Below, I shall review my 2013 and 2014 predictions, as well as share my thoughts on the year ahead.
Below are my 2014 Predictions:
1. An increase (however modest) of those without prior health insurance, combined with an improving economy, will lead to greater use of commodity medical products. This should benefit Johnson & Johnson (JNJ), Kimberly-Clark (KMB) (spinning off healthcare unit), Cardinal Healthcare (CAH), and McKesson (MCK).
2. The comeback of the year award will go to Merck's (MRK) pipeline.
3. The Fab Four (Biogen Idec (BIIB), Celgene (CELG), Gilead (GILD), Regeneron (REGN)) will have another outstanding year.
4. Continued technological advances in molecular diagnostics will benefit Illumina (ILMN).
5. OraSure (OSUR) will begin to experience significant orders for its Hepatitis C diagnostic test kit. The company will begin to de-emphasize its OTC HIV test.
6. New cancer therapeutics will lead to improved treatments and survivals, and the phrase "dawn of a new age" will become commonplace.
7. The drug category of the year will be (no surprise) oral regimens for Hepatitis C.
8. There will not be a price war in Hepatitis C pharmacotherapy. In fact, sales of the newer drugs will exceed $8 billion.
Regarding (1), these stocks performed extremely well, with JNJ, CAH and MCK increasing on average by 20%. KMB spun out its healthcare business, Halyard Health (HYH), in early November.
Merck's pipeline, which included compounds for Hepatitis C, cancer immunotherapy, osteoporosis, vaccines, insomnia and allergy, demonstrated considerable progress, with several key approvals (e.g. Keytruda, Belsomra) and several drugs advancing in clinical studies. The stock was up 14%, despite a recent questionable acquisition.
The Fab Four performed extremely well, with an average gain of 34%.
ILMN is clearly the leader in next gen sequencing. The stock was up 62%
During the course of the year, advances were made in cancer immunotherapy and differential cellular metabolism. The related stocks rose by several hundred percent.
Oral pharmacotherapy for Hepatitis C exceeded even my optimistic expectation, which started out the year 300% higher than consensus.
My 2013 Predictions:
1. One can't own enough Pfizer (PFE) (third straight year!).
2. Progress in stem cell clinical trials (likely adult mesenchymal cells) leads to renewed interest in this area.
3. After 20 years of hope, antisense drug development looks promising for RNA-targeted drug discovery, and ISIS becomes a focus of investor interest.
4. The "Perfect Storm" of positive factors continues to unfold for the drugstore chain industry.
5. Investor appreciation for the potential of an all oral drug regimen to treat Hepatitis C increases, with Gilead as the perceived leader.
6. Increasing use of the da Vinci surgical system in general surgery, gynecology and colorectal surgery more than offsets declining use in prostate surgery, and the "revolution" continues for Intuitive Surgical.
7. Drug category of the year is PD-1 inhibitors.
Now for 2015:
1. Healthcare spending will increase at a 6% rate, due to an improved economy, the Affordable Care Act and demographics. Furthermore, I expect this trend to continue for many years. As a result, the relative attractiveness of the healthcare sector will increase. I maintain a favorable view of commodity medical product and generic injectable drug companies, e.g. JNJ, HYH, Abbott Labs (ABT), Hospira (HSP).
2. Specialty pharmaceutical sales will continue to grow at a 15-20% rate, driven by greater use of existing drugs and new product approvals. This is positive for companies such as CVS Health (CVS) and Diplomat Pharmacy (DPLO).
3. Although continued gains in more targeted cancer therapy will occur, there will be greater concern regarding side effects that will slow development for certain targets. The significant improvements that these new therapeutic regimens offer will in some cases require the development of second generation drugs to realize the full potential.
4. RNA-targeted drug development, which has similarly evolved over several decades, will continue to result in new, valuable drugs. This should be reflected in the valuation of Isis Pharmaceuticals (ISIS) and Alnylam Pharmaceuticals (ALNY).
5. Not only will Gilead's Hepatitis C sales exceed expectation (I am forecasting $16 billion), but the company will begin to "receive credit" for its impressive pipeline. I especially highlight its effort in diabetic nephropathy and NASH.
6. The Fab Four, which currently consist of GILD (Paul), CELG (John), REGN (George) and Agios Pharmaceuticals (AGIO) (Ringo), will have another excellent year.
7. The drug category of the year is oral pharmacotherapy for Hepatitis C (again), which should become the largest such category in history.
