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  • Jonathan Poyer

Creative Destruction Continues in Biotech - But Is the Dawn Near?

The S&P Select Biotechnology Index held above the 200 day moving average on the heels of a PCE report coming in hotter than expectations.

M&A rumors returned to the forefront with the WSJ suggesting Pfizer (PFE) is pursuing the potential acquisition of Seagen (SGEN). The paper had previously suggested Merck (MRK) was pursuing SGEN back in mid 2022, but that deal never happened despite the fact that MRK had inked a multi-billion dollar collaboration deal with SGEN back in September of 2020. Analysts speculated valuation has been the major issue with unprofitable SGEN trading at a lofty 10-14x EV/Revenue and any deal in the $35-40 billion range would not be accretive for several years (if ever). The WSJ did not articulate a clear reason why PFE would presumably be willing to pay a higher price than MRK to get a SGEN deal done.

Clinical updates continue to move development stage biotech stocks with Celldex Therapeutics (CLDX) rallying on favorable updated Phase Ib Data with KIT targeting mAb Barzolvolimab in chronic spontaneous urticaria (CSU).

Nektar Therapeutics (NKTR) went the other way, crashing ~50% on negative Phase 2 data for IL-2 conjugate rezpegaldesleukin in patients with systemic lupus erythematosus. Likewise, Fulcrum Therapeutics (FULC) cratered 55% on announcing FDA placed a clinical hold on their small-molecule inhibitor of Embryonic Ectoderm Development (EED), FTX-6058, in sickle cell disease. Blueprint Medicines (BPMC) was also under pressure following the decision by partner Roche (RHHBY) to terminate the Gavreto collaboration agreement. The drug was approved in 2020 for various RET-fusion+ and RET-mutant cancer patients, but the launch has been slow as specific patients have been seeming hard to identify and maintain on therapy over time. Notably, BPMC was able to realize nearly $1 billion in value over the course of the Roche partnership despite the apparent limitations of Gavreto's ultimate commercial value.

SMID cap earnings reports are showing some variability with several companies reporting beats (LNTH, COLL, DVAX) and others misses (APLS, GLPG, PTCO, IONS, UTHR). Creative destruction continued with Rubius therapeutics (RUBY) becoming the latest former high flyer to announce a dissolution plan after unsuccessful attempts on alternatives. RUBY had been valued at >$2 billion during the sector's peak in 1Q 2021.

Mei Pharma (MEIP) and Infinity Pharmaceuticals (INFI) announced a merger to combine resources and extend the operating runway for the combined company. Likewise, Jounce Therapeutics (JNCE) and Redx Pharma (REDX LN) are merging and following a reduction in force to extend the cash runway and focus on their best assets. Finally, Graphite Bio (GRPH) and Talaris therapeutics (TALS) announced significant reductions in force and exploration of strategic alternatives.

It is always darkest before dawn.

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