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  • Jonathan Poyer

Biotech Down 15%+ Since February 2nd - Still A Good Time to Buy?

The S&P Select Biotechnology Index continued to hold above the 200 day moving average as news events dialed up single stock volatility (3/6/2023).

BridgeBio Pharma (BBIO) rallied >50% on better than expected Achondroplasia data from the dose ranging trial of FGFR inhibitor, infigratinib. The magnitude of benefit caught investors attention as it was numerically higher than seen with BioMarin's (BMRN) approved Achondroplasia drug, vosoritide. Physicians often caution against doing cross trial comparisons when small patients numbers are involved (like in the BBIO case), but stock prices often shoot first and ask questions later.

Likewise, Esperion Therapeutics (ESPR) fell ~20% upon reporting long-awaited positive outcomes data from the CLEAR trial. The study showed NEXLETOL significantly reduced the risk of major adverse cardiovascular events (MACE, primary endpoint MACE-4 composite of cardiovascular death, non-fatal myocardial infarction, coronary revascularization, and non-fatal stroke) by 13% compared to placebo. Investors were hoping for a slightly larger magnitude of benefit (15+%) prompting a sell the news event, but some analysts came out defending based on favorable KOL comments and the observation of continued reduction of LDL in the control arm that may have blunted the separation.

Magnitude of benefit was not in play for Aclaris Therapeutics' (ACRS) Phase IIa study of oral zunsemetinib (ATI-450) for moderate to severe hidradenitis suppurativa (HS) as the trial simply did not meet its primary or secondary endpoints sending shares down >50%. Praxis Precision Medicines (PRAX) also fell ~50% on news the Essential1 study of ulixacaltamide for treatment of essential tremor failed to meet the primary endpoint.

Several companies came under pressure following earnings announcements that seemingly turned into sell the news events. These included, Arcutis Biopharmaceuticals (ARQT), Argenx (ARGX), Adapthealth (AHCO), Mirati Therapeutics (MRTX), Puma Biotechnology (PBYI), and Novavax (NVAX). Remarkably, the latter mentioned in the body of its press release "substantial doubt exists regarding ability to continue as a going concern through one year from the date that these financial statements are issued."

Biotech companies generally have such language in the risk factors sections of corporate filings, but its uncommon to include in the text of the earnings press release.

Several companies reminded investors the risk of dilution from at-the-market (ATM) offering where an issuer sells primary shares into the trading market through a designated sales agent at prevailing market prices.

Iovance Biotherapeutics (IOVA) and Intellia therapeutics (NTLA) disclosed significant raises of ~$450 million and ~$250 million respectively via ATMs. Finally, Reata Pharmaceuticals (RETA) rallied ~200% upon FDA approval of omaveloxolone (Skyclarys) for the treatment of Friedreich’s Ataxia (FA).

There was controversy surrounding the approval given the unclear mechanism of action of the drug, concerns over potential safety risks and debate around clinical benefit. FA is an ultra-rare indication with an estimated 5,000-6,000 patients in the US with no approved treatment options before Skyclarys.

FDA continues to show flexibility to allow new treatment options to come to market that serve small populations of severe patients with no other alternatives.

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