in the case of Fate Therapeutics.
Looking ahead, what concerns you as an investor?
The development of new drugs for numerous diseases has been stagnating for many years. This is mainly due to the fact that long-established treatment standards are being overcome only hesitantly, that there is a lack of novel active ingredient routes and treatment modalities and that the pharmaceutical industry is shifting its focus to other areas. However, I expect to see a turnaround and significant progress in research here too.
One example is Vertex, which is presenting initial topline data from several pivotal studies on VX-549, a small molecule drug targeting voltage-gated sodium channels such as NaV1.7 and NaV1.8 for the treatment of acute pain. We are investigating whether this compound may be able to block the transmission of pain signals to the brain.
We are also seeing movement in the area of psychotropic drugs. For example, our portfolio company Neurocrine Biosciences is driving forward the expansion of its diverse pipeline for products to treat schizophrenia, severe depression and other diseases of the central nervous system.
So, do you think 2024 will be a good year for the biotech investors?
The signs are not bad as the market is more constructive. This is in line what we observed at the JP Morgan Conference, the major industry gathering in the beginning of the year: I can say the mood was much better.
Companies were able to provide a positive outlook in terms of fundamental progress. We believe that the multiple promising fundamental stimuli, coupled with a constructive capital market environment, a pick-up in M&A activities and historically low valuations offer investors an attractive entry point.
