2020 wins top of the froths for biotech stocks

It's official: dramatic share price jumps in response to clinical data have become more common.

The high-risk, high-reward drug development sector is no stranger to vertical valuation gains, but the frequency of striking stock jumps seems to be increasing. Only this week, Kalvista’s shares more than doubled on mid-stage data.

A new analysis reveals the extent of this growing volatility: in 2020 the mean and median share price rise in response to clinical data hit at least a five-year high. This year has already witnessed several examples of market frothiness, so it seems that while biotech stocks remain in huge demand the wild ride will continue.

The chart below groups by year positive share price reactions to the release of clinical data. The analysis, based on entries in EvaluatePharma’s Event Analyzer, encompasses around 600 global drug developers listed on various stock exchanges around the world, excluding big pharma groups.

Given the US’s dominance of drug development, however, the vast majority of these moves were registered on Nasdaq. It is clear that from 2019 share price jumps became more pronounced. The trend is also apparent when looking at reactions by phase of development, detailed separately, and it is interesting to see that 2020 rewarded phase I successes particularly richly.

The coloured boxes represent the middle quartiles of share price reaction, the whisker lines show maximum values, excluding outliers.

It is important to remember that equity markets in general have been experiencing big swings in the past few years. But there are several explanations for this increasing volatility in biotech stocks in particular.

Biopharma has been enjoying a plentiful financing period, and the pandemic triggered a flood of new money into the sector. More dollars chasing ostensibly the same number of opportunities will always push prices higher, a factor that was amplified last year.

More specific triggers include the progress of gene therapy; huge enthusiasm for this technology means that signals of efficacy in a couple of patients is now taken as proof of concept. And of course last year saw investors jumping on developers purporting to be working on Covid-19 projects.

The chart above does not capture the most egregious share price jumps seen in the past five years – the Y axis would extend off the page – some of which are detailed below. 2020 gets a couple of entries, although Covid-19 data only make it in once as a trigger.

The pandemic has been responsible for many other dramatic rises, of course, and remember that this analysis looks only at clinical data triggers. It should also be remembered that these huge surges are not always maintained. A good example is Proteostasis, which ended up a cash shell after its data failed to hold up.

2021 looks primed to deliver plenty more market swings. So far the year has seen Aclaris surge 220% on early rheumatoid arthritis data, while Cassava jumped 141% on results from 50 patients in a mid-stage, open-label Alzheimer’s trial. And the pandemic provided for Gritstone, which soared 249% in January on news that its Covid-19 vaccine was going into phase I.

Hold on to your hats; the ride is far from over. 

Among the outliers: remarkable one-day share price gains on clinical data
Company (date of jump) Share price reaction  Resulting market cap ($m) Current market cap ($m) Trigger 
Greenwich Lifesciences (Dec 2020)  998% $686m $493m Five-year data from phase IIb trial of breast cancer project GP2 presented at a conference
Proteostasis (Oct 2018)  448% $380m Acquired as cash shell Phase I data from three cystic fibrosis doublets that have since disappointed
Karuna (Nov 2019)  443% $2.2bn $3.2bn Phase II hit with KarXT in schizophrenia
Celator (Mar 2016)  432% $309m Acquired by Jazz for $1.5bn  Phase III success with acute myeloid leukaemia project Vyxeos
Synairgen (Jul 2020) 421% $349m $459m Interim results from a phase II study of SNG001 in hospitalised Covid-19 patients
Source: EvaluatePharma. 

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