The S&P select biotech index continues to test the lower end of the 2023 trading range as long dated interest rates rally to the highest level in over a decade.
Specialized biotech investors appreciate the sea is unlikely to lift all boats near term and are looking to individual companies that can deliver alpha based on development milestones or commercial operations. Pullbacks in the passive biotech indices often provide stock pickers the opportunity to enter or add to positions that appear to be disconnected from fair value.
(below: from peak 2/8/2021)
The pressure on SMID cap development stage companies is expected to drive more companies out of business, but offer asymmetric upside for those that succeed in developing differentiated products. Unfortunately, investors in Design Therapeutics (DSGN) were sent back to the drawing board as the stock fell 70% on mixed data from an early stage trial of DT-216 in Friedreich’s ataxia. DSGN disclosed a high rate of injection site reactions that prompted the company to pursue a new formulation, extending timelines.
Impel Pharmaceuticals (IMPL) also traded down to a record low as the company indicated a Chapter 11 bankruptcy filing may be possible.
Galecto (GLTO) also crashed more than 70% on announcing their Phase 2b trial of GB0139 in Idiopathic pulmonary fibrosis (IPF) failed to meet the primary endpoint. GLTO will discontinue development of the program.
The probability of success for drug development programs is highly variable, providing significant opportunity for outperformance for those who can leverage data to make more accurate predictions.
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