You think failure is priced in? Think again

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If Incyte believed that whatever value Jakafi might have had in pancreatic cancer was wiped out with a trial failure two weeks ago it was wrong. The initial 20% crash in its stock yesterday shows that we are now at a point where a second dose of the same bad news is taken as another opportunity to row back expectations that had been way out of kilter with reality.

The Nasdaq biotech index fell another 2% yesterday, and its losses now amount to 28% year to date. Against this market is seems remarkable that biotechs are still able to get flotations away, as Avexis and Proteostasis Therapeutics did yesterday.

In the event Incyte recovered some of its losses and ended the day off 9%. But Jakafi’s failure in pancreatic cancer must surely already have been priced into a stock that is down 40% year to date, so moves like Piper Jaffray’s, which cut its Incyte target from $125 to $65 on the news, look instead like a way of bringing valuations into line with a reality that has not existed for some time now.

Failure assured

After all, sellside consensus had only 9% of 2020 Jakafi revenue coming from pancreatic cancer, according to EvaluatePharma.

What is more, failure was assured once Jakafi’s phase II sub-study in this indication flopped last month. Now the group says the phase III Janus-1 trial failed an interim analysis, leading it to discontinue this and the Janus-2 study too.

How could this possibly have come as a surprise? The company is also discontinuing all other solid tumour trials; those in breast and lung cancers were at an even earlier stage than pancreatic, and EvaluatePharma consensus did not indicate any contribution from them in 2020.

Beyond prompting a reining in of more general expectations for Incyte, the Jakafi failure also signals the futility of one biomarker-driven approach in this highly intractable indication – in this case looking at patients with high levels of C-reactive protein (CRP).

Still, the company’s cut of what it considered to be high CRP was controversial, and the failure confirms that an earlier phase II success was likely due to chance. The Jakafi setback also does not bode well for another Jak-inhibitor approach in solid tumours – Gilead’s momelotinib (Pancreatic cancer 2016: this time it’s (getting) personal, February 5, 2016).

IPO waters

If Incyte is suffering at the hands of the market, spare a thought for the few biopharma groups that have, against the odds, braved the IPO waters to complete floats.

Avexis and Proteostasis were two Nasdaq biotech IPOs that got away yesterday, while today the UK speciality group Shield Therapeutics completed a £32.5m ($47.1m) placing that will result in its stock trading on London’s Aim from February 26. Avexis and Proteostasis respectively lost 10% and 17% in their first day’s trading; Editas is 13% off its February 2 IPO price, despite yesterday's 20% surge .

Floating despite almost assured subsequent heavy losses shows just how desperate venture capitalists are to make a return while any gap remains in the IPO window. But consider the disaster of Proteostasis, which got away at just $8 a share – below the planned $12-14, and remarkably causing a paper loss for its VCs, who had bought in at an average of $11.64.

Avexis VCs fared much better, getting a more than fourfold step-up from the average pre-float price, so to them the subsequent selloff might be less immediately troubling. Either way, however, private and public investors alike now have to adjust to much longer-term horizons.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobPlieth on Twitter

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