top of page
  • Jonathan Poyer

Earnings Season Upon Us - Will Bad News Be Good News?

Consensus around the declining inflation narrative has placed a greater scrutiny on earnings season as the market struggles to determine the landing path for the economy. Those in the soft-landing camp will be looking for normalization of supply chains and labor markets with an improving margin outlook that paves the way for rate cuts by the summer. Those that actually believe the fed means what it says when forecasting "higher for longer" may be less willing to look through potential demand destruction from policy tightening. It seems that bad news may more closely correlate with share prices once again as long as the cost of capital is far above zero.

Bolt-on biotech M&A continued with Sun Pharma's (SUNP IN) announcement that it will acquire Concert Pharmaceuticals (CNCE) for $8 per share in cash, or ~$576 million in equity value, plus potential for up to an additional $3.50 per share or ~$250 million in contingent value rights. The upfront payment was only a 16% premium to the prior close given overhangs regarding dilution risk and intellectual property.

Appreciation on positive news was apparent as Zymeworks (ZYME) pushed higher upon announcing updated data from a Phase 2 trial examining zanidatamab, an investigational HER2-targeted bispecific antibody, in combination with chemotherapy, in first-line patients with HER2-expressing metastatic gastroesophageal adenocarcinoma (mGEA). The updated data highlighted an 18-month survival rate of 84% (95% CI 68%-93%) and the median overall survival had not yet been reached (27 months median duration follow-up). Nearly ~$10 million in ZYME purchases from a 10% holder further contributed to the positive sentiment.

Creative destruction continued with reduction in force announcements from former high flyer Teladoc (TDOC) and Cyteir Therapeutics (CYT). The latter is laying off ~70% of its workforce after a Summer 2021 IPO that raised ~$150 million.

Follow-on capital is available as both Fulcrum therapeutics (FULC) and Bluebird Bio (BLUE) each raised >$100 million last week, but there remains a much higher bar to get deals done.

1 view0 comments
bottom of page