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  • Jonathan Poyer

Has the Biotech Sector Discount Reached a Record?




Eli Lilly (LLY) is perhaps the least exposed big pharma to the ~$190 billion branded drug exclusivity loss avalanche through 2030, but they still joined the M&A party with a deal for Dice Therapeutics (DICE).



The $2.4 billion takeout was a ~40% premium to the prior days close and continues the recent trend of going earlier. DICE has only completed early phase I clinical trials with their lead oral IL-17 inhibitor and only recently started dosing patients in a phase 2 trial. LLY clearly has a strategic interest here as their IL-17 antibody Taltz is projected to generate $2.75 billion in revenues this year. Analysts expect FTC to examine the deal given the target overlap, but cite other approved and development stage IL-17 assets as justification for expecting deal closure.



Bristol-Myers Squibb (BMY) has been more quiet on the M&A front lately, despite acute loss of exclusivity issues. While we wait for BMY's next M&A deal, they followed Merck (MRK) in filing suit against the Biden administration in an attempt to roll back the price controls embedded in the so called Inflation Reduction Act.



FDA commonly issues clinical holds when a patient death is reported in a clinical trial and has done so three times recently. Specifically Arcellx (ACLX) is pausing new patient enrollment for CAR-T ddBCMA patients, 2seventybio (TSVT) for iSC-DARIC33 in AML patients and Mersana (MRSN) for their ADC in ovarian cancer. Both ACLX and TSVT reported a single patient death while MRSN reported n=5 bleeding related deaths out of a total patient safety database of ~n=500 patients. Programs that aim to deploy complex biologic therapies in late line oncology patients unfortunately often observe deaths in the trials. There may be a path forward if the root cause analysis and broader data set hold up under scrutiny, but a clear pattern of drug related mortality is never acceptable.



The tale of the tape told this story as investors sent MRSN down >60% to a new 52-week low while ACLX and TSVT had more muted drawdowns.

Tech investors seem to have fully embraced the belief that widespread adoption of artificial exuberance will ensure only new 52 week highs will be made in their sector going forward. Case in point, AI chipmaker Nvidia (NVDA) is now up ~200% YTD corresponding to a staggering +$700 billion of market cap gain. The move eclipsed the ~+$500 billion market cap gain NVDA saw during the 2021 crypro craze, before the stock declined by nearly two thirds. Remarkably, NVDA's current market cap is ~30% higher than that seen during the peak of the crypto craze at ~$1.1 trillion.



To be fair, tech titan Microsoft (MSFT) has appreciated by more YTD (+$800 billion of market cap gain), but MSFT has >10x the current revenue of NVDA and trades at a multiple that is 15 turns lower. NVDA shares remind biotech investors of Moderna's (MRNA) 2021 parabolic move on the COVID-19 vaccine rollout during an intense period of fiscal and monetary stimulus. MRNA's market cap peaked at $180 billion before the decline to around ~$50 billion more recently.



NVDA's market cap gain YTD corresponds to ~100x the total AUM invested in either of the two well known biotech ETFs, XBI or IBB. Further, the aggregate market capitalization of the n=150 components in the XBI is less than that of NVDA. The artificial discount of the biotech sector relative to tech may have just reached a record.

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