The Friday Biotech Perspective #35
A Championship Season for catalysts in 2024
As a soccer player, I came to appreciate how fine the line was between a 2-1 win or loss. A bad bounce, a slip, or a poor recovery often decided the outcome. Teams with winning seasons prepare at length to avoid and overcome such mistakes.
Biotech companies do the same with drug trials and FDA approvals. Companies and investigators first validate the mechanism of action and safety. They then examine key biomarkers, select appropriate patients and test for efficacy. When companies slip or reach too far for efficacy in trial, the markets punish, similar to the cruel finality of a soccer loss.
Thanks in part to a strong, consistent year from the broader stock market, the catalysts closed by Biotech Currents this year posted a record of 21-9-10, as in 21 price gains of more than 5%, 9 (draw) returns between 5% and -5%, and 10 price losses of more than -5%. A handful of the 40 closed catalysts were initiated in 2023. A record of 21-9-10 could place a club in the top 4 of the European Leagues, making the club eligible for Champions League revenue in the following year. Next year’s revenue is hardly guaranteed in biotechnology catalysts but 2024 was a rewarding year, with plenty of 2-1 victories.
Shares from 15 of the 21 companies with positive catalysts in 2024 were rolled over into a pullback portfolio. Eight other stocks previously were in the pullback portfolio, including Summit Therapeutics (NASDAQ:SMMT), which originally was covered in 2020. The return from the original cost of the Summit investment is up more than 700%, thanks significantly to data from its cancer drug ivonescimab this summer.
Overall, the return of the 23-stock, pullback portfolio is 117% over the last five years, based on the cost of the initial investments prior to compelling catalysts, BioNTech SE (NASDAQ:BNTX) began in January 2020 and Mirum (NASDAQ:MIRM) in 2021. Two more were started in 2022, and three in 2023. The remaining 15 are all from 2024.
Among the winners in 2024, the radiopharmaceutical firm Fusion Pharmaceuticals posted a 157.5% return in late April when the company was purchased by AstraZeneca PLC (NASDAQ:AZN). The sale of Fusion followed Bristol Myers Squibb’s (NYSE:BMY) purchase of the radiopharmaceutical company RayzeBio on December 29, 2023, which netted a 210% return. Other notable gains were the 82.8% return by Vaxcyte, Inc. (NASDAQ:PCVX) for its phase I/II data on a pneumonia vaccine and an 82% return by Janux Therapeutics, Inc. (NASDAQ:JANX) for phase I data on its prostate cancer drug.
Not all catalyst selection were big winners and indeed there were big losers, led by Aerovate Therapeutics, Inc. (NASDAQ:AVTE) and Keros Therapeutics, Inc. (NASDAQ:KROS). Both were developing drugs to treat pulmonary arterial hypertension (PAH). Aerovate’s phase II/III trial crashed on nearly every endpoint measure, leading to a negative 83% return after being up ~30% before the data. Aerovate investors are moving to merge the company with privately held Jade Biosciences.
Shares of Keros sank 75% after it halted administration of the two highest doses of its drug cibotercept because of reports of excess fluid buildup in the pericardial sac around the heart. The company said the fluid buildup was an unanticipated observation in the phase II trial. Keros disclosed the trial interruption one week after it licensed worldwide rights to its cancer drug elritercept for which it received a $200 million upfront payment from Takeda (TSE:4502/NYSE:TAK).
NB for 2025: Avoid trials of new drugs to treat PAH. Sotatercept, which Merck & Co., Inc. (NYSE:MRK) acquired through its purchase of Acceleron, appears to be the runaway leader in PAH.
A not-so-novel takeaway from 2024 is biotech returns remain fickle, not only from the catalyst outcome but from overall investor perception. In November, Kura Oncology, Inc. (NASDAQ:KURA) entered a potential $1.2 billion alliance with Japan-based Kirin Kyowa (OTCPK:KNBWY) for Kura’s lead leukemia drug ziftomenib. The deal included a $330 million upfront payment and likely another $420 million in near-term milestones. Normally such a deal would boost to a company’s stock price but Kura shares fell 38% from the initial coverage price because investors determined after selling ziftomenib, Kura no longer would command a premium buyout by a bidder. Kura’s pipeline cupboard is not bare.
On the flip side, Verona Pharma plc (NASDAQ:VRNA) closed at ~$22 per share in late June 2024 after it received FDA approval for its chronic obstructive pulmonary disease (COPD) drug ensifentrine. Like Kura’s ziftomenib, ensifentrine is Verona’s main asset but the stock only rose 6% in six months before the FDA approval was announced. Since moving into the pullback portfolio in July 2024, Verona’s stock price has climbed to $47 per share.
Resolution for 2025: Steer clear of slips and bad bounces. How to achieve, TBD. J
Happy New Year!