Market Sentiment Hard times – but the model is sound
While the European sovereign debt crisis keeps capital markets in a choke-hold, with potential negative effects on the financing situation in many industries – including biotech – there was encouraging news for drug-developing firms in the sector across the pond. Gilead wants to pay $11bn to acquire Pharmasset, a US-based clinical-stage pharmaceuticals developer (only three assets in clinical
trials between Phase I-IIb) with a focus on treatment options against viral infections (hepatitis C). This appears a very attractive price, at least at first glance. It also indicates in our view that demand for attractive pipeline assets among biopharmaceutical companies remains high. Even though capital markets are very unsettled, when it comes to financing, we regard news like this as encouraging.
However, the situation appears to be different for life science tool and equipment providers. Qiagen’s move to reduce its total headcount by around 10% is a good indicator in our view of the market environment for this branch of the sector. Q3 industry results have shown that demand from academic research institutions and pharma companies has continued to be as sluggish as it was in Q2. With the debt crisis in the Eurozone and the stressed debt situations in the US and the UK, we expect that the situation for publicly-funded R&D will also remain difficult throughout 2012. On the upside, some areas appear to have better growth perspectives. Qiagen is not just trying to improve its margins by reducing its cost base, but will also shift the resources that are freed up towards its key growth areas. That means Molecular Diagnostics in general, and Personalised Healthcare in particular. We continue to find the emerging Personalised Healthcare concept attractive. In this vein it is important to note that
Roche, one of the leading companies in the area, just announced that its cobas EGFR Mutation Test has received a CE mark for European marketing. The diagnostic is able to identify non-small cell lung cancer (NSCLC) patients that have mutations in the EGFR gene, and who might therefore benefit from treatment with
Financing environment remains challenging
While the financing environment for the biotechnology industry as a whole thus remains a challenging one, we believe the basic business model remains intact. The biopharmaceuticals industry is still searching for attractive new pipeline assets, and new markets continue to evolve in segments – like Molecular
Diagnostics – that are driven by innovation.