In a bear market it’s the bad news that matters
The market’s reaction to positive clinical data has largely held up through the downturn, but failures have really, really hurt.
Clinical disappointments are always painful for listed developers, but in a bear market such trip-ups are particularly sore. Evaluate Vantage’s latest analysis reveals the extent of the discomfort.
The mean share price drop in reaction to negative data is sitting at 39% year to date, the deepest since at least 2018. This harsh climate gives biopharma groups even more reason to try to downplay or delay bad news, the burying of which is something of a sector sport.
Take yesterday's PTC press release, which purported to provide an update on an ongoing trial of a Huntingdon’s disease candidate, PTC518. Lurking in the fourth paragraph was news of a clinical hold in the US, which contributed to a 10% drop in the group’s share price.
In the current market even seemingly good news can be met with indifference or even downright hostility. Think of Milestone, which last week ended down heavily on data that many considered encouraging. Fear of fallout is understandable right now. For investors, caveat emptor is a more important principle than ever.
The analysis below was constructed from Evaluate Pharma’s Event Analyzer, which tracks the biggest stock price movements each day across almost 700 listed biopharma groups. Only events which produce a market cap change of more than $35m are captured.
Evaluate Vantage filtered for moves triggered by the release of clinical data. To provide a snapshot of the smaller and more volatile end of the sector, only companies with a market cap of less than $25bn were considered.
The result is the chart above, showing the mean and median moves in each half-year period from 2018. The second half of 2022 comprises only one quarter, so the apparent plunges – particularly in the mean value – should be treated with caution, as the numbers could yet shift with the full six months of events.
This caveat aside, there have clearly been some severe beatings on the stock market this year, and it is easy to understand why. Rising financing costs and geopolitical concerns are prompting investors to flee the high-risk biotech sector, and a developer whose lead project has just failed is going to find it very hard to retain support, particularly if further funds are needed.
The output above is not all about doom, however. The uptick in positive moves this year might indicate that investor sentiment bottomed out in the second half of 2021, and has since recovered somewhat. The heady atmosphere of 2020, the year that can now be declared the top of the bull market, is clearly visible (2020 wins top of the froths for biotech stocks, February 10, 2021).
It is also encouraging to see that the median response to positive news has not faded much from that peak, and has remained in a fairly tight range over the past five years. This suggests that real clinical success continues to be recognised – and hopefully rewarded.
But the reality is that many of the upswings this year will be happening from a low base. The tide is way out for biopharma, with many groups facing existential crises. The number of life science companies trading at a negative enterprise value hit a record last week, while more than three quarters of biotechs now have a sub-$250m enterprise value, the investment bank Torreya wrote in their latest market report.
Until wider market sentiment improves, biotech failures will continue to be severely punished.
| Feeling the pain: a selection of 2022 blow-ups | ||
|---|---|---|
| Company | Event | Reaction |
| Hurting percentage-wise... | ||
| Vistagen | Nasal spray for anxiety, PH94B, fails in ph3 | Shares plunge 86%; current market cap to $24m |
| Isofol Medical | Ph3 Agent trial of arfolitixorin in first-line colorectal cancer fails | Shares plunge 85%, current market cap to $11m |
| Kodiak | Ph2/3 Dazzle trial fails to show benefit for KSI-301 over Eylea | Shares plunge 80%, current market cap $369m |
| Humanigen | Lenzilumab fails to show a benefit in NIH-run Covid trial | Shares plunge 80%, current market cap $17m |
| VBL Therapeutics | Ph3 Oval trial of ofra-vec in ovarian cancer fails | Shares plunge 79%, current market cap $10m |
| Hurting valuation-wise... | ||
| Kodiak | Ph2/3 Dazzle trial fails to show benefit for KSI-301 over Eylea | One-day market cap loss of $2.1bn |
| Iovance | Ph2 data from C-144-01 study of lifileucel disappoint | One-day market cap loss of $1.3bn |
| Nektar | Ph2 Pivot IO-001 trial of bempegaldesleukin in melanoma fails | One-day market cap loss of $1.2bn |
| Mirati | Krystal-1 data released in Asco abstract disappoint | One-day market cap loss of $1.0bn |
| Northwest Biotherapeutics | Presentation of ph3 DCVax trial shows project performed worse than placebo | One-day market cap loss of $1bn |
| Source: Evaluate Vantage. | ||
