Is Biotech Dependent on M&A For Returns Now?
The S&P Select Biotech Index descended to the bottom end of the recent consolidation range, nearly 10% below the 50 day moving average.
A resurgence in bold yields, higher for longer Fed messaging, and lack of recent M&A headlines have been pressuring the sector with upside moves generally limited to companies announcing positive news.
Neurocrine Biosciences (NBIX) rallied on positive top-line data from the Phase 3 CAHtalyst trial of pipeline candidate crinecerfont in congenital adrenal hyperplasia (CAH). The trial met its primary and key secondary endpoints and analysts are projecting a >$500 million revenue opportunity.
PTC Therapeutics (PTCT) went the other way, falling nearly 40% on news European regulators issued a negative opinion on the conversion of the conditional marketing authorization to full marketing of DMD therapy Translarna. PTC plans to request re-examination of the decision based on the totality of all clinical evidence supporting Translarna since the drug failed to meet the primary endpoint the recently completed confirmatory trial. Translarna is PTC's largest drug and could be pulled from the market upon conclusion of the re-examination in early 2024.
Cost cutting continued with the long time CEO of 2Seventy Bio (TSVT) stepping down in conjunction with a strategic restructuring and 40% reduction in force. This CEO's mantra to "burn brightly" (Note: this is a direct quote from a past investor meeting) was seemingly at odds with investor expectations for use of proceeds. TSVT shares have traded down 37 out of the last 50 days, falling >66%.
Similar perpetual selling was seen with Walgreens Boots Alliance (WBA) into the abrupt CEO departure a couple of weeks ago. WBA shares have traded down 35 out of the last 50 days, falling 30% in the process.
CEO troubles also plagued medical services provider Docgo (DCGO) as the successor to the founder abruptly stepped down following reports he falsely claimed to have earned a graduate degree in Artificial Intelligence. DCGO shares have traded down 30 out of the last 50 days, falling ~50% in the process.
Time will tell if these momentum selling has overshot the fundamentals as TSVT is trading at a small fraction of the DCF value of the Abcema commercial profit share from the Bristol Myers (BMY) collaboration, WBA at ~5.5x adjusted earnings with a 8.7% current dividend yield and DCGO with a market capitalization not much more than the recently awarded $432 million contract to provide services to migrants in NYC.