How Biotech Breakthroughs are Changing Healthcare

By Brian Abrahams
Published September 24, 2021 | 14 min listen

What are the disruptors and drivers that are affecting the biotech market? On the latest Industries in Motion podcast, RBC Capital Markets Co-Head of Biotechnology Research Brian Abrahams reveals the headwinds and tailwinds, and why he believes biotech’s 2021 lows are about to end.

Disclosures and Disclaimers

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The biotech market has not performed at its benchmarks so far this year. After the highs of 2020, driven at least in part by the reflected glory of COVID-19 vaccines, investors were more cautious about the sector. Drug policy, subdued M&A activity and controversy over the FDA approval of Alzheimer’s drug Aduhelm have all been headwinds for the industry this year. But RBC Capital Markets Co-Head of Biotechnology Research Brian Abrahams believes that things might be about to turn around. 

Booming biotech innovation

“Biotech is a rapidly changing industry. And as we think about the sector for the long term, there are a number of dynamics beginning to percolate today that have the potential to dramatically transform the way medicines are developed and delivered,” he says.

Innovation in the sector continues to lead to breakthroughs, fuelling investor interest. From gene and cell therapies to new theories in psychiatry, biotechs are pursuing novel treatments that could revolutionize outcomes for patients.

“Gene editing using cutting-edge technologies like CRISPR CAS9 has started to take center stage. This is something that could be highly disruptive in terms of the way we treat rare genetic diseases, as well as cancers and infectious diseases. In psychiatry… scientists and drug makers are now trying a different tactic, leveraging our latest understanding of neurobiology and looking at novel therapies with different mechanisms in order to try and get better efficacy without as many tolerability issues, or to change the brain circuitry more durably – sometimes even with short courses of treatment.”

The acceleration of telemedicine

The COVID-19 pandemic continues to affect the sector as well. Biotechs are suffering the same adverse economic effects as other companies, coupled with difficulties in running drug trials. But far and away the biggest impact on the delivery of healthcare has been in telemedicine. Virtual health adoption skyrocketed during the pandemic, as people were forced to seek medical attention online or over the phone.

“Telemedicine offers greater convenience to patients and doctors, as well as the potential for greater cost savings. Use of telemedicine for outpatient visits comprised over 40% of US doctor appointments at the peak of the pandemic and, while numbers have since stabilized now that in-person is possible, some reports say it remains up to 38 times higher than it was before the pandemic,” says Abrahams.

“Psychiatry, endocrinology, dermatology, rheumatology, and neurology are therapeutic categories that have the highest degree of telehealth engagement. These also happen to be areas of significant focus for many biotech companies.”

It's not all good news – diseases that rely on in-person physical exams or changes in patient drug treatment regimines may not  lend themselves easily to telemedicine in the short-term.

“I think companies that are going to be successful navigating the new telemedicine environment are those who can optimize their drug’s properties, the diagnostic paradigm and patient engagement to align with the new world of healthcare delivery that's likely to be long-lasting,” says Abrahams.

"I think companies that are going to be successful navigating the new telemedicine environment are those who can optimize their drug’s properties, the diagnostic paradigm and patient engagement to align with the new world of healthcare delivery that's likely to be long-lasting"

Brian Abrahams, Co-Head of Biotechnology Research, RBC Capital Markets


Controversy, approvals, and access

There is new concern for drug approvals and access in the wake of the controversy surrounding the FDA’s approval of Biogen’s new Alzheimer’s drug Aduhelm. Mixed results from Phase III trials had prompted a panel of experts convened by the FDA to request more data. But then the FDA subsequently decided to approve the drug in light of its potential to help patients who had no real other treatment options, and because any reduction in brain plaques, the aim of the drug, could lead to more meaningful benefits down the line.

“As one can imagine all this back and forth, along with the high price tag for the drug at $56,000 per year, five to 10 fold what the market had expected it might cost, stirred up some controversy. We've seen key opinion leaders in the space write editorials arguing against the use of the drug, and several major academic centers have said they won't use Aduhelm, at least for now,” explains Abrahams.

Uptake of the drug has been very slow, partly because of the backlash, and because the logistics of screening patients and starting the monthly IV infusion are challenging. But most importantly, the full reimbursement from Medicare, which most Alzheimer’s patients are on, is not expected to be available until the spring.

“Typically in the past, drugs that are FDA-approved are usually covered by Medicare and commercial insurers, albeit sometimes with prior authorizations. But a potential concern is that the Aduhelm experience might empower insurers to further scrutinize data for new drugs even more so, before allowing reimbursement,” says Abrahams.

The return of M&A

Any lingering effect on drug approvals and access from the controversy will be something that investors have to consider when vetting the sector. But one of the important things that Abrahams thinks has kept sentiment for biotech down is the slowdown in M&A activity. And that’s also the disruptor that he expects to see turn around in the near future.

“We see several fundamental reasons why this should start to pick up again. Biopharma balance sheets remain strong. Maturing franchises and patent cliffs create the need for larger companies to buy growth and diversification, and valuations have become more attractive,” says Abrahams.

“Over the past five years, any sharp downtick in the number of major biopharma deals in a half-year has always been followed by an immediate sharp uptick. We're running at only about a third the aggregate annual deal value since 2018 of $125 billion, so we're due to catch up.

“So we think the stage is set for an increase in deal activity, and that tends to create excitement and upside for the sector. In fact, after only six notable buyouts before mid-year, we've now seen three takeovers in biopharma in just the past several weeks.”

Brian AbrahamsHealthcareIndustries in Motion podcastMark OdendahlRBC podcast

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