30% of the Biotech Universe Trading Below Cash Value - Have We Reached the Bottom Yet?
The S&P Select Biotechnology Index ended last week with the best one-day gain (+4.69%) in nearly a year after testing the lows from the pandemic lockdown in 2021.
October was a brutal month for the index with >80% of the components in the red, with more than half of these down more than 10%.
Despite the 2.5 sigma bounce to start November, more than 70% of publicly listed biotech stocks trade with an enterprise valve below $100 million. Remarkably, a record >30% of the entire universe currently trade below cash value. The key debate is whether the low is in for the year or if the index will break below the quadruple bottom support. Levels below this support have not been seen since 2016.
There were numerous earnings beats in SMID biotech suggesting there are still signs of life in the sector. Acadia Pharmaceuticals (ACAD), Argenx (ARGX), Aurinia Pharmaceuticals (AUPH), Biocryst Pharmaceuticals (BCRX), Dynavax Technologies (DVAX), Harmony Biosciences (HRMY), Immunogen (IMGN), Intra-Cellular Therapeutics (ITCI), Kiniska Pharmaceuticals (KNSA), Neurocrine Biosciences (NBIX) and United therapeutics (UTHR) all posed either top / bottom line beats or both.
Big pharma reporting was heterogenous by product with GSK (GSK) reporting a beat and raise driven by newly launched RSV vaccine Arexvy ($709m vs $282m est), Eli Lilly (LLY) posting a revenue beat mostly driven by the sale of the legacy Zyprexa portfolio and Pfizer (PFE) reported a Q3 miss mostly on Paxlovid weakness.
Moving downcap, investor focus on cash burn intensified for companies launching new therapies. Seres Therapeutics (MCRB) announced a 41% reduction in force after reporting $7.6 million revenue for newly launched microbiome therapy Vowst. MCRB shares are down ~80% on the year and are trading with a market cap <$150 million as investors fret over the subscale revenue with less than one year of cash runway.
Phathom Pharmaceuticals (PHAT) traded down on announcing an early FDA approval of the company's vonoprazan NDA for the treatment of erosive gastroesophageal reflux disease (GERD) and relief of heartburn associated with erosive GERD. Analysts project peak sales of >$1 billion, but investors are apparently skittish about the launch despite the company having >$400 million of cash and trading below $500 million market cap.
Aldeyra Therapeutics (ALDX) seemed to acknowledge a desperate situation by granting Abbvie (ABBV) an opt-in right to develop, manufacture, and commercialize lead drug reproxalap in dry eye disease for only $1 million. ALDX is trading at a negative enterprise value as it is expected the drug will receive a complete response letter (CRL) from FDA by the November 23 PDUFA with another trial required to secure approval. If the option is exercised, ABBV will capture the majority of the economics from the program in exchange for option fee of $100 million and potential milestone payments up to $300 million.
In contrast, Gene editing darling Beam Therapeutics (BEAM) is years away from commercialization and rallied on news it sold opt-in rights to clinical partner Verve Therapeutics’ Lead Cardiovascular Programs to LLY for $250 million upfront, a $50 million equity investment and as much as an additional $350 million if the programs hit certain goals. Generally adding $300 million to an existing ~$1 billion cash pile might fund a company to profitability, but BEAM is one of nearly three dozen biotechs that have the dubious distinction of burning more than $1 million of cash per day. BEAM will need more cash in 2025, yet trades with a nearly $2 billion market cap.
Clinical data updates continue to highlight the challenges of being a later entrant into highly competitive markets. Moonlake Therapeutics (MLTX) was under pressure despite announcing 'landmark' positive topline results from their Phase 2 ARGO trial for Solenokimab (SLK) in psoriatic arthritis (PsA) as the high placebo response complicated comparisons to competitors. MLTX will need to deliver a compelling pivotal data package in a few years in order to settle the debate of how their drug really stacks up.
In the meantime, better watch that cash burn.