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  • Jonathan Poyer

Small Caps - Show Me the Money

The S&P biotech index consolidated just below the major moving averages into the Thanksgiving trading week as fundamental updates were driving individual stock prices.

Merck (MRK) served up an M&A Monday with the acquisition of Imago Biosciences (IMGO) for $36 per share in cash or ~$1.35 billion, a >100% premium to the prior day's closing price. Notably the takeout price nearly matched IMGO's 2021 share price high. The deal provides MRK with an orally available lysine-specific demethylase 1 (LSD1) inhibitor, bomedemstat, that is currently being evaluated in multiple Phase 2 clinical trials for the treatment of essential thrombocythemia, myelofibrosis, and polycythemia vera. It seems MRK is willing to invest in a strategic hematology asset and take on execution risk as opposed to pursuing Seattle Genetics (SGEN) where the math becomes challenging.

Cytomx Therapeutics (CTMX) rallied >50% in the days following a strategic collaboration with Regeneron (REGN) to create conditionally-activated investigational bispecific cancer therapies. CTMX continues to trade at a negative enterprise value following the move as many investors are viewing small caps as "show me" stories as financing becomes more difficult.

Once high-flying gene editing companies are also adjusting to this new reality as Editas Medicine (EDIT) is testing new lows after announcing EDIT-101, an in vivo CRISPR/Cas9 genome editing medicine under development for the treatment of blindness due to LCA10 designed to repair the IVS26 CEP290 mutant allele, showed disappointing data. EDIT plans to pause enrollment in the trial while they seek a collaboration partner despite the fact Abbvie (ABBV) previously returned rights to the LCA10 program.

Insider purchases continue to be a great way for management teams to show their confidence, especially in small caps. Unfortunately, the list of such companies is relatively short, but grew by one this past week as multiple insiders at Airsculpt Technologies (AIRS) stepped in to buy shares with the stock at all-time lows.

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