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While political upheaval made for a difficult year for investors in 2016, few will have as tough a time as those backing the life sciences sector.

Pre-Brexit vote nerves caused a jittery first half of the year and the US election a similarly uncertain second. But investors with a stake in pharmaceuticals and biotechnology companies also suffered extra pain from politicians calling for tough action on drug prices, which exacerbated ever-present concerns about the high-risk development of new treatments.

Given such a difficult backdrop, the FTSE 350 pharmaceuticals and biotechnology index ended the year down more by more than 10 per cent even as both the Dow Jones Industrial Average and the FTSE 100 finished 2016 at historic highs.

Many feel the worst may have passed, however. Despite the likelihood of continued pressure on drug pricing on both sides of the Atlantic, the sector remains well funded and is likely to be the beneficiary of a wave of M&A, particularly if the new administration in the US cuts corporate taxes and foreign-held capital of American corporations flows back home.

Horizon Discovery Group, Faron Pharmaceuticals and MaxCyte — all UK-listed companies that have struggled with the rest of the sector for much of last year — are in a better position in 2017.

Horizon Discovery Group 

The Cambridge-based gene editing company closed down a site in Boston last year following a string of acquisitions — CombinatorRx, Sage Labs and Haplogen — since its flotation in 2014. The restructuring will bring savings of as much as £6m, according to Darrin Disley, the company’s chief executive.

The company’s gene editing technology provides drug development services to a number of the top 20 pharmaceutical companies. Mr Disley describes this as the “picks and shovels” needed for areas such as immuno-oncology, precision medicine and cell therapy. As well as providing services to the bigger drug companies, Horizon also has its own production capabilities as well as a research biotech arm.

Company sales are expected to rise to £31m in the 2017 fiscal year, according to estimates, up from £24m in the previous year. Consensus forecasts suggest the shares have a 50 per cent upside to the current price of around £1.40. Paul Cudden, analyst at Numis in London, who has a “buy” rating on the stock, says the company is “leading the market” in the application of gene editing for drug discovery.

Faron Pharmaceuticals 

The London-listed Finnish company — whose share price ended 2016 up 8 per cent — is due to complete phase III trials for drug Traumakine for acute respiratory distress syndrome with approval in Europe expected as early as 2018.

The condition is a severe form of lung injury that leads to low blood oxygen levels and usually affects patients who suffer from other conditions while they are in intensive care. This is the main cause of respiratory failure in intensive care units with mortality rates as high as 40 per cent, and has proven difficult to treat in the past. Traumakine has already brought promising results from phase I and II studies — an 80 per cent reduction in deaths among severely ill patients.

Samir Devani, analyst at Rx Securities in London, expects peak sales for the drug of more than €700m. The company also has a proprietary antibody in its portfolio called Clevegen aimed at revealing tumour cells, which he says could provide “additional upside” to his 375p target share price. 

MaxCyte 

After flatlining for much of last year, US-based but London-listed MaxCyte Inc saw its share price spike in the final quarter and has continued its upward momentum in 2017. The company announced pre-clinical data for targeted gene correction that helped lift shares by almost a fifth on Friday.

Julie Simmonds, analyst at Panmure Gordon, says the company’s flow electroporation technology — which allows the introduction of DNA cells using by using electricity to open cell membranes — is being used by “an ever increasing number of customers” among cell therapy companies and big pharma companies.

That has led to 30 per cent revenue growth in each of the last four quarters and an improvement in profitability. Furthermore, the company could strike its first commercial licence deal for cell therapy and CAR-T programme within 18 months, which could boost profitability.

“MaxCyte’s enabling technology is a low risk way of investing in cell therapy,” says Ms Simmonds, who has a target price of 170p, higher than the 159p the company was trading at in the first week of January.

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