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  • Jonathan Poyer

Record Biotech Financing Has Increased Competition but Not Necessarily Winners

Record life sciences financing activity and new company formations aided by the fiscal / monetary tailwinds coming out of the pandemic lockdowns has contributed to competitive pressure across most major therapeutic categories.

It is generally not enough for a new entrant to show activity, but rather clearly offer a differentiated profile relative to therapeutic alternatives. Case in point was the post close Monday release of highly anticipated data from Acelyrin's (SLRN) placebo-controlled randomized trial of IL17-A small protein therapeutic inhibitor Izokibep in Hidradenitis Suppurativa (HS). Shares crashed >60% on the headline the trial did not meet the primary endpoint with the decline exacerbated by the existence of two previously released data sets from competitors that show clear differentiation. The bar for SLRN to create value for HS patients was set by the competition, not simply the placebo group.

Crinetics Pharmaceuticals (CRNX) cleared the competitive bar and stuck the landing, rallying >60% on announcing data from the Phase III PATHFNDR-1 study with paltusotine in acromegaly that exceeded expectations. Management was credited on clinical trial operations competence by delivering a low placebo rate of only 4% success on primary endpoint (maintenance of IGF-1 <1x ULN) and the drug credited with an attractive 83% success rate. The overall data profile suggested CRNX may be the best in class option for management of acromegaly.

Likewise, Cymabay Therapeutics (CBAY) was trying to make the case seladelpar is the best in class therapy for PBC patients in the recently announced positive Phase 3 RESPONSE trial. The trial met the primary and both major secondary endpoints, but shares were only up <10% on the day. The muted stock reaction was mostly attributed to crowded positioning into the data and a numerically inferior placebo-adjusted response rate compared to a competitor. Analysts have come out to defend the stock and have since helped shares grind higher into an anticipated financing.

Cash runway should always be top of mind as companies that are caught out of position can be punished as dilution risk is priced in. Madrigal Pharmaceuticals (MDGL) traded off (and are now down ~40% YTD) on the news of a CEO change to someone with more of a commercial focus as the company approaches the launch of resmetirom in NASH. MDGL shares had been trading at elevated levels in anticipation of M&A given MDGL is in line to have the first therapy approved for the indication. MDGL currently has less than one year of cash and seemingly will need to raise substantial additional capital to launch a new drug in a market that has not previously been established.

In addition to finding assets that can beat placebo and the competition, investors must also weigh valuation, positioning and capital needs in order to beat the market.

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