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  • Jonathan Poyer

Lots of Rough News but Not Time to Walk or Run Away

The S&P Select Biotech Index made a new low for the year and is down more than 10% in the past two weeks.

Treasury yields on the 10 year climbed above 4.5% for the first time since 2007 which led the S&P 500 for the first drop of >1.5% in over 100 days.

Tax loss selling is starting to get more mentions as one of the contributing factors to the acute weakness in biotech. One strategist even described a number of short "tax loss sale" baskets that several bulge bracket banks were offering as a potential source of added selling pressure. The index was also down >10% last September (2022), before trading higher into year end.

The CFO of Ironwood Pharmaceuticals (IRWD) showed the street how to deal with indiscriminate selling by making an open market purchase last week. IRWD shares are up 15% since then (on no other news) despite the index making a new low.

Negative clinical updates contributed to the pain as Morphic Holding (MORF) fell ~60%, losing ~$1.5 billion in market cap on the publication of an abstract for lead drug candidate MORF-057. Specifically, the cross trial comparison of the oral integrin inhibitor showed a lower rate of endoscopic improvement in a mid stage trial (~26%) vs the approved injectable biologic Entyvio (~40%) in ulcerative colitis patients. The company and many analysts attempted to defend the stock by arguing patients in the MORF-057 trial were more severe and likely had a higher baseline endoscopic burden. In this market, companies must prove they have a differentiated product to command a premium valuation and MORF shareholders must wait a couple of years for a larger, randomized data to better make the case.

Travere Therapeutics (TVTX) was nearly cut in half on announcing the confirmatory Phase 3 PROTECT Study of Filspari (sparsentan) in IgA nephropathy (IgAN) narrowly missed the US primary regulatory endpoint of eGFR total slope, while a closely related EU regulatory endpoint of eGFR chronic slope was met. The mixed data raises questions around FDA allowing Filspari to convert from accelerated to full approval and the relative competitive positioning.

Regulatory headwinds poured additional salt into the wound as ARS Pharmaceuticals (SPRY) fell more than 50% on a surprise Complete Response Letter (CRL) from FDA rejecting approval of Neffy (epinephrine nasal spray). The CRL requested an additional clinical trial, despite a positive Advisory Committee vote in May that was seemingly supportive of approval. SPRY plans to "fight city hall" and submit a Formal Dispute Resolution Request (FDRR) to appeal the CRL.

Taysha Gene Therapies (TSHA) went the other way and announced discontinuation of drug candidate TSHA-120 for the treatment of giant axonal neuropathy due to inability to agree with FDA on a registration path forward. Cue the Kenny Rodgers theme music.

Seelos Therapeutics (SEEL) lost >80% if its value following release of top line results for the SLS-002 Phase 2 study in adults with MDD at imminent risk of suicide that failed to meet the primary endpoint. The company has limited cash resources and it is not clear how they can move forward.

Creative destruction continued with a 70% reduction in force announcement from Kinnate Biopharma (KNTE), pausing development of several programs and extending the cash runway into 2026.

Management teams are seeing blood in the streets and will need to deliver results to help stem the tide.

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