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  • Jonathan Poyer

Lots of News Is Good News

The S&P Select Biotech Index ended 1Q with a >8% drawdown for the quarter with nearly 75% of the components in the red in sharp contrast to the >7% gain for the S&P 500.

Remarkably, the S&P 500 is actually down ~2% percent on the year when you take out 7 Big Tech stocks (AAPL, MSFT, META, NVDA, GOOGL, AMZN, TSLA). The divergence started in February and seemingly widened in response to turmoil in the banking system following the collapse of SVB and negative headlines on coming price controls from the so called Inflation Reduction Act. The US drug pricing outlook seems to compare favorably to the rest of the world; though, as China reduced average prices for drugs by 56% during the most recent centralized procurement process.

Blockbuster M&A news (PFE/SGEN among others) has not yet been able to stem the tide, although rumors of additional M&A deals persist with Bloomberg reporting ~$8 billion Apellis Pharmaceuticals (APLS) may be a target. Managed care stocks received a shot in the arm to start the new quarter with as the Centers for Medicare & Medicaid Services (CMS) issuing more favorable rules on 2024 reimbursement rates and changes to the risk model compared to preliminary expectations.

Fundamentals continued to drive outsized individual stock biotech moves. Ascendis Pharma (ASND) fell by >30% on news FDA found deficiencies in the pending new drug application for Transcon PTH in hypoparathyroidism. The issues remain undisclosed making it difficult to handicap the risk profile. Biomea Fusion (BMEA) rallied ~100% on news the initial cohorts in the phase 2 trial of BMF-219 in patients with Type 2 diabetes showed signals of glycemic control. BMF-219 is an investigational covalent menin inhibitor that is thought to impact beta cell recovery / survival although the mechanism has not been fully elucidated. BMEA raised $150 million at an all time high share price following the announcement.

Viking therapeutics (VKTX) is also up nearly ~100% following announcing phase 1 results for VK2735 (subQ dual GLP-1/GIP agonist) showed a 6.0% pbo-adjusted weight loss at 28 days and subsequent capital raise of ~$250 million. Analysts noted the overall safety and efficacy data compared favorably to early phase 1 data from Eli Lilly's (LLY) approved product Mounjaro, which is estimated to do >$15 billion peak revenue.

Intra-cellular Therapies (ITCI) rallied on positive topline results from Study 403 evaluating lumateperone as monotherapy in the treatment of major depressive episodes in patients with mixed features. Peak revenue estimates for ITCI's lead drug now exceed $2.5 billion.

Finally, Bicycle therapeutics (BCYC) gained on announcing a strategic collaboration with Novartis to discover, develop and commercialize Bicycle radio-conjugates. BCYC received $50 million upfront and may get up to $1.7 billion in milestone payments and tiered royalties.

Although it is not yet apparent at the S&P Select Biotech Index level, good news is starting to pile up for a growing number of individual components.

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