The S&P Biotechnology Select Index continued to rally through the start of 3Q and is now up >30% from the June low. Despite the rebound the sector ended the 1H of 2022 with its worst start to a year ever. The index has fallen for 6 quarters in a row, tripling the prior record of only 2.
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Culling of the biotech herd continues with a broad range of strategic decisions being taken. For the first time since we can recall, a small cap biotech company trading at a negative enterprise value announced plans to distribute substantially all their operating cash to shareholders. Catalyst Biosciences' (CBIO) board expects to distribute approximately $65 million or about $1.90 per share in cash. CBIO had recently traded as low as $0.35 per share following several pipeline setbacks.
In an alternative structure to redirect cash on a small cap biotech balance sheet, Syros Pharmaceuticals (SYRS) is acquiring TYME Technologies (TYME) with net cash at closing after accounting for wind-down and transaction expenses estimated to be approximately $60 million. SYRS will issue 74 million shares to TYME shareholders and will raise an additional $130 million in a concurrent private investment in public equity (PIPE) transaction. The combined company will have a substantially bolstered balance sheet and will be led by Syros' existing management team.
Likewise, Graybug Vision (GRAY) rallied off its negative enterprise value on the announcement it plans to pursue strategic alternatives including a potential sale or merger transaction. Heron Therapeutics (HRTX) 34% workforce reduction announcement suggests further downsizing may be in the offing across the sector. HRTX's reduction plan is focus on research and development leading to estimated annualized savings of $43 million, extending the company's cash runway.
Reduction in the number of listed biotechnology companies and concentration of investor capital on a smaller number of compelling programs should enhance the return profile of the sector moving forward.
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