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  • Jonathan Poyer

Testing the Bottom - Are We There Yet?

Roche's (RHHBY) $7.1 billion acquisition announcement for Televant on Monday was not enough to stem the selling tide as the S&P Select Biotech Index reached new lows, falling nearly 30% since June.

There seems to be an irresistible gravitational force pulling the index down to test the prior lows from the COVID lockdowns in March 2020 and kickoff of Fed tightening cycle in June 2022. The key question remains will the selling stop there. Life Sciences investors have been maneuvering around the price control issues raised from the Inflation reduction Act (IRA), but it’s the administration's profligate spending that may be the greatest cause for concern.

10-year treasury yields may have retreated from 5% for the moment, but a seemingly unlimited supply of new government debt issuance during a time when the largest buyers are absent or pulling back (Fed engaged in QT, foreign buyers paring back, etc.) may drive long rates higher. Sadly GLP-1s have not yet proven to be effective on slimming down budgets, so Life Sciences stakeholders will need to be prepared for extended belt tightening as cash becomes king once again.

Former highflyer Beam Therapeutics (BEAM) got the memo and announced a 20% reduction in force as their annual burn is estimated to be ~$400 million.

Proposed shareholder buyouts of microcaps Rain Oncology (RAIN) and Freeline Therapeutics (FRLN) highlight the challenges of trading at a negative enterprise value.

RHHBY's Televant acquisition is their largest deal since the 2014 purchase of InterMune for $8.3 billion.

Televant is jointly owned by Roivant (ROIV) and Pfizer (PFE) in a 75% / 25% structure. The company was founded in 2022 to develop Pfizer's TL1A asset RVT-3101 for the US and Japanese markets. The deal value was in line with Merck's (MRK) purchase of global rights of competitor TL1A company Prometheus for $10.8 billion given the US / JP market is ~70% of the total.

ROIV shares traded down 11% on the announcement despite the fact the company will have a pro forma cash balance of >$6 billion net of their 75% interest in Televant. In a sign of the times, ROIV ended the day of the deal announcement at ~$0 pro forma EV.

It's always hard to call a bottom, but JP Morgan attempted to do so for Walgreens Boots Alliance (WBA) by upgrading the stock to overweight. WBA is down 41% YTD and is trading at levels not seen since Dolly the Sheep was cloned.

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