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  • Jonathan Poyer

Testing the Lows but Looking at Highs - Biotech in the Spotlight

The S&P select biotech index is starting to retest the April lows as the week started with a high-profile FDA approval rejection and a void of M&A news.

Sage Therapeutics (SAGE) tumbled ~50% on FDA's decision that additional clinical trial data would be required to approve Zurzuvae for major depressive disorder (MDD). SAGE was a former highflyer and ended Monday with a negative enterprise value, wiping out approximately $1.2 billion in market capitalization on the day and $8 billion in total from the 2019 stock high.

Mesoblast (MESO) investors sympathized as shares fell >50% on a second CRL from FDA for Remestemcel-L citing the need for an additional clinical trial. SAGE did receive approval of Zurzuvae in postpartum depression (PPD), but analysts project a relatively modest market opportunity and unclear path to profitability with this indication alone. Increasingly commercial stage biotechs must show a pathway to sustainable top and bottom-line growth in order for shares to appreciate.

Fortunately there were several bright spots from 2Q earnings with top and or bottom line beats from Acadia Pharmaceuticals (ACAD), Aurinia Pharmaceuticals (AUPH), Biocryst Pharmaceuticals (BCRX), BioMarin Pharmaceuticals (BMRN), Coherus Biosciences (CHRS), Dynavax Technologies (DVAX), Exelixis (EXEL), Lantheus Holdings (LNTH), Intra-cellular Therapies (ITCI), Insmed (INSM), Neurocrine Biosciences (NBIX) and United Therapeutics (UTHR).

The winners:

The non-winners:

Fundamental operational progress must always be evaluated in the context of positioning and investor expectations as in many cases the latter can be more important.

Case in point was TG Therapeutics (TGTX) crashing ~40% on reporting a slight revenue miss and an ex-US commercialization agreement for BRIUMVI with Neuraxpharm. TGTX had gained ~133% through May on hype around the drug launch and takeout speculation. Shares have lost ~$3.5 billion in market capitalization since as expectations were reset and near-term M&A potential came out of the stock.

Likewise, Nektar Therapeutics (NKTR) rallied ~90% on the highly unusual news that former collaborator Eli Lilly (LLY) incorrectly calculated previously reported REZPEG data and the corrected results appear to be much more promising. Remarkably, investor sentiment was so poor that even after a 90% rally the company is still trading at a negative enterprise value. NKTR is looking to advance the program in a phase 2b trial, but with the results expected out in 2H 2025 investor positioning will likely remain light in the interim.

The take home lesson for all biotechs with partnered programs; though, is to always verify collaboration data with an independent in-house analysis. While short-term specialist positioning may be working against specific companies like TGTX and NKTR, there are signs that marco investor positioning has the potential to become a tailwind for the broader life sciences sector. The big tech FOMO trade finally showed signs of rotting with Apple (AAPL) wiping out $250 billion in market capitalization in the days following the 2Q earnings report. AAPL reported declining revenue from the prior year 2Q (and surprisingly flat from 2Q 2 years ago), marking the third straight quarter of declining revenues. The print was a sharp contrast to the overcrowded positioning that led to a >50% YTD stock rally to an all-time record high that added over $1 trillion in market capitalization. AAPL management disclosed they have been working on AI for 'years', but have no clear monetization path and consensus numbers project modest mid single-digit growth or less over the next several years. Clearly recent or even medium term projected fundamentals have not been driving AAPL shares. The company still trades as peak absolute and relative multiples seemingly offering a poor risk / reward for those expecting FOMO to triumph over fundamentals from here.

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