Financial Snapshots: Research and Development in High Gear

Although overall the second quarter financial report filings of biotech companies received a modest passing grade, investors were lukewarm to those less than stellar performances. That general angst was one of the contributing factors for the pullback in biotech during August.

Nevertheless, a deeper dive into the numbers reveals that biotechs are not holding back in the amount they are investing in research and development as they nurture their innovative product pipelines toward the market.

Quarter over quarter, R&D expenses increased by more than 50 percent among the top tier biotech companies.

Leading the charge is Summit, N.J.–based Celgene Corp., which recorded a 140 percent hike in spending in the second quarter, with the increase being attributed to clinical trial activity across its expanding product portfolio. On a GAAP basis, R&D expenses were $1.11 billion for the second quarter, compared to $457 million for the same period in 2014. Also helping to boost R&D were expenses directed to collaborations, with the company on a tear in that area.

In June, for example, Celgene enlisted Juno Therapeutics Inc. as a partner in a broad, global collaboration to leverage T-cell therapies and develop treatments targeting cancer and autoimmune diseases. The companies will focus initially on chimeric antigen receptor and T-cell receptor technologies.

Hardly pausing for breath, Celgene brought Receptos Inc. under its wing in a blockbuster $7 billion deal that adds highly touted late-stage S1P modulator ozanimod to its immunology and inflammatory franchise. (See BioWorld Today, July 16, 2015.)

Shire plc increased the pace of its reported R&D spending as it continues to build out its product pipeline. Early this month, it snapped up privately held Foresight Biotherapeutics Inc. for $300 million in cash.

Foresight brings to Shire global rights to phase III-ready FST-100, an eye drop formulation combining 0.6 percent povidone iodine and 0.1 percent of corticosteroid dexamethasone that has the potential to be the first treatment for infectious conjunctivitis that attacks both viral and bacterial infections. (See BioWorld Today, Aug. 4, 2015.)

Medivation Inc. has also boosted its R&D spending and added to its product portfolio with a $410 million up-front payment for the global rights to Biomarin Pharmaceutical Inc.’s BMN-673 (talazoparib), a phase III PARP inhibitor intended to battle BRCA-mutated breast cancer and other malignancies. (See BioWorld Today, Aug. 4, 2015.)

The asset purchase agreement includes $160 million in milestones and mid-single-digit royalties for Biomarin on net sales of products that contain talazoparib during the deal’s undisclosed royalty term. In return, Medivation gains all talazoparib-related assets, including all patents, data, know-how, third-party agreements, regulatory materials and inventories.

PARP inhibitors, as a class, have shown clinical activity against cancers involving defects in DNA repair, and Medivation also sees potential to combine PARP inhibitors with agents that damage DNA, such as chemotherapeutic alkylating agents or radiation.

Bruce C. Cozadd, chairman and CEO of Jazz Pharmaceuticals plc, said during the firm’s second quarter results that it is continuing to invest in its commercial and R&D portfolios to support long-term growth strategy. Jazz’s significant increase of R&D spending is a reflection of that. The company completed its rolling new drug application submission for defibrotide for the treatment of hepatic veno-occlusive disease with evidence of multi-organ dysfunction following hematopoietic stem cell transplantation and initiated enrollment in a phase III program to evaluate the role of JZP-110 in the treatment of excessive daytime sleepiness in patients with narcolepsy or obstructive sleep apnea.

R&D expenses for the second quarter were $27.8 million on a GAAP basis, compared to $20.1 million for the same period in 2014. Adjusted R&D expenses for the second quarter of 2015 were $24 million, or 7 percent of total revenues, compared to $16.8 million, or 6 percent of total revenues, for the same period in 2014.

Those examples leave investors in no doubt that biotech companies have their innovative engines running in overdrive, which bodes well for future product launches. In addition, large-cap biotech companies have plenty of cash on hand, which they seem ready to invest in product acquisitions through partnering or M&As. Dealmaking certainly will keep investors engaged in the sector for the rest of the year.

TRILLION VALUATION ON HOLD AGAIN

The 336 public biotech companies developing biotherapeutics, and tracked by BioWorld Snapshots, attained a collective market cap of just over $1 trillion at the end of the second quarter, which was an incredible milestone. The recent pullback, however, has temporarily eroded that lofty valuation. As of market close Aug. 27, it stood at approximately $900 billion. The number of companies that have market caps exceeding $1 billion dipped almost 9 percent in the pullback period to stand at 85.

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