- Biotech investor Brad Loncar foresees a bustling 2021 for the drug industry, filled with M&A, drug pricing debates, and booms and busts in the market.
- The CEO of Loncar Investments shared 10 predictions for the new year with Business Insider.
- They include a coming downturn for gene-editing biotech stocks, SPACs fizzling out, and anti-aging science becoming the next overhyped hot topic.
- For more stories like this, sign up here for Business Insider's daily healthcare newsletter.
Every year, one of biotech's most vocal investors takes to Twitter to share some bold predictions for the year ahead.
While his prognostications are hit or miss, they make for a fun read on how one investor sees the new year playing out. The goal is to stir an interesting discussion more than appear like a Nostradamus-type figure, Brad Loncar said.
"The point of this is just fun," said Loncar, the CEO of Loncar Investments, which operates two exchange-traded funds focused on cancer immunotherapies and Chinese biotechs.
This year, Loncar shared his 2021 predictions for the industry with Business Insider, which includes a downturn for gene-editing stocks, a global biotech boom, and his guesses on future acquisitions.
Sometimes, his bold guesses turn out to be quite prescient. Take his list for 2020, which predicted a pandemic scare.
1. The most contentious and volatile issue for the biotech industry in 2021 will be 'march-in rights'
Drug pricing is one of the industry's largest issues, and Loncar expects the possibility for dramatic government action to be a key controversy of 2021. Specifically, Loncar is focused on march-in rights, which allow the US government to effectively cancel patents on a drug that federal research helped develop.
"This is the biggest thing that can sink biotech or give it some major heartburn," Loncar said. "I think it's an issue people need to know about."
While the government has never used this power in the context of drug pricing, it's an idea with growing interest, particularly among progressive Democrats.
Loncar said he thinks drug pricing will be far more than a back burner issue for the incoming Biden administration in its first year, and march-in rights could be one the more contentious debates given fierce industry opposition.
2. Gene-editing stocks will have at least a 30%-40% correction from today's prices
Biotechs working on cutting-edge gene editing treatments are in for a reality check in 2021, Loncar predicts.
The space has surged in 2020, particularly as some of the first CRISPR-based therapies have started initial human trials. The technology has enormous potential, carrying the promise to cure instead of merely treat a range of diseases.
But it's still early days for the research, and Loncar said the leading companies in this space have pipelines of therapeutic candidates that are "very underwhelming with huge overlap." For instance, several CRISPR-based companies are targeting the same condition in sickle-cell disease.
"The valuations have just gotten out of control," he said. "I think there's a huge bubble in the quote-unquote genomics stocks space, so we'll see a big correction there sometime next year."
He added this will hold true for the larger genomics space, including biotechs working on sequencing technology and base editing.
3. The vaccine rollout will go more slowly than hoped, but COVID-19 will be largely controlled in the US by the end of the summer
Loncar admits this is a fairly safe prediction, because the vaccine rollout in the US is already happening slower than anticipated. The US is nowhere close to meeting its goal of giving 20 million Americans their first shot by year's end, raising questions about how long the vaccination campaign will take.
"Right now, while things are more supply-constrained, there's a lot of confusion about who to roll them out to and how, but I think that will get fixed toward March or April," Loncar said, adding that by mid-to-late summer, "things should look a lot better."
4. Vertex will make a $3 billion-plus acquisition in the rare diseases space
The Cambridge, Massachusetts-based biotech Vertex Pharmaceuticals is one of the industry's largest and most iconic companies.
But in 2021, it will have to answer a perpetual question that stalks success: What comes next?
Vertex has risen to prominence over the last couple decades with a suite of transformative treatments for cystic fibrosis. To find growth beyond that answer, Loncar expects the biotech will be forced to do something it has shied away from and engage in a decently large buyout.
"I think this is pretty safe too, because they have over $6 billion in cash right now and they are literally printing money," Loncar said. "They're bringing in like $700 million a quarter, so about $2.5 billion a year they're adding to their cash."
5. SPACs will fizzle out in popularity and use
Special purpose acquisition companies were all the rage in 2020 — not just in biotech but across virtually every industry for businesses going public.
Loncar expects that excitement to end in 2021. While SPACs do a good job of making money for the people behind them, they aren't inefficient at returning value to the final shareholders, he said. He thinks that will become evident in the new year.
"This is a fad," Loncar said.
6. The most over-hyped area within biotech will be anti-aging
Investors can be swept up by the allure of certain buzzwords that can carry massive potential. A couple years ago, Loncar said, that buzzword was cannabis. In 2020, the trendy terms were genomics or CRISPR.
For 2021, Loncar predicts the next magic ward will be anti-aging. He said he expects a couple of big initial public offerings from biotechs in this space to drive excitement in the new year. He didn't name specific companies.
7. 2 of these 3 companies will no longer be independent by the end of 2021: Gilead Sciences, Biogen, and Incyte
Gilead, Biogen, and Incyte are all large biotech companies facing the same central challenge: how to keep growing their businesses.
"These companies aren't really growing, especially from a stock perspective," Loncar said.
Loncar said they are all at risk of falling into the same boat as Alexion Pharmaceuticals and Celgene, two fairly large but stalling biotechs that have recently been takeout targets of pharmaceutical giants. AstraZeneca announced this year it reached an agreement to buy Alexion for $39 billion, and Celgene was bought in 2019 for $74 billion by Bristol Myers Squibb.
Alexion and Celgene were attractive acquisitions given their large revenue streams from blockbuster drugs. But the biotechs had less success with their pipeline and in convincing investors of their ability to further grow.
Gilead, Biogen, and Incyte "are starting to look like that," Loncar said, predicting two of those will be taken out in 2021.
8. COVID-19 ignites a worldwide biotech boom
Loncar predicts there will be a meaningful uptick in European and UK biotech IPOs on the Nasdaq. China's biotech IPO scene, meanwhile, will remain red hot.
While the biotech industry is still concentrated in the US — more specifically around the hotspots of Cambridge, Massachusetts, San Francisco, and San Diego — Loncar said 2021 will bring a global boom for the industry.
The pandemic has shown the need for each country to have its own life sciences presence, particularly as there were levels of protectionism around COVID-19 responses, he said.
"Governments understand biotech has a national security element to it now," he said. "You can't be entirely reliant on other countries. I think there's going to be a biotech boom all around the world, especially in Europe and in Asia."
9. At least two CD47 companies will be acquired
Loncar has his eyes on one of the hottest targets in cancer research in CD47.
There's a growing pipeline of drugs targeting CD47, a protein with early data suggesting promise when combining therapies targeting CD47 with the revolutionary immunotherapy treatments called PD-1/PD-L1 inhibitors, namely Merck's Keytruda and Bristol Myers Squibb's Opdivo.
"CD47 is really the first thing that looks really compelling, and the initial data is really exciting," Loncar said. "I think companies have cracked the code on that second immunotherapy drug combined with PD-1s."
Gilead already bought into the space in March, announcing a $4.7 billion acquisition of the biotech Forty Seven. Loncar expects at least two more biotechs to follow suit in the new year. Some biotechs working on CD47 drugs include Trillium Therapeutics, ALX Oncology, and I-Mab Biopharma, among others.
10. 2021's scary theme will transition from the pandemic to climate change
Last year, Loncar predicted a pandemic scare. This year's frightening guess: climate change will drive headlines and change people's lives.
Warm temperatures and drought in the northern hemisphere will cause food shortages and price inflation in the second half.
"That has the potential to be the next thing that severely disrupts normal life," he said.
While biotech's exact role in addressing climate change is far less clear than with the pandemic, Loncar said the lesson learned from 2020 that science matters and should be respected will hopefully carry forward into 2021.
If you have a story about the coronavirus pandemic you’d like to share, email us at [email protected]
Get the latest coronavirus business & economic impact analysis from Business Insider Intelligence on how COVID-19 is affecting industries.
Source: Read Full Article