Q&A: Analyst-turned biotech exec-turned analyst reads the biotech Q1 tea leaves

The coronavirus pandemic is in full swing. Biopharma R&D and regulatory timelines have been disrupted, supply chains interrupted and what the future holds is anybody?s guess. Now with the first quarter having come to a close, what can we expect in earnings reports?

Endpoints News caught up with Yaron Werber, managing director and senior research analyst on Cowen?s biotechnology team for some crystal ball gazing.

Before Cowen, Dr. Werber also occupied the role of a biotech executive, as the founding team member and chief business and financial officer of Ovid Therapeutics ? a company focused on orphan disorders of the brain. Before that, he served as head of US healthcare and biotech equity research at Citi.

The interview has been condensed and edited for clarity.

What do you think the broad impact of Covid-19 on biotech earnings look like, as we get closer to that time of the year when companies kick off reporting their Q1 numbers?

There wasn?t much of an impact on the biotech sector during the great recession of 2008-2009. This time there will be ?? because obviously, this is the healthcare sector and accessibility to providers is getting hit. If you look at some of the initial data on oral prescriptions, by and large, I think there are three trends.

The size of prescriptions is going up, compliance is going up, refills are going up, abandonment rates are going down. I think the average price per prescription has actually increased and it looks like the PBMs have kind of relaxed a little bit to give people more supply. So the orals are going to be okay in terms of ongoing volume ? inevitably there?s probably going to be some hit starting new patients on the drugs. From what we?re hearing in oncology settings, clinic volumes are down 30 to 50%. I think there?s going to be an impact on injectable drugs and even subcutaneous drugs or IV. And increasingly physicians in oncology are even talking about practicing sort of out of the standard-of-care. Let me give you an example if they need to give you a three-drug regimen, but one of the drugs require patients to come in or is immunosuppressive or mildly suppressive, they might skip that one and give you the other one. They?re flying blind, but they are kind of talking about this is war ? you got to do what you can do.

There?s also definitely going to be an impact on complicated therapies: Gene therapy, cell therapies all new starts are going to really get impacted. And then I think even orphan (drugs) going to see an impact on new patient starts, because sometimes there?s a lot that takes to onboard new patients. And right now it?s just going to be too hard to do.

We wonder whether drugs like Reblozyl from Acceleron and Bristol Myers that just got approved ? it?s not an optimal time to launch a new drug. We?re hearing there?s blood shortage issues in the blood banks ? and Reblozyl reduces blood transfusions. It?s very safe, but it is a subcutaneous injection.

On the anti-inflammatory side it remains to be seen ? some drugs can be taken at home, like (Regeneron?s) Dupixent whereas some of the IL-5s, you have to go to the physician to get your shot. So we wonder whether there?s going to be a move, because it?s very hard to educate someone how to inject themselves right off the bat using Skype or telemedicine.

I don?t know whether the impact is going to be on the bottom line yet. Some companies have asked whether they should reaffirm guidance, our view was don?t. If you really think that you?re going to be in line, then go for it, but otherwise don?t feel pressured to. People know there are going to be changes. And, frankly, it?s too hard to know what?s gonna happen in Q4. There?s going to be an impact in Q2, right? There?s gonna be an impact in Q3 probably. We don?t know what Q4 looks like yet.

But I?m not expecting layoffs in large caps. Vertex already said they reaffirmed their guidance. Amgen is so diversified, they have such great margins. This is not where they?re going to have to cut costs in that way. And frankly, all clinical studies are going to slow down, and all new studies are going to slow down. And that?s a lot of the expenses too.

Given the sizeable layoffs at Sage Therapeutics, what are your thoughts mid-sized biotech, do you expect any job cuts there?

I think it really depends on the financing environment, and you?re seeing IPOs are getting done. And we?re hearing there?s going to be potential move to trying to do secondaries. Companies are using ATMs, or at the market offerings, which allows them to raise capital too. I don?t think there?s going to be cuts imminently because there is a hope that the financing window will open.

A whole host of venture capital funds have announced roughly $5 billion in combined funding in the last week or so. Was that something you anticipated in this environment?

I mean, I think that it takes so long to close these funds, and there was so much capital going into the sector, and it?s been such a great start to the year after, you know, five great years already. I would say that that?s not shocking, especially given that it was increasingly likely that despite the political rhetoric, there?s probably not going to be any major, major, major issues coming out of Washington DC. It?s ancient history (the noise about lowering drug prices etc), it?s like six weeks ago, no one talks about it anymore, its the last of our problems.

Some companies across a range of different industries are scrapping dividends. From a dividend standpoint, do you expect any changes in biopharma?

Unless there are things coming out of the Federal Reserve? which we?re not expecting at the moment ? these companies can weather a 10% ? 13% downturn in revenues, so they?ll probably protect the dividend. I?m thinking of Amgen. I?m thinking ?? I don?t cover Gilead, but I?m thinking of Gilead. They?ll probably do less stock buybacks. Yeah, but will maintain the dividends is what I?m expecting.

What you think we should look out for in these first quarter reports?

I think the most important elements are going to be whether they maintain guidance or not, and how they?re looking at the fall. Geographical expansions are going to be critical ? a lot of companies have been planning on expanding into Asia. Amgen, for example, had a huge deal with BeiGene, so it?s gonna be important to see how that impacts global operations.

We don?t think supply is going to be a major issue ? certainly, most biologics supply is sourced internally in the US. There?s going to be some effect on smaller molecules, but frankly, most companies have supplies for 12 to 18 months anyway. And China is sort of? back online, so we?re less worried about supply capacity issues.

But clinical studies are obviously going to be critical ? in terms of the ability to start studies, but then I would say equally important, is the ability to actually close studies and do data locks, which is sometimes a lot of it can be done electronically, but not everything. So this is where the quality of the data might get impacted.

What I?m going to be looking out for is on the commercial front: How do you do the training, and how do you do commercial marketing to physicians? The marketing element is not as hard, I think the training might be a little harder. This is going to change health care to a certain degree ? how do you onboard a new patient? Because we?re hearing increasingly that they can do physical exams based on how the patient presents. And if there?s sufficient data?people are willing to start patients on new drugs. The issue is how do you train them to do self injections? This is where delivery really matters ? and you can really differentiate and capture share. So I think companies that have that advantage, like Regeneron with Dupixent or like the auto-injectors out there on anti-TNF side?could really make a difference.

Studies getting delayed, regulatory timelines are off, securing access to capital is not as easy it once was. And given that a vaccine is likely a long way off, what should biotech do to sort of fortify itself? What would your advice be?

I think this is where they really need to prioritize ? access to capital might be more challenging with the capital markets, but more importantly, timelines are getting pushed out. So it?s going to be a question of prioritization of programs. I think there?s also going to be a lot of questions about where to enroll, away from the hotbeds where you think there?s going to be another outbreak. Or conversely, if you go and target those areas that have had an outbreak with the assumption that they?re going to be more prepared?

Frankly, there?s a big question of herd immunity ? (former FDA commissioner) Gottlieb thinks that only 3% to 5% of the population the US has been exposed so far. So he thinks we?re still in the early stages of herd immunity. That suggests maybe don?t go and target those big centers, thinking there?s herd immunity there. You can?t just target the southern hemisphere, there are not as many patients, their systems are not as sophisticated. But timelines are going to get pushed out and it?s something that they?re gonna have to manage burden and really prioritize.

What about companies that are largely focused on developing and selling hospital-based products? I imagine their business will take a big hit.?

I think it depends on what you?re doing, right? If you?re still delivering an ASO (antisense oligonucleotide) for an orphan CNS indication, or you?re doing gene therapy or some kind of a CAR-T for an unmet need, with no other options ? those you imagine get prioritized, right? Other drugs that maybe are less differentiated or need hospital administration, but they?re not really urgent needs, or are not really disease-modifying ? might be less important.

So conversely, this whole situation could actually be a boon in a way, if it leads to a shedding of me-too programs?

Yes. And you know convenience, frankly, is also going to play a role. Sometimes people are kind of less interested in giving something every month or every two weeks ? well maybe now every month is a lot better than every two weeks. Any drugs now that are less likely to cause myelosuppression are probably going to get prioritized. So you have two drugs, they?re both pretty good, but a lot of times you hear oncologists saying, ?oh, we know how to treat myelosuppression it?s not a problem.? Well, now its let?s use the other drugs. Maintenance drugs, frankly, are probably going to be used less like Darzalex from J&J ? (Celgene?s) Revlimid is probably not going to be an issue because it?s oral ? but injectable maintenance drugs. How much do you give them?

I think there?s going to be a lot of impact this time in immunology and oncology. I think it?s gonna be surprising. It?s going to be weaker than we?re expecting.