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  • Jonathan Poyer

Biotech Value to Be Found Beyond What the Market Is Pricing - Just Ask the Buyers

The S&P Select Biotech Index is now well over 1,000 days from the 2021 peak as it tries to find a bottom. 

Boston area laboratory vacancy rates hit a 10 year high with ~12% overall availability translating to more than 5 million square feet of space.  It seems biotech is in the running for most collateral damage inflicted by Fed policy.  The contrast between biotech 'haves' and 'have nots' in terms of cash resources remains wide, but seems poised to shrink.  On one end, there are several dozen development stage companies that have raised significant cash from investors and or strategic partners, but have a high burn rate of >$1 million per day.   This number will resonate with fans of the 1985 comedy film  Brewsters Millions, where Richard Pryor's character Monty Brewster needed to spend $30 million in 30 days without giving it away and be left with no residual assets to inherit a $300 million fortune.  In the movie, Monty Brewster struggled to spend the cash, going to extraordinary lengths including a run for Mayor and an exhibition game with the New York Yankees.  Biotechs have a much easier time, especially platform companies with complex biologics manufacturing, multiple clinical stage pipeline candidates or those building new commercial infrastructure. 

Case in point is Sage therapeutics (SAGE).  The company reported nearly ~$1 billion in cash and expected near term collaboration payments in the most recent quarter, yet is guiding only ~2 years of runway.  SAGE has had its share of clinical and regulatory setbacks and is currently trading at a <$300 million enterprise value (EV) despite raising >$3.3 billion since its inception. 

Likewise, Iovance Biotherapeutics (IOVA) most recently reported total paid in capital of >$2.6 billion, yet trades at a ~$1 billion EV.  IOVA's $427 million in cash and expected near term payments as of the last quarter barely provide one year of runway.  Thus IOVA is only funded to partially launch tumor infiltrating lymphocyte (TIL) therapy Lifileucel that has a 1Q 2024 target FDA action date.  More capital or strategic partners will be needed near term to sustain the business through cash flow breakeven. 

Several earlier stage gene editing companies are spending at similar or greater rates raising the question of how long will they be able to sustain status quo.  On the other hand, the record number of negative EV companies are increasingly being targeted by shareholder proposals. 

Theseus Pharmaceuticals (THRX) was the latest to receive multiple shareholder offers to take the company private.


Likewise, Freeline Therapeutics (FRLN) accepted an investor proposal to take the company private at a >50% premium to the closing price prior to the announcement. 

Select management teams continue to buy stock with purchases reported by Agilon health (AGL), Marpai (MRAI) and Dentsply Sirona (XRAY). 

It seems there are a growing number of sophisticated market participants that are seeing value beyond what the market is pricing in

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