Henrik Ekman BioTech Equity Analyst

The case for Biotech and Life Science investing is still relevant!
Every year, Biotech and Life Science investors and analysts try to look ahead for what is in store in terms of major new product approval and launches from the Biotech, Life Science and pharmaceutical industry. According to consultancy and research firms Evaluate (UK) and Fierce (US) the average expectations from market analysts for this year’s ten biggest product launches when measured by estimated 2028 revenue, adds to a total of USD 17,5 billion. The number covers estimated revenue from both Biotech and pharmaceutical companies (Big Pharma) on a stand-alone basis, or as partners:

1Alzheimer’sLecanemabEisai/Biogen3,0 Billion
2Gene therapySRP-9001Sarepta/Roche2,2 Billion
3Eye diseasePegcetacoplanApellis2,0 Billion
4Alzheimer’sDonanemabEli Lilly1,9 Billion
5RSV vaccineRSVPreF3 OAGlaxoSmithKline1,8 Billion
6LymphomaEpcoritamabAbbVie/Genmab1,8 Billion
7DepressionZuranoloneBiogen/Sage 1,5 Billion
8AutoimmuneMirikizumabEli Lilly1,2 Billion
9Ulcerative colitisEtrasimodArena/Pfizer1,2 Billion
10HypertensionSotaterceptAcceleron/Merck1,0 Billion

Source: Fierce Pharma and Evaluate Vantage, 2023

In absolute terms, the summarized revenue value is significant, but compared to 2022 the value is actually much lower than was expected last year going into to 2022 where it was estimated at that time that 2027 revenue for the ten biggest product launches would total USD 26,9 billion. Adding to that, the well-known difficulties for some Biotech and Life Science companies to raise capital during 2022 had probably led some to conclude that the Biotech (and pharmaceutical) industry is still alive but definitely not kicking as hard as it used to. The negative share price development for Biotech and Life Science stocks in general throughout 2022, reflects that view.

Looking into the individual product launches on the list, the picture is however more nuanced and still supports a positive investment perspective for the Biotech and Life Science sector.

First og foremost, the list confirms an important point about Biotech; although Biotech companies represent a small fraction of the total market cap of the health care industry (Biotech, Life Science, med-tech and pharmaceuticals), Biotech and Life Science companies are well represented in the development of many of the products listed. This has been the case every year when the list is made, and it illustrates that Biotech and Life Science companies continues to be an integral and central part of the value chain of developing of new products within the overall health care industry. As an example from the Nordic region, Hansa Biopharma is indirectly represented on the list as Hansa Biopharma will sell their enzyme cleaving product, imlifidase, to Sarepta when SRP-9001 is launched, as imlifidase enables Sarepta to perform gene therapy to patients to treat for the muscular disease Duchenne.

Secondly, the main part of the total revenue reduction from 2022 to 2023 can be associated to a specific lower estimated revenue potential from the two Alzheimer’s related product candidate, Lecanemab and Donanemab, from Eisai/Biogen and Eli Lilly respectively. According to Fierce Research, promising new products to treat Alzheimer’s has by some analysts been considered to be too expensive when compared with the levels of efficacy they provide. This has caused debate whether FDA has been too quick to approve Alzheimer’s treating drugs generally, exemplified by the questioning of whether an indicated 27 percent slower disease progression compared to placebo from using Lecanemab is enough to bring the new product to the market. However valid these medical efficacy discussions related to Alzheimer’s treatments specifically might be, we should be cautious to generalize this as an indication of a general worsened outlook for the ability of the Biotech and pharmaceutical industry to develop new products. And within some indications also remember that risk can also be upside-risk to the potential revenue from newly developed products, as proven by Covid-19 vaccines sold by Pfizer, or weight-loss product, Wegovy, sold by Novo Nordisk.

Lastly, irrespective of what will be the future realized revenue level from this short-list of new products, an important point to remember is that a massive wave of patent expirations is looming in the pharmaceutical industry in the coming years. This will undoubtably incentivize Big Pharma to become more active in acquiring either single product candidates from Biotech companies, or the whole Biotech company if possible – just as they have been doing historically when their major patents expired. As valuation levels are currently suppressed, and as Big Pharma is flooded with cash, increased deal activity could be about to emerge.