Investors Should Look to Strong Momentum
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
In February, the m-m fall in major NYSE bio indices narrowed versus the January figures. We view overweighting within IBB on leading new drug companies such as Amgen and Vertex Pharma as being a signal of normalization. Investors should pay attention to the final decision (slated for April) on CMS insurance coverage for Biogen’s Aduhelm.
Decline of major NYSE bio indices narrows in February
In February, the m-m fall in major NYSE bio indices narrowed versus the January figures. In February, significant improvement in the pace of downtrend for monthly returns was seen not only in the S&P500 Healthcare Index (-1.1%) and Dow Jones Pharmaceuticals Index (-3.2%) but also in the Nasdaq Biotech Index (-4.1%) and major ETF IBB (-4.4%). For XBI (-3.9%) and ARKG (-2.7%), m-m decline narrowed significantly.
Since the beginning of the year, the impact of macro indices has outweighed changes in pharmaceutical industry momentum. Of note, however, the positions of the fastest-growing and top-weighted firms have changed since 2021. We view the rising portions in IBB of major new drug biotechs such as Amgen (1st place, 11.3%) and Vertex Pharma (4th, 5.7%) as being a sign of normalization in the pharmaceutical/bio sector.
CMS insurance coverage for Aduhelm: Final decision set for Apr 11
At a time when global momentum is urgently needed, focus is shifting to news of amyloid protein-targeted Alzheimer’s treatments. In January, the US Centers for Medicare & Medicaid Services (CMS) limited insurance coverage for Biogen’s Aduhelm to patients participating in clinical trials, putting it beyond the reach of most individuals. A final decision from the CMS, which should be applicable to other amyloid target phase III substances being developed by Eli Lilly, etc, is expected on Apr 11.
In response to the CMS pushback, Biogen has actively protested the initial decision, while Eli Lilly has delayed its biologics license application (BLA) for donanemab from 1Q22 to within 2022. For reference, Biogen logged 2021 OP of US$2.84bn (-38% y-y). Just prior to the CMS issue, Biogen predicted that the number of patients eligible for insurance coverage in 2022 would be around 50,000, resulting in Aduhelm sales of US$1.4bn based on a treatment price of US$28,000, a figure which has already been halved. Backed by its planned sale of stake in Samsung Bioepis, Biogen should be able to offset operating expenses of US$500mn. Additional cost-saving measures may be undertaken if the CMS’s final decision in April proves unfavorable.