Mid-cap companies: pharma’s growth engine

Some of the most exciting new drugs are being discovered by mid-sized pharma and biotech companies, and 2014 saw more of them reaping the benefits of marketing their own products.

These companies are set to continue to generate much of the sector's growth, either through independent growth, co-development and marketing deals with big pharma, or be acquired outright.

A new report by research and consulting firm GlobalData has found that Regeneron and Alexion were among the biggest winners in 2014, while Vertex suffered the biggest setback.

GlobalData analysed a group of 35 mid-cap companies, most of which are based in the US, but does include European-headquartered companies such as Swedish Orphan Biovitrum (SOBI) and Japan-based Sumitomo Dainippon.

The group represents rich pickings for big pharma companies eager to acquire: Pharmacyclics, Salix, Cubist and NPS have all been bought out in the last six months alone, and more are expected to follow.

Rapid growth

The combined total revenues for the peer group rose from $24.8 billion in 2013 to $26.5 billion in 2014, representing a Compound Annual Growth Rate (CAGR) of 21.9 per cent, according to GlobalData.

This growth was marginally slower than during the previous five years, as total revenues for this group had expanded at a CAGR of 25.2 per cent between 2009 and 2013.

Adam Dion, GlobalData's healthcare industry analyst, said the rise in the group's total revenue over the past year was driven by Regeneron and Alexion, both of which posted sales of more than $2 billion in 2014.

Dion explained: "Regeneron's sales grew by 34 per cent in 2014, as the company continued its commercialisation of Eylea (aflibercept) to markets outside the US, including for the treatment of macular oedema secondary to central retinal vein occlusion in both the EU and Japan.

Meanwhile Alexion saw sales from its lead product, orphan drug Soliris (eculizumab) rise from $1.6 billion in 2013 to $2.2 billion in 2014.

The company did better than expected over the year, and was boosted by European sales, led by a positive reimbursement deal with the French government.

Pharmacyclics, Salix, Cubist and NPS acquired

Last year saw a surge in mergers and acquisitions, and it was no surprise that some of the high-growth groups were snapped up by big pharma companies hungry for new products and growth.

The biggest value deal was the acquisition of Pharmacyclics. The firm, based in Sunnyvale, California was bought out by AbbVie in March, with Pharmacyclics newly-launched and expected blockbuster drug Imbruvica (ibrutinib) being the prize asset.

Pharmacyclics posted the highest revenue growth in the group of companies, its sales rocketing 180 per cent in 2014 to $729 million.

The company earned nearly $493 million in new product revenue from Imbruvica, which is set to become one of the market leaders in treating a range of blood cancers, including chronic lymphocytic leukaemia and mantle cell lymphoma.

The hefty price that AbbVie paid for the firm - $21 billion – generated much debate among analysts, with many initially believing it had overpaid, but some believe that the acquisition will pay off for the big pharma company. It needs new products to succeed its flagship product, Humira, which will face biosimilar competition in the near future.

There were several other notable M&A deals in the group. NPS Pharma was acquired by Shire in January 2015 for $5.2 billion, Merck paid out $9.5 billion for Cubist in December and Valeant acquired Salix for $14.5 billion in March this year.

Vertex suffers at the hands of Gilead

Some of the mid-cap companies experienced a more difficult year, most notably Vertex, which saw its revenues decline by 52 per cent from $1.2 billion in 2013 to $580.4 million in 2014.

This decline was largely attributable to falling sales of Incivek, Vertex's hepatitis C virus protease inhibitor, which fell by $442.3 million compared with 2013.

The main reason for this rapid decline was the arrival of Gilead's Sovaldi (and to a lesser extent Janssen's Olysio) which have rapidly eclipsed Vertex's treatment in terms of efficacy, side effects and convenience for patients.

Vertex went as far as to withdraw Incivek from the market in October, such was the steep drop-off in demand for the drug. Vertex is now pinning its hopes on growth in its cystic fibrosis franchise, where it is hoping to build on the groundbreaking success of Kalydeco.

The growth of this mid-cap cohort is one of the most important dynamics in the sector today, and chief executives of the companies have a number of choices to make in developing their firms further. Some will aim for continued independent growth, while others will seek out major licensing deals with big pharma or acquisitions of their own, while others will position themselves for prospective buyers.

Almost all of the companies in the list are considered viable targets for takeovers, but among the names most frequently dropped by analysts are Ireland-based Jazz Pharmaceuticals, which has been linked with Allergan, and BioMarin, which is said to be a potential target for Shire.

The reason for big pharma's interest is the group's promising pipelines and novel approaches to tackling a range of diseases. Among the companies poised for major regulatory news in 2015 is Clovis Oncology, which has just received its second Breakthrough Therapy Designation from the US FDA.

The full list of 35 mid-cap companies analysed by Global Data:

Acadia, Actelion, Alexion, Alkermes, Alnylam, BioMarin, Celldex, Clovis Oncology, Cubist, Genmab, Lundbeck, Incyte, Intercept, Ipsen, Ironwood, Isis, Jazz, MannKind, Medivation, MorphoSys, Nektar, NPS, Pacira, Pharmacyclics, Puma Biotechnology, Regeneron, Salix, Seattle Genetics, Shionogi, Sumitomo Dainippon, Swedish Orphan Biovitrum, Synageva BioPharma, Theravance, United Therapeutics, and Vertex Pharmaceuticals.