Please find attached an update on the biopharma market for the week of May 27, 2024.
Next weekend we will be at ASCO and then BIO so we won’t be publishing our typical weekly market update. However, after ASCO we will publish an update on the oncology market and then resume regular weekly updates on June 9th.
Macro Picture
Last week saw the release of minutes from the FOMC meeting that happened at the beginning of May. It was clear from the minutes that the Fed has no intention to lower rates anytime soon. The labor market would need to weaken markedly for this stance to change. US inflation remains high and may take some more time to come down.
In contrast, inflation in the UK was higher than in the US after the Pandemic but how now come down to near 2%.
The Japanese Yen has been near recent historic lows this month. This is highly relevant to the biopharma sector because a weak Yen makes it much harder for Japan corporates to acquire US companies, although Ono obviously went ahead this year with a big M&A despite the currency.
Biopharma Market
The hawkish Fed sentiment expressed in the recently released minutes did not help biotech stocks last week.
The XBI dropped 2.6% last week.
If one looks at the entirety of this year, the XBI is right where it started (down 0.5% YTD).
In contrast, our biotech value barometer is up 14% so far this year.
Much of this value boost has come from exits. In total, there have been $25 billion returned to biotech shareholders so far from buyouts of companies like Karuna and Alpine Immune.
Despite the flat XBI, the market has been highly volatile at the individual stock level. Investors are changing views rather rapidly and adjusting their perspectives on key themes in the market including oncology, neuro, obesity.
Most notably, we have seen a resurgence of rare disease companies as the FDA is showing signs of more leniency in this area. Avidity has done particularly well based on both data and a FDA Breakthrough Designation. Dyne, Belite, Soleno, Inhibrx and Crinetics have all performed well in the last month.
Cell-therapy based oncology has been weak while some oncology companies with other modalities going into ASCO have thrived. Merus had a great ASCO abstract on its bispecific last week and moved on that. Kelun also did well on fresh data.
A short squeeze triggered by the somewhat bizarre reappearance of “Roaring Kitty” has helped Cassava.
We have seen several gene editing stories including Beam and Verve decline. Verve recently went on clinical hold. Cell-therapy based oncology has been weak.
We are also seeing several immunology stories like Apogee and Tourmaline show weakness.
Last week’s buyout of HI-Bio shows just how strong the tailwinds are in immunology but there has been so much investment in biotech in this space that some investors are taking gains and moving to other areas.
Cell therapy names like Kyverna and Arcellx have been particularly hit in the last month.
Verve has been the largest decliner in the last month as they went on clinical hold.
Viking has come down 56.3% in the last month as competitive news flow has reduced the perceived likelihood that the company will be acquired.
Last week also saw a number of stocks jump on bird flu and monkeypox news. Bavarian Nordic is up 16% for the month and has benefitted from mpox news. Moderna, BioNTech and Vir all jumped on bird flu fears.
The life science sector dropped 1.1% in value last week ($92 billion). All subsectors of the life sciences sector dropped in value last week. HCIT, CDMOs and biotech performed most poorly.
Capital Markets Update
The US/Europe IPO market remained inactive. The last company to go public in the US or Europe debuted seven weeks ago. Sunho Biologics completed a successful $57 million IPO on the Hong Kong Stock Exchange last week with a promising portfolio of drugs in oncology.
The follow-on market picked up quite a bit last week. A total of $1.7 billion was raised across 29 issues. This was the biggest week for follow-on offerings since mid-March.
The largest issues were by Bicycle ($556 million), Cytokinetics ($500 million) and Dyne ($325 million).
The venture private market was moderately active last week with $660 million raised by 23 issuers in this market. The largest issues were AltruBio ($225 million) and Pheon Therapeutics ($120 million).
We were surprised to read an article in Crunchbase last week indicating that, for the first time, biotechs command the majority of Series A dollars in the US
Driven by megarounds for companies like Xaira and Mirador, we have seen a very active Series A market this year. The tech sector cannot say the same and as all those tech unicorns have been licking their wounds lately.
The typically thriving venture market for tech Series A rounds has been much suppressed this year.
In so many ways, biotech as an investment class has become more mature and more mainstream.
A lengthy article in Institutional Investor last week chronicled the story behind Blackstone Life Sciences. It’s well worth reading and talks at length about the group’s fundraising success ($8+ billion in AUM) and strategy.
Blackstone’s basic idea is to earn mid-teens to low-twenties IRRs by investing in quality late stage life science assets:
“Backed by Blackstone’s scale and financial heft, [Nick] Galakatos expanded the Phase III clinical development strategy pioneered at Clarus. ‘We focus on products that have very significant potential in the marketplace and treating patients,’ he explains. ‘We’re looking for products that can bring in at least $1 billion in peak annual sales.’ The pharma industry’s dearth of capital is creating plenty of opportunities to locate such potential blockbusters.”
The name of the game is to correctly identify which assets will traverse Phase 3 development to the commercial marketplace:
“The industry has a 53 percent success rate in bringing Phase III medical products to market, according to Evaluate Pharma. Blackstone’s hit rate is 84 percent for the 131 medical products it has helped commercialize.”
Impressive.
Last week saw Jo Natauri, the well-known Goldman Sachs investment pro, leave the firm and open Invidia Capital Management. Ms. Natauri is very knowledgeable about the nitty gritty of biopharma and life sciences and will be investing to win in growth stories in the life sciences. Our understanding is that the first close of Invidia was roughly at $800 million which positions the firm to be a significant player in the life sciences PE universe.
The private debt market remained active last week with $206 million raised. The largest deal was a refinancing and restructuring of Cytokinetics’ royalty obligations with Royalty Pharma with $200 million of net new capital raised. Cytokinetics also raised $500 million in equity last week.
Cytokinetics shares dropped 19% for the week. We don’t think it was any bad news about the company’s product per se but rather the capital raise signaled that the company was unlikely to be bought by big pharma anytime soon.
Deal News
Last week saw Biogen buy HI-Bio for $1.15 billion upfront, Flerie merge into Index Pharma in a deal worth $320 million and Orna Therapeutics acquire ReNAgade Therapeutics to form a new RNA therapeutics powerhouse.
The HI-Bio acquisition by Biogen is a direct hit on that company’s M&A sweet spot: a biologic leveraging advanced immunology in rare kidney disease.
If HI-Bio’s felzartamab (CD38 mAb) gets approved in any of the three rare kidney fields where it’s being developed, it should pay off quite well for Biogen. The price seems eminently reasonable given the stage of development.
Obviously, this will not be the first CD38 mAb on the market, but the clinical development is quite distinct from that pursued by other market participants.
But, overall, we like Biogen’s move. It’s well considered and seems quite likely to generate shareholder value.
We thought last week’s merger of Flerie, a family office investor in the life sciences, into a public Swedish biotech, Index Pharma, was unusual.
To say the least.
We don’t know if we have ever seen a family office take itself public before.
It makes eminent sense in a way as the process of going public allows the private owner of Flerie to achieve liquidity over a long period of time while providing a long-term lease on life to the highly qualified team running Flerie.
Flerie has been the powerhouse family office of Thomas Eldered of Sweden.
Mr. Eldered has had many good exits and roll-ups over time including the buildout of Recipharm. Flerie sold Cormorant Pharmaceuticals to BMS in 2016 and Cobra Biologics to Cognate Bioservices in early 2020. Flerie was also an investor in Wilson. He has built out an excellent team run by Dr Ted Fjällman.
The portfolio quality looks good to us, and we expect that the new Flerie will thrive on the stock exchanges in Sweden.
Last week saw two private RNA therapeutics companies merge with Orna acquiring ReNAgade Therapeutics. But the CEO of ReNAgade, Amit Munshi, is taking over the combined company.
The merger between Renegade Therapeutics and Orna Therapeutics makes strategic sense due to the complementary nature of their technologies and the potential for significant advancements in RNA medicine. The strengthened company is well positioned for either an IPO or exit in due course given the obvious complementarities.
Renegade Therapeutics brings to the table its proprietary delivery technologies, including novel lipid nanoparticles (LNPs), which enable the delivery of RNA medicines to previously inaccessible tissues and cells. This capability is crucial for expanding the potential addressable disease market for RNA therapies?.
On the other hand, Orna Therapeutics specializes in circular RNA technology, which offers a stable and efficient means of encoding therapeutic proteins. Combining Orna's circular RNA technology with Renegade's advanced delivery systems creates a powerful, integrated platform that can deliver, code, edit, and insert RNA-based therapies. This merger is expected to overcome significant limitations in RNA therapeutics by ensuring effective delivery and stability of RNA medicines?.
The combined company brings substantial financial support. The two companies are also located relatively closely to each other, facilitating integration.
A story in the Financial Times last weekend indicated that there has been another $9.8 billion in China/Western pharma licensing deals so far this year. This is a booming area despite the geopolitics.
Obesity News
Obesity Market Size and The Importance of GLP-1 Compounders
Last week saw the release of Gallup Poll data on the use of GLP-1s. You might recall that a few weeks ago we talked about the fact identified by KFF that 12% of Americans have taken a GLP-1. But, presumably, much of that has been for diabetes – not weight loss.
The latest Gallup numbers show that six percent of Americans have used injectable weight loss drugs and that three percent of them are using the drugs now.
The users are mainly 40 to 65 years of age. Two thirds of users report that the drugs are effective and a third say not so much.
Roughly half of users have been diagnosed with hypertension, high cholesterol or diabetes.
There is so much to unpack here.
First, the “gray market” for compounded GLP-1 use is likely quite large. IQVIA data released in their most recent US Use of Medicines report indicates that there is something like 5.8 million Americans on branded GLP-1s a month. Data from Novo’s last quarterly results would put the number at 4 million.
There are roughly 275 million Americans over the age of 18. That would imply 2% of American’s are on a GLP-1. But survey data show that 12% have been on a GLP-1 and something like 6% are on a GLP-1. That would suggest that the compounded market for GLP-1s is at least as large as that for branded product. We have seen some unofficial data from the compounded world that would be consistent with that estimate of a remarkably large market.
The data we have seen indicate that the market is predominantly female, young and, overwhelmingly, is driven by persons from wealthier zip codes (primarily coastal cities).
Interestingly, a study last week in JAMA looked at GLP-1 prescribing among adolescents and young adults. The results showed that users were over 70% female but were not as heavily on the coasts. The top locale for prescriptions is in the southern part of the US
Second, given that half of America is obese, the market penetration of GLP-1s for obesity remains quite small. If only three percent of Americans are on GLP-1s and half the market is obese, there is obviously a giant untapped market out there.
Lilly Capacity Expansion
Obviously, the key to reaching that larger market will be to build the capacity to make the API, mix the drug and do the fill-finish. Lilly has already invested many billions in this regard.
We were struck by last week’s announcement that Lilly is putting an additional $5.3 billion into its API site in Lebanon, Indiana for a total of $9 billion into this site. This more than matches the $6 billion that Novo Nordisk is investing in its Kalundborg, Denmark site.
Both companies are making absolutely massive investments in manufacturing capacity. These investments are not without risk as it’s theoretically possible that at some point small molecule alternatives to GLP-1s emerge which make giant peptide API plants obsolete.
To put this in perspective, Lebanon, Indiana is a town near Indianapolis with a population of 17,000 people. Kalundborg has a population of 46,000.
The scale of financial investment in capacity for GLP-1s far exceeds what Lilly and Novo have been spending lately. Both companies are in a high growth phase which uses substantial working capital.
Lilly, for example, has an A+ credit rating from S&P but this is with $26 billion in debt and only $2 billion in cash & liquid investments (according to its last 10Q). Lilly’s cash flow from operations in Q1 2024 was $1.1 billion.
One can see that Lilly is putting a huge bet on its GLP-1 portfolio, trials and pipeline. One can also see why Lilly isn’t out doing giant M&A deals right now.
Obesity Clinical Studies
We are getting closer and closer to the ADA conference (June 21 to 24 in Orlando) so we expect to see fewer obesity studies released as sponsors hold material for the event.
Nonetheless, last week saw several interesting studies emerge.
First, the results of the FLOW study were published in NEJM showing that use of Semaglutide is associated with a major reduction in chronic kidney disease in patients with T2DM. It’s hard not to be wowed by the separation of curves shown in this study.
A related study looked weight status during women’s reproductive years and adverse outcomes in pregnancy using data from the Nurses’ Health Study. The risk of an adverse pregnancy outcome doubled among women who gained 15kg more in the study.
Weight is a big issue in pregnancy.
We spoke to one clinician last week at a major US medical center who emphasized how serious of an issue that this has become in less well-off and minority communities in the United States.
He noted that they are seeing increased incidence of heart attacks and congestive heart failure among obese pregnant women and that measures to control this are an urgent priority.
Industry News
A review came out last week in Nature Reviews Drug Discovery looking at the upswell of interest in drugs for inflammatory bowel diseases (IBD). The paper reviews the extensive pipeline and notes a number of challenges and opportunities in drug development in this area. Key challenges are non-predictive animal models and difficulties in patient recruitment. Key opportunities involve simplification of trial protocols and the use of multi-omic data to improve patient selection and prospective efficacy.
We enjoyed an article by Ron Leuty in the San Francisco Business Times that interviewed Aviv Regev, CSO of Genentech, on AI.
She is bullish on the potential of AI in drug discovery noting:
"We have to think beyond our imagination. The algorithm is imagining scaffolds that weren't seen before… The power is blowing us away. It is exceeding our rosy expectations."
We were impressed by a publication from the Regeneron Genetics Center in Nature last week which chronicled the company’s findings from nearly 1 million whole exome sequences.
Regeneron notes that roughly three percent on individuals have a clinically actionable genetic variant. They have made their findings available via a public variant allele frequency browser.
Super cool!
We have long been fascinated by the physiologic purpose of sleep. Why do we need to rest at all?
A relevant question for many of us.
It turns out that there is quite a substantial emerging literature on this topic. The leading theory is that sleep is a time when waste proteins are swept out of the brain through the glymphatic system.
A paper published last week in Science challenges this view. The paper led by Nicholas Franks, of Imperial College London, finds that there is no correlation between levels of waste protein efflux and sleep.
The mystery deepens.
We all need sleep, but no one can really explain why.
Yet.
A paper last week in Nature Human Behavior looked at theories of mind in humans and how well AI engines (LLMs in particular) can match human behavior. In other words, can computers detect and understand concepts like irony, false belief, indirectness and faux pas? The paper concludes that ChatGPT is quite good at all of this but isn’t there yet on picking up on the notion of a faux pas. In contrast, another LLM, called LLaMA2, does understand the idea of a faux pas and knows how to pick it up in text.
The day when HAL can speak with us and outgun us on the understanding deep meaning is rapidly approaching.
Research on immunodeficiencies is moving quite rapidly. Like cancer, where there are hundreds of mutations that cause disease, immunodeficiencies are attributable to at least 100 different genes. The list is expanding all the time.
For example, last week, Chen and colleagues published a paper in Science Immunology that found that NUDCD3 deficiency can cause SCID and Omenn Syndrome. It’s encouraging to see this progress and we had never even heard of the gene called NUDCD3 before.
AstraZeneca Investor Day
AstraZeneca put on an impressive “shock and awe” investor presentation last week, spending several hours going through its pipeline and strategy in detail.
A key point is that the company believes it can generate $80 billion in revenue by 2030.
We were very impressed by AZ’s presentation to investors last week and note that their revenue goal is well above analyst consensus for 2030 ($69 billion).
AZ stock barely moved last week despite the presentation.
However, the Investor Day was well advertised, and AZ shares rose significantly in the lead up to the meeting.
Pascal Soriot joined AstraZeneca in 2012 – a very tough time for the company as it was facing a series of major patent expiries with a so-so pipeline. In 2014 Pfizer came calling with an offer to buy the company for $100 billion. Today, AZ is worth $250 billion and has a massively better portfolio and pipeline as highlighted in last week’s investor day materials. Pfizer’s market cap is now below that of AZ.
Interestingly, AZ has not been a big user of M&A – making eight deals since 2018 but a huge user of partnerships and other methods. AZ ranks #3 in terms of number of deals but #5 in terms of dollars spent.
Its big M&A move was its buy of Alexion which allowed it to create a whole new business to add on to its oncology and biopharmaceuticals business area.
AZ has been very strategic in using partnerships where possible to build out portfolios in areas like oncology and, instead, has relied on M&A for add-on’s in cardiometabolic (Cincor), CAR-t (Gracell) and vaccines (Icosavax).
Despite the lack of market reaction to last week’s presentation, we came away from their presentations thinking that $80 billion in revenue is very achievable.
The presentation materials, overall, were impressive showing particularly well thought out and deep portfolios in oncology, rare disease, cardiometabolic and respiratory. The emerging portfolios in vaccines and immunology are also notable.
We thought the discussion of strategy in ADCs, lung cancer, breast cancer, rare disease and respiratory disease was particularly impressive.
AZ is investing well in cardio but is still in catch up mode on the obesity front.
Last week’s deal with SixPeaks to pick up an option on an activin IIA/B receptor antibody that aims to spur weight loss while preserving skeletal muscle mass seemed like a good step in the right direction.
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