Will Shareholder Value Be Driven By Fed Rates or Clinical Trials?
The Fed's hawkish 75 raise and outlook sent major indices back down to retest the June lows while the S&P Biotechnology Select Index remains >20% above its June nadir.
Committee members were split on raising 100-125 bps more by year end setting up the debate on whether or not the Fed will opt for a fourth consecutive jumbo 75 bps hike in November. As economic headwinds intensify its notable that many defensively oriented big pharmas trade at <10x PE while the S&P 500 remains >16x. In past recessions it was common to see pharmas trading at a premium multiple to the broad market suggesting positioning adjustments may still be pending.
Creative destruction in small cap biotech continued with the merger of Sesen Bio (SESN) and Carisma Therapeutics (private). The combined company will have $180 million in cash (including a $30 million concurrent financing) and fund the prioritized chimeric antigen receptor macrophage (CAR-M) platform through 2024.
Finally, opportunistic strategic deal-making was highlighted by GSK PLC's (GLK) license agreement of Spero Therapeutic's (SPRO) oral carbapenem antibiotic tebipenem. SPRO announced a 75% headcount reduction back in May when FDA informed the company the data submitted for tebipenem's regulatory approval would likely be insufficient. SPRO was facing a punitive financing or possible bankruptcy when GSK announced last week's licensing deal with $66 million upfront, a $9 million equity investment plus milestones and royalties that sent the stock up >160% on the news.
SPRO's ability to create value for patients and shareholders will now seemingly be determined by the outcome of the pending clinical trials, not the federal funds rate.