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  • Jonathan Poyer

Biotech Index Consolidates - What to Do with the Gyrations?

The S&P Select Biotech Index continues to consolidate as investors look for fundamental updates to drive individual stock performance.

Large caps generally have muted reactions to clinical trial results, except when multibillion dollar revenue opportunities could materialize.

Novartis (NVS) rallied nearly 10% on news their CDK 4/6 inhibitor Kisqali reduced the risk of disease recurrence in patients with early breast cancer. The trial enrolled over 5,000 patients and analysts project the incremental revenue opportunity may be as high as $6 billion annually.

Regeneron (REGN) also rallied nearly 10% on news interleukin-4 receptor alpha antagonist Dupixent demonstrated significant exacerbation reductions in a trial of chronic obstructive pulmonary disease (COPD) patients. The 30% reduction exceeded analyst expectations and is projected to potentially provide up to an incremental $5 billion annual revenue opportunity. SMID cap companies with promising data continue to show there is significant capital available to fund development and launch activities.

89Bio (ETNB) raised $275 million following positive topline results for Phase 2b ENLIVEN results of Pegozafermin in NASH. Likewise, Karuna Therapeutics (KRTX) raised $400 million after reporting positive results from a P3 schizophrenia trial. Altimmune (ALT) shareholders were not as fortunate as the stock was cut in half following mid stage trial data that raised concerns over the tolerability profile of Pemvidutide, a peptide-based GLP-1/glucagon dual receptor agonist. The discontinuation rate was >25% in high dose group leading analysts to downgrade the stock as competitors that are further ahead appear to have a superior profile.

Microcap bankruptcies also continued as higher cost of capital is proving to be the death knell for companies without a compelling path forward. Codiak Biosciences (CDAK) filed for Chapter 11 bankruptcy while Applied Molecular Transport (AMTI) announced the departure of the CEO, a 57% reduction in force and initiative to explore strategic alternatives.

The vast divergence in product development outcomes provides fundamental, thesis driven investors the opportunity to differentiate performance thought stock picking.

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