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  • Jonathan Poyer

Stock Picking REALLY Matters - What a Week!!!

The S&P select biotech index shrugged off FTC's legal challenge to Amgen's (AMGN) pending ~$28 billion acquisition of Horizon Therapeutics (HZNP) as more M&A headlines pushed the index back to the high end of its recent trading range.

The FTC broke new ground last week by arguing AMGN *might* pursue a bundled rebate strategy with some of the orphan drugs acquired from HZNP as the primary basis for attempting to block the proposed merger.

This is the first biotech/pharma deal challenge by FTC since 2009 and appears to be politically motivated as the deal passes historical anti-trust standards evaluating commercial overlap. Ironically, HZNP itself acquired each of the orphan products that constitute the vast majority of the deal value through a series of their own M&A transactions that were approved by the FTC. Legal scholars suggest that FTC is in a weak position, but scrutiny on larger mergers may persist until this case is resolved.

Right on cue, Ironwood Pharmaceuticals (IRWD) started this week announcing the plan to acquire VectivBio Holdings (VECT) for ~$1 billion or ~40% premium to the prior day's closing price. VECT is developing apraglutide, a synthetic GLP-2 analog currently in a Phase 3 trial for Short Bowel Syndrome with Intestinal Failure (SBS-IF). Data from this pivotal trial is expected later this year and it seems such development stage deals will circumvent an increasingly activist FTC.

Significant pending loss of exclusivity / flush cash reserves for large caps, an imperative to source innovation externally and an evolving anti-trust landscape may converge to create the most attractive development stage SMID M&A environment in recent memory.

Meanwhile, FDA approved another gene therapy by giving the nod to Krystal Biotech's (KRYS) VYJUVEK for patients with dystrophic epidermolysis bullosa (DEB) with mutation(s) in the collagen type VII alpha 1 chain (COL7A1) gene. List price equates to >$1 million per patient per year for induction and ~$600k for ongoing use, leading KRYS to estimate a >$750 million global market opportunity despite there being only ~3000 DEB patients in the US. KRYS hit an all time high on the news.

In contract, Intercept Pharmaceuticals (ICPT) reached an all time low following an FDA advisory committee vote that the benefits do not outweigh the risks for their lead drug obeticholic acid (OCA) in nonalcoholic steatohepatitis (NASH) patients. FDA highlighted concerns around the drug induced liver injury (DILI) (death or transplant) rate of one in 827 subjects exposed to OCA, which is ~20x higher than the Agency’s typical threshold. ICPT is now trading at ~1.1x current revenue of OCA, which for the time being retains an approval for Primary biliary cholangitis (PBC).

Rain Therapeutics (RAIN) lived up to its name and fell ~90% on announcing lead drug candidate milademetan failed on the primary endpoint compared to standard of care in liposarcoma.

If there ever was a sector where stock picking matters, this is it.

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