How to build bridges across the looming loss of exclusivity (LOE) cliff facing big Pharma and big biotech? One potential way would be to increase exposure to development stage biotech companies, many with upcoming clinical or regulatory events. Analysts predict there will be $190B of branded product revenue facing LOE challenges by 2030, including the top selling drugs for more than half a dozen companies. Therapies that may be first and/or best in class are being prioritized, particularly in the areas of immunity and inflammation, and orphan diseases.
Positive clinical and regulatory updates provided some solid returns for the quarter. Consider the following positive program updates:
Acadia Pharmaceuticals (ACAD) announced the approval of the first drug for Rett Syndrome, DAYBUE (trofinetide).Rett is a rare genetic disease that severely impairs brain development and may be lethal, providing a basis for ACAD’s ~$400k estimated annual cost of therapy.
Viridian Therapeutics (VRDN) reached an all-time high on additional favorable updated data from their thyroid eye disease (TED) program.
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.
Specialists have been getting more optimistic as the biotech bear market enters its tenth quarter. Merck (MRK), Bristol-Myers Squibb (BMY), the Chamber of Commerce, and the Pharmaceutical Research and Manufacturers of America (PhRMA) trade group launched legal battles to reign in the price controls embedded within the Inflation Reduction Act (IRA) by arguing the provisions violate the U.S. Constitution.
These four legal challenges are likely the first of many aimed to alter the implementation process and provide investors a glimmer of hope that the policy environment may improve from status quo. In the meantime, these IRA lawsuits further highlight the acute need for pharma to replenish pipelines as leading franchises may face price erosion sooner than expected.
Significant pending LOEs, flush cash reserves for large caps, an imperative to source innovation externally, and an evolving anti-trust landscape seem to be converging to create the most attractive development stage small cap M&A environment in recent memory. Deal activity is expected to be concentrated on differentiated development stage assets with multi-blockbuster potential and commercial stage niche assets with the potential for near-term accretion.
The ‘artificial’ discount of the biotech sector relative to tech may have just reached a record.