The Year in Biotech and What to Watch in 2018

Episode Summary

Executive Summary: The episode reviews biotech’s mixed 2017 performance with STAT’s Adam Feuerstein: strong scientific progress in CAR-T, gene therapy, and RNAi contrasted with a second-half stock selloff and weak generalist participation. It also highlights reimbursement uncertainty for high-priced novel therapies, modest M&A expectations after tax reform, FDA leadership under Scott Gottlieb, drug-pricing politics, and key JPMorgan Conference watch items.

Main Topics: Biotech market performance in 2017 (Priority: 5/5): Feuerstein describes 2017 as a bifurcated year: strong first-half biotech outperformance followed by a second-half selloff and underperformance versus the broader market. Scientific breakthroughs and innovation (Priority: 5/5): He emphasizes landmark progress in CAR-T, gene therapy, and RNAi, arguing the year was excellent for biotech innovation and patient-impacting advances. Investor participation and fund flows (Priority: 4/5): A lack of generalist investor participation and outflows from biotech in the second half raised concern about capital staying in the sector and its ability to regain momentum. Commercialization, pricing, and reimbursement (Priority: 5/5): The discussion focuses on whether insurance companies will restrict access to expensive new therapies, especially gene therapies like Luxturna, and how pricing will shape market success. M&A outlook after tax reform (Priority: 4/5): The hosts explore whether repatriated cash from tax reform could drive more biotech/pharma acquisitions, though Feuerstein notes companies may instead use cash for buybacks or dividends. FDA leadership, regulation, and drug pricing politics (Priority: 3/5): Feuerstein gives Scott Gottlieb high marks for speeding approvals and tackling practical issues, while noting that Trump-era drug-pricing rhetoric mattered early but had limited concrete impact in 2017. JPMorgan conference expectations (Priority: 3/5): He identifies Luxturna/Spark pricing updates and Celgene’s outlook as the most important JPMorgan watch items, while hoping for surprise news and deals.

Key Arguments: 2017 was split between a strong first half for biotech stocks and a weak second half, so performance depended heavily on timing. The year was scientifically strong, with CAR-T approvals, the first gene therapy approval for an inherited disease, and major RNAi progress. Generalist investor participation remains a concern because biotech saw significant second-half outflows and only roughly flat fund flows overall. Gene therapy is the most remarkable technology of the year, but its business model is still uncertain because pricing and reimbursement are unresolved. Insurance companies will likely have greater power to restrict access to new therapies as more drugs are approved, especially when efficacy is only moderate. Luxturna may be clinically meaningful but not life-saving, making payer willingness to cover a potentially million-dollar therapy a major test case. M&A is widely hoped for after tax reform, but there is no guarantee repatriated cash will translate into acquisitions. Scott Gottlieb has been effective as FDA commissioner by moving quickly and supporting faster approvals and practical regulatory improvements. Drug-pricing threats from Washington hurt biotech sentiment early in 2017, but lack of legislative action reduced their immediate impact; the issue could re-emerge around elections. JPMorgan is expected to be news-driven, with pricing announcements, guidance updates, and deal activity being the biggest catalysts.

Data Points: CAR-T approvals: First CAR-T approvals in 2017 - Used as evidence of major biotech innovation during the year. Gene therapy approval: Luxturna became the first gene therapy approved to treat a rare inherited disease - Highlighted as a landmark event in biotech and a key pricing/reimbursement test case. Luxturna patient population: About 100 patients - Feuerstein notes the initial market is small, limiting insurer cost impact but not broader precedent-setting implications. Potential therapy price: About $1 million per patient - Estimated magnitude of possible gene-therapy pricing and reimbursement challenge. Tax reform / repatriation: Expected to unlock overseas cash - Discussed as a possible driver of biotech and pharma M&A activity. M&A deal cited: Kite sold to Gilead for $12 billion - Referenced as a major 2017 biotech deal and a signal of value in cell therapy. FDA approvals: On the cusp of a record number of drug approvals in a year - Used to illustrate the FDA’s permissive environment and its implications for payer scrutiny. 2017 fund flows: Essentially flat for the year, with significant second-half outflows - Described as a concern for sector breadth and investor support.

Pivotal Quotes: "it was sort of a little bit of a bifurcated year" — Adam Feuerstein: Characterizing biotech stock performance in 2017. "I feel like I've written so much about gene therapy this year. I was joking that I'm sort of almost become like the gene therapy reporter." — Adam Feuerstein: Explaining which technology most impressed him scientifically in 2017. "the first phase three, successful phase three study of an RNAi interference drug" — Adam Feuerstein: Discussing why Alnylam’s John Maraganore was selected as best CEO of 2017.

Implications: Biotech enters 2018 with strong scientific momentum but unresolved market questions: capital support, payer resistance, pricing of transformative therapies, and the potential for M&A or policy surprises will likely drive returns more than science alone.