Biotech stocks have suffered massive losses with the IBB biotech index down 20% over the last 1 ½ months. This followed a sustained bull market with a 300% increase since the US
Housing Bubble bottom. RNAi Therapeutics
stocks could not duck this trend and suffered similar, if not exaggerated
losses: bellwether Alnylam down almost 50% since their $700M Genzyme deal, Arrowhead Resesarch down 40% since their all-time high, and even the most undervalued of them all, Tekmira, down a solid 30% off the pricing of their secondary barely a month ago. Should investors worry?
The causes of the pullback in the biotech market can be
attributed to at least three factors: 1) a general downturn in secular growth stocks
that have done quite well recently; 2) worries that interest rates are on the
upswing and could divert capital flow away from stocks with little or no current earnings; and finally 3) a
sense that society will stop paying for expensive drugs.
Although the era of ‘resource-constrained’ healthcare has
long arrived in Europe, the fact that US lawmakers made an example out of HCV wonderdrug Sovaldi (sofosbuvir) as a wildly overpriced drug, sent
shudders through the biotech investment community. If a $84,000 price tag for a cure of HCV is
deemed too much despite the fact that it will extend life by years for the
average patient and save the healthcare system much more over the long-term in
terms of reduced costs related to liver-related complications…then what about say orphan
drug pricing for which $300-500k per patient every year has not become that
uncommon? To wit, orphan diseases
represent a fertile ground for RNAi Therapeutics as illustrated by
Alnylam’s phase III candidate for TTR amyloidosis, ALN-TTR02.
‘Resource-constraint healthcare systems’ is certainly something
that I occasionally hear here at the European Liver Meeting (EASL) which
celebrates the very Sovaldi and general progress made in treating HCV, yet tries to deal with the problem of
how to get it patients due to cost issues in light of the millions infected and that would be treated today if cost were not an issue.
Interestingly, nobody here criticizes the drug makers for overcharging.
I don’t think this is because they are paying for our lunches, but
because the medical and long-term pharmacoeconomic and quality-of-life benefits of curing HCV are so
obvious. In general, I believe the
Sovaldi issue will be short-lived and accelerate a transition to a value-based reimbursement system with the benefit of
curtailing some of the drug pricing mis-behavior we have seen (you all know
them). However, beyond that, I
expect that we will still be willing to spend much on our health and drug costs accounting for just ~10% of overall healthcare costs, the pharmaceutical
industry should be able to make the case that innovative drugs that make a
solid difference in patients' lives out to be rewarded financially. Remember this when small, innovative biotechnology companies are undercapitalized to the point of becoming financially non-viable yet patients clamoring for new treatments. RNAi Therapeutics was in that precarious position just 2 1/2 years ago and RNAi investors deserve every cent they raked in on the stock market when the sector recovered. Every cent.
If you look at the RNAi Therapeutics pipeline addressing the
roots of and seeking cures for diseases ranging from the severe and orphan like TTR amyloidosis and
solid cancers, to the chronic and debilitating like HBV and alcohol dependence, it will be RNAi companies that will stand first in line to
benefit from the value-based cost model of healthcare. The continued flow of clinical trial data (watch ARC520, TKM-PLK1, ALN-TTR02, and ALN-AT3 this year) should make that obvious and allow RNAi Therapeutics to break out from the biotech
crowd and bounce back. And even if
the monetary policy makers increased interest rates, I don’t think it would be
much in this deflationary environment, and a 1% short-term interest rate should
not divert capital flow all that much.
