As Pharma Transforms, Drug Stocks Poised for Comeback

Big Pharma is poised for a financial comeback this year, even as both industry leaders and ambitious upstarts will navigate through choppy waters.

J.P. Morgan analyst Chris Schott wrote in mid-December that 2020 will be a recovery year for the stocks of major pharmaceutical companies. After a year in which the S&P 500 was up 25%, the S&P 500 Pharmaceuticals grew not even half that.

Schott basis his forecast on several new drug launches and significant growth for the category of cancer drugs known as PD-1 inhibitors. He also discounts the possibility of drug pricing legislation, suggesting “there appears to be more headline risk than fundamental risk.”

Meanwhile, a CPHi outlook article discusses 10 trends pharma leaders expect the industry to confront during the year. Artificial intelligence and its application in developing, not drugs or clinical outcomes surprisingly, but in predicting timelines and in compliance and regulatory matters.

Cell and gene therapies (CGT) will likely continue to be one of the focus areas in 2020, while the importance of biologicals will continue to grow. Pharma will increasingly turn to CDMOs to take their research from clinical development through regulatory approval.

Peter Bigelow, president of xCel Strategic Consulting, sees more “transformational partnerships between CDMOs and big pharma” in 2020, as the major companies refocus their traditional methods of operation.

“Whereas in the past Big Pharma has been very transactional and has put driving product costs down as a priority, they are instead looking now at partnerships on baskets of products. This means the CDMOs must operate differently, be longer-term in the way they envision these relationships and they must commit to very high degrees of operational and quality improvement.”

Another prediction, this from Jim Miller, founder and former president of Pharmsource, is that CDMOs will continue to be the targets of acquisition. He expects some of the bigger private equity firms to be attracted to the mid-size CDMOs as will larger, public firms.

Morgan analyst Schott agrees. Rather than more mega-mergers, “We see biz dev pivoting towards bolt-on deals in 2020 with focus on building out existing therapeutic verticals and adding potential mid-2020s launch opportunities.”

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