Biotech investor and analyst Brad Loncar, CEO of Loncar Investments, said the sector has fundamentally changed in light of a focus on drug pricing that was catalyzed during the 2016 U.S. presidential election cycle.
To find growth in the tough biotech and pharmaceuticals market, Loncar said on Yahoo Finance's The Ticker on Sept. 30 that investors would do wise to be more selective.
"There are a lot of exciting pockets within biotech — I love oncology, for example," Loncar said. "There are a lot of great advances in cancer research right now, but the days of being able to buy the big biotech index and own everything with hyper-growth to outperform the market may be behind us."
Looking back at the last election cycle, Loncar said the moment the Nasdaq Biotechnology Index Fund's growth stopped was when then-presidential candidate Hillary Clinton tweeted about Turing Pharmaceuticals LLC, founded by Martin Shkreli, and the company's price hikes for HIV/AIDS drug Daraprim.
"For the last four years, we've been struggling with this drug pricing issue, and payers are pushing back," Loncar said. "This industry has fundamentally changed, and it's really impacted the growth of biotech as a whole."
The drug pricing conversation will not slow down leading into the 2020 election with bipartisan agreement that something needs to be done, Loncar said. How each candidate is approaching the issue could affect the outcome for investors in the space.
For instance, U.S. senators Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., "do not think pharmaceuticals should be a for-profit business, essentially, so that would be a problem," Loncar said.
House Speaker Nancy Pelosi, D-Calif., released a drug pricing plan in September, and further measures are being considered in the U.S. Senate.
"This is an issue we're going to have to live with," Loncar said. "So as an investor, what it tells you again is you have to be very selective and look for the areas of growth — look where there's great science or look for geographies outside the U.S. where there's more growth."
'Bullish on China'
Loncar said China's biotech sector is just now beginning to take off, much like U.S. companies at the end of the 20th century, including Amgen Inc., Genentech (now owned by Roche Holding AG) and Gilead Sciences Inc.
The number one lesson to be learned in investing in biotech is to follow the science, and to be aware of breakthroughs in the sector, Loncar said.
"Oncology, gene therapy, gene editing — these are things that are changing medicine," Loncar said. "And so if you can be selective in those areas, I think there will always be great opportunities."
FTC scrutiny in M&A
Loncar expressed concern for mergers and acquisitions in the biotech and pharmaceutical industry despite a busy year for deals as regulatory agencies like the U.S. Federal Trade Commission have been increasingly scrutinizing the transactions.
"We're worried that that's going to cause other acquirers to think twice and wait until there's more clarity on what's going on there," Loncar said.
He noted FTC delays to Roche's acquisition of Spark Therapeutics Inc., Bristol-Myers Squibb Co.'s offl-oading of Celgene Corp.'s immunotherapy Otezla to avoid antitrust concerns and keep that $95 billion acquisition on track, and AbbVie Inc. and Allergan PLC's back and forth with the agency to work out possible antitrust issues.
"Without a doubt there's kind of a new day at the FTC because these are the types of deals that would have breezed through in the past," Loncar said.
One kind of deal Loncar would like to see more of is the $915 million acquisition of Dova Pharmaceuticals Inc. by Swedish Orphan Biovitrum AB, known as Sobi, announced Sept. 30.
"That's what really gets generalists more interested in our sector, so we would love to see some Dova-type deals," Loncar said.
