Post-ASH bloodbath is a bad omen for the biotech sector

Although hematology represents a small portion of human diseases, its weight in the biotech equity markets is disproportionally high. Bluebird (BLUE), Agios (AGIO), Juno (JUNO), Kite (KITE), Cellectis (CLLS), Pharmacyclics (PCYC), Incyte (INCY), Genmab (GEN.CO), Seattle Genetics (SGEN) and Acceleron (XLRN) all derive the majority of their valuations from hematology drugs. This is also the case for larger companies such as Amgen (AMGN), Celgene (CELG) and Alexion (ALXN).

When normalized based on number of patients, hematology is probably the most profitable and successful segment in the industry. Diseases in the blood are much easier to understand and more amenable to treatment, which can explain the major advances in many hematological disorders (blood cancers, hemophilia, anemia, rare genetic diseases). Over the years, this translated to an impressive success rate (compared to other therapeutic areas like CNS and metabolism) and made hematology companies very popular among biotech investors.

In light of this, last week’s brutal reaction to the ASH (American Society of Hematology) meeting is yet another proof of the discrepancy between Wall Street’s expectations and the reality of drug development. Even in a segment where the odds are highly favorable and significant progress is being made, it has become impossible to satisfy a market with unrealistic expectations.

Bluebird and Agios as case studies

Bluebird and Agios were hit particularly hard following ASH and completed a 60%-70% fall in less than 6 months. In Bluebird’s case, its gene therapy failed to demonstrate a significant benefit in patients with sickle cell disease or a severe subtype of beta-thalassemia. Agios’ data included an underwhelming ~20% CR rate for its IDH inhibitors in AML patients with IDH mutations.

The companies still command valuations of >$2B but the market is clearly disappointed with their data. While I admit their results are far from perfect, I still view Bluebird and Agios as success stories that have a lot in common. Both companies pioneered an entirely new field in a consistent and systematic manner and are now at the forefront of their respective therapeutic areas (gene therapy and cancer metabolism).

To me, it’s amazing how successful these companies were at their first attempts given the fact it took other platform companies like Alnylam (ALNY) and Seattle Genetics many years and failed attempts to succeed in the clinic. Bluebird’s LentiGlobin may not cure every beta-thalassemia patient, but in some cases the effects are mind boggling. Agios’ inhibitors may have a limited effect as monotherapy, but their unique mechanism of action and excellent safety profile may still enable the majority of patients to derive some clinical benefit in a disease that hasn’t seen a new treatment for decades. Moreover, adding IDH inhibitors to approved regimens may enhance the effect and bridge more patients to potentially curative transplant.

Implications beyond hematology

Personally, the sobering ASH experience reinforces my concerns about investors’ unrealistic expectations that disregard the inherent risks of drug development. The fresh IPOs for Voyager (VYGR), CytomX (CTMX) and Wave (WVE) prove that companies with unproven treatments are still assigned very high price tags. Just like with Bluebird and Agios, these newcomers have promising technologies but their internal pipelines are way too early to justify their valuations.

Voyager has a single gene therapy program in phase I for Parkinson’s disease. To date, the company treated 8 patients and although encouraging signal has been generated in the first patient who received the high dose (sounds familiar?), it is hard to interpret the data without a control arm. The company’s platform is truly remarkable and a strategic partnership with Sanofi/Genzyme is an important validation but can this justify a $617M market cap.

CytomX and Wave don’t even have a drug in clinical testing but the two companies have market caps of $690M and $288M, respectively. Both companies are almost a year from P1 (best case scenario assuming no toxicology issues emerge) which means they might have meaningful clinical data in patients only towards the end of 2017. With such valuations, two years may be a long time to wait.

Portfolio holdings – Dec 13, 2015

portfolio - 13-12-2015

biotech etfs - 13-12-2015

99 thoughts on “Post-ASH bloodbath is a bad omen for the biotech sector

  1. I’m another of your followers who would like to understand why STML is so deep in the doldrums.

    Do you have any thoughts on KPTI?

    Happy New Year.



  2. Hi Ohad and happy New year,

    Any thoughts on CERU? Selling for virtually cash value. Advanced oncology pipeline. Plenty of cash. Recently hired Dr. Adrian Senderowicz (formerly of Ignyta and AZN) as CMO.


  3. Hi Ohad,

    Some on twitter just wrote:
    $ARQL Example of shitty Ph2 that won’t hold in Ph3. Dose Reduced from 360mg-to-240mg-BID in Ph2. Then again, mid-way, in Ph3 fm 240-to-120mg
    I’m long ARQL- Any thoughts?
    Thanks Chris


  4. Chris, where was it reported ARQL further dose reduced in the middle of the ongoing P3 for tivantinib? I think they dose reduced for the start of the P3 compared to P2 but that was because they switched from capsule to tablet formulation (or possibly vice versa) but they still believed they got the same exposure given different formulation. I’m not aware of any recent news of a further dose reduction in the middle of the ongoing P3.


  5. Hi Ohad, Happy New Year

    Do you have an opinion about PIRS science? They claim that Anticalins have many of the beneficial properties of mAbs but are safer and have a number of advantages.
    So far they did not prove that the Anticalins works in humans, but have signed a number of solid collaborators – Roche, Safoni, Daichi.


  6. Kevin (MGNX) – I really like the DART platform, especially the CD123 program for AML and have high hopes for it but valuation is too high for me. Not that excited about the HER2 and B7-H3 programs.

    Peter (ARRY) – I would settle for 10x 🙂

    roland (STML) – Indeed the cancer stem cell hypothesis is falling out of favor after disappointing clinical data from VSTM and OMED. Obviously the sentiment can change if one of OMED’s P2s are successful. With STML, the primary concern is durability of clinical benefit as their agent is highly immunogenic and has safety issues. They claim they implemented steps to reduce immunogenicity but they can’t avoid it completely imo. We should have more clarity there by mid 2016.
    Yes, MGNX’s CD123 is a direct competitor to STML but the burden of proof is on MGNX who hasn’t released any data.

    Richard Baker (KPTI) – Stock is very depressed but I still prefer to follow it from the sidelines. I am concerned that they didn’t provide updated results for the selinexor+dex regimen in MM. In other indications the agent is not active enough as monotherapy and while it doesn’t mean it will not be beneficial on top of other treatments it adds risk and increases timelines.

    Chris (ATNM) – It’s been a while since I last looked at them. I see that their ASH data included some interesting efficacy signals and tolerability looks good. I expected a much bigger hype around alpha emitters following Algeta but so far the field is getting limited attention. Will add them to my watchlist.

    Richard Baker (CERU) – Another name I haven’t looked at for a while. Not a big fan of nanoparticle-based delivery of chemo.

    Chris/mcbio316 (ARQL) – I don’t have high hopes for the HCC trial either but I am very excited with the Akt and FGFR programs given the low market cap. From what I recall they took dose down once from 240 BID to 120 BID at the beginning of the trial.

    andre (PIRS) – Very elegant and intriguing scientifically but as you stated I still don’t see how anticalins are differentiated from antibodies.



  7. ESPR will do P3 on it’s own.
    following is from ESPR IR.

    “Thank you for the recent email inquiry and interest in Esperion. Tim Mayleben, Esperion’s president and CEO, is scheduled to present an overall Company update at the JP Morgan Conference next week on Wed., Jan. 13 at 2:00 p.m. PST. Our corporate presentation will discuss the high-dose statin study design and provide an update on the timing of the study initiation and other key milestones. We plan to webcast this presentation, and details to access this event will be made available on our website later this week.

    We also plan to conduct Phase 3 on our own and will provide an announcement on our Phase 3 global development plans in the first half of this year.”


  8. What do you think of the subgroup analysis of latest data release from EXEL, HR was .22 for the PDL1 sub group and the time to progression has not been reached. Surprisingly the stock drops on good news, what blatant short manipulation.


  9. Gene/Steve (ESPR) – I don’t know if ESPR will be acquired or strike a deal but I wouldn’t expect the company to behave any different from the statement you provided. Even they were in negotiations with partners (I don’t know), the wouldn’t say anything explicit about it imo.
    I think it makes perfect sense for them to start the registration program but I don’t envision a scenario in which they do the CV outcome trials (10k+ patients) and other post marketing studies without a partner.

    jh/curiousgeoerge (EXEL) – Good to see the PFS benefit holds up in the entire study population (658 patients, HR improved from 0.58 to 0.52). The PFS data in PD-1 failures is very intriguing although I don’t know how to explain it, I expected these patients to do worse yet the Afinitor PFS is similar to the entire population and most strikingly cabo’s benefit is more pronounced in these patients based on the hazard ratio (0.22). Perhaps this is a statistically fluke due to the small sample size (~30 patients).



  10. Chris (CNAT) – Once again it’s very hard for me to interpret the data, the biomarker signal is there but perhaps they simply need more follow up (beyond 3 months) to demonstrate real clinical benefit.



  11. $EXEL Some people think that the question on the regulatory status of Eisai’s desire to use the lenvatinib/ever ph2 results to file for 2nd line RCC in Europe is holding up the JV. Does this make sense ?


  12. $EXEL To me given the new data it does not make sense to delay the JV since Cabo is effective overall, and even more effective in the post PDL1 patient groups. I think the shorts are trying to cover at a lower price before the presentation this weekend. The other upside is a possible surprise from Roche regarding Cobi, they might have data or P3 lined up for Cobi PDL1 combinations, they will have to disclose positive results before starting a P3.


  13. TRVN just put out a prospectus for an anticipated offering of up to 75M. In its conference call last Nov., the co. said its cash position was $169M, which it expected to be sufficient to fund operations into 2018. This seems like a particularly bad time to raise money, esp. when it’s not needed immediately. Does this concern you?


  14. Apologies — I may have misinterpreted TRVN’s announcement. Here’s the response I got from IR: “The prospectus filed today relates to our S3 filing from December which provides us the flexibility to offer shares, including through an at-the-market facility, should we deem conditions to be appropriate. It does not indicate that we have in fact commenced an offering. Please see our S3 for full details. We still project that the $169M you cite lasts into 2018 and is sufficient to complete Ph3, NDA filing, and initial launch preparations for oliceridine.”


  15. curiousgeorge (EXEL) – If anything is postponing partnership discussions is the overall survival expected by mid-2016. IMO this is the most important factor that can dramatically change cabo’s value proposition in RCC. Not sure how reliable the activity seen in post PD-1 patients given the small sample size. P3 for cobi+atezo will be very positive for EXEL but we have no visibility there…

    cg (TRVN) – Thanks. I don’t see them raising anytime soon, especially not in this environment.

    Al – Sorry, don’t know ZGNX well.



  16. Hello Ohad ! Do you follow RXDX ? Could you update your current view of BPMC with the recent management additions and stock depreciation!?


  17. Hi Ohad!
    Most stocks are beaten down at the moment. What puzzles me most is the valuation of GNCA. They have 95 Mio Cash and a market cap of 116 Mio.
    How do you see the 6 month results of Gen003. I thought they were strong and a poc for their platform. And what would be a good result for the 12 months study?
    Also what do you think about the ATLAS platform?
    There are many comparable companies at a low EV and good (at least not bad) products: XENE,QURE, KPTI, ESPR. Which ones you like the most?
    Thanks as alyways!! Ike


  18. $EXEL What do you think of interleaving Nivo with Cabo .. i.e. Nivo for 2 weeks and then Cabo for 2 weeks to provide for optimal patient benefit while they wait for the combo results, provide some progression free control, and combine their overall survival benefits


  19. $EXEL Some patients would be better off on Cabo as 2nd line directly but for those that are not on Cabo directly a safer strategy would be interleaving Cabo with Nivo, both drugs are approved, and Cabo works well after Nivo, and by implication could work well together with Nivo. They can be interleaved in the meantime while they try to figure out the potential of Cabo/Nivo together. This strategy can even work well as 1st line treatment option if the progression free state is optimal.


  20. $EXEL What do you think is the probability of Cabo hitting statsig overall survival in RCC given the interim results ? How do you think the recent approval of Nivo might affect the overall survival results. Most patients probably won’t be put on Nivo due to progression. What would be the impact of Nivo after Cabo versus Nivo after Ever ?


  21. Hi Ohad
    In your opinion Under what conditions do you think biotech can rise again?
    Big purchase?
    successful p3?
    What could change the sentiment?



  22. $EXEL Now that Exelixis has submitted an EMA application, does it impact negatively any potential application Eisai for lenvima in rcc ? It would seem hard to justify allowing P2 data when u have P3 statsig data.


  23. Bouschka (RXDX/BPMC) – I prefer LOXO’s Trk inhibitor over that of RXDX due to better selectivity and what appears to be better efficacy in patients. Of the other programs, like RXDX-106 for Axl dependent tumors (if such subset exists, MRTX recently reported a PR in an AXL amplified patient).
    Re BPMC – I love this company but stock is still way too expensive imo. ($0.5B).

    ike – Yep, of all the corrections this is the nastiest so far. Agree with you that some stocks got very cheap but most biotechs are still expensive. If the ones you mentioned my favorite is ESPR because their drug has strong clinical proof of concept and I still believe it will get acquired in 2016. I liked QURE’s hemophilia results but I plan to wait until stock comes down.

    Richard Baker (ADXS) – Sorry, don’t know them well.

    curiousgeorge (EXEL) – Combination with nivo is a very relevant idea which the company is exploring but it’s still an open question. It is not certain that combining the two will be superior to sequential treatment and we probably won’t know this for a while. Any treatment modality other than nivo 2nd line followed by cabo after progression is experimental and highly speculative imo. Don’t think physicians will do this.
    With respect to hitting OS, I think chances are high (~70%) given the interim analysis and the profound PFS benefit in the entire population. I am sure SOME patients in METEOR will or already got PD-1 after progression, I just hope the number is balanced across the two arms.

    Alex – Good questions for which I have no answers…

    Richard Baker (CNAT) – CNAT is a long shot but I plan on holding the stock because its market cap implies almost 0 likelihood of success. Nevertheless, it isn’t on the top of watchlist following te correction we are witnessing, there are other, more interesting opportunities imo.

    curiosgeorge (EXEL) – Kudos to EXEL for submitting to EMA so quickly. I don’t see lenvatinib getting approved in RCC based on P2 data regardless of cabo’s regulatory status.



  24. Hey Ohad,

    Obviously this ongoing correction has provided some value all over the sector, but I’m a bit torn as to what is still overvalued due to that ridiculous run IBB and the sector has had LT and what provides some value given MC’s. Anything high up on your list (e.g. ESPR)? I just bought some ABBV, looking at ACHN and a few others.


  25. Ohara

    Are you familiar with RVNC and there botulinum toxic program?i had noticed that Dr Joshi a former executive at Allergan was appointed COO last month.He was instrumental in the growth of the BOTOX product lines and made comments to the effect that RVNC program has the potential to change the current competitive landscape.Huge potential market with compounds entering Phase 3.Stock has been hit hard in market sell off after a secondary that was priced at 36 in November.Anything you can share?


  26. Al – In general I think the sector will take time to regain steam so I don’t see any urgency right now except for clear M&A targets with late stage clinical assets that are traded close to cash like ESPR.

    Dave (RVNC ) – Don’t know them well. The topical approach sounds exciting but how are they going to allow enough botox (which is a very large molecule) to penetrate the tissue?

    Bj (BLUE/AGIO) – I love both companies but prefer to wait until things cool down. Their valuations are still not cheap (especially AGIO which has only part of marketing rights for 120 and 221).



  27. ohad

    looking at your portfolio, your first purchase of ESPR was at approx. 65 per share,you subsequently made addional purchases quite a bit lower.You stated in your prior post that you still expect ESPR to be acquired in 2016.Would it be realistic to believe that can happen at a price of 65 per share.Also,what updates do you expect to hear from them tomorrow at the JPM conference.I had sold my position 50% higher than the stock is trading at and was looking for possible reentry.


  28. Dave,
    Ohad’s purchases of ESPR were:

    1. 250 shares at $16 September 1, 2013
    2. 220 shares at $62 August 2, 2015
    3. 500 shares at $24 November 1st, 2015

    970 shares at an average price of $30.55

    Hope it helps!



  29. $EXEL Can you provide some details on the comparison between Cabo and Lenvantinib ? I think since Cabo works well after Nivo. The treatment algorithm could be 1st line Sunitinib – 2nd line Nivo / Cabo – 3rd line something else
    1st line Sunitinib – 2nd line Cabo
    1st line Nivo for 2 weeks followed by Cabo for 2 weeks – 2nd line something else – 3rd line something else
    It might be possible to do 2 weeks Nivo and then 2 weeks Cabo as first line treatment. People need to get off Cabo for some time, and in that time they can take Nivo, and then have the synergistic effect of Cabo afterwards for 2 weeks.

    It would be good to put the idea of Lenvantinib to rest though in the meantime. We need your input in that perspective.


  30. $EXEL
    I found this online regarding lenvantinib

    The progression free survival is the same for ever and lenvantinib, and higher only in the combination arm.

    Median progression-free survival by IRR was 12·8 months (95% CI 7·4–17·5) in the lenvatinib plus everolimus group, 9·0 months (5·6–10·2) in the lenvatinib group, and 5·6 months (3·6–9·3) in the everolimus group (figure). Progression-free survival was significantly longer in patients in the lenvatinib plus everolimus group than in those in the everolimus alone group (HR 0·45 [95% CI 0·27–0·79]; p=0·0029). However, no significant difference in progression-free survival was noted between patients who received lenvatinib alone and those who received everolimus alone (HR 0·62 [95% CI 0·37–1·04]; p=0·12), which contrasts with the result for this comparison in the investigator-assessed responses.


  31. $EXEL Eisai, In this analysis alone they has a contradiction, i hope the regulators realize this is a real small sample size, and that they need a larger patient pool to justify the lenvantinib plus ever benefit. Cabo had a real high number in Phase 1, and came down to 7.4 months in Phase 3. I would imagine that the len plus ever arm might come up with a progression free survival of 5 to 6 months in Phase 3 which would be lower than Cabo, and have more AE 5’s due to toxicity that come out in a Phase 3. So it would be real unwise for any of the regulators to accept the data at face value.


  32. dave (ESPR) – Yes I still like ESPR very much and think the stock is very cheap for a P3-ready program with clear clinical proof of concept. ETC-1002 has a $1B+ potential under conservative assumptions so the company can clearly be worth $1-2B depending on valuation metrics and probability of success one uses.

    chris (ESPR) – Thanks, now I know what my average cost is 😉

    curiousgeorge (EXEL) – Lenvatinib and cabo share multiple molecular targets. Clinically speaking, both drugs were compared with Afinitor and based on cross trial comparison cabo looks more effective which is probably why Eisai is pursuing combination with Afinitor. Cabo also appears to be a better tolerated drug. Don’t know if lenvatinib will be approved in EU, pretty sure FDA will require P3.
    Cabo’s data was from a large p3 trial whereas lenvatinib was evaluated in a 150-patient P2.



  33. $EXEL CaboSun will put Cabo in first line for some patients, and the PDL-1 interacts with Met target, Cabo is being tested with PDL1 drugs while Lenvatinib is trying to work with older drugs and has more toxicity. It is in essence an older form of TKI given that the PFS that is the same as Everilomus and like any other TKI in the 2nd line setting.

    Exelixis turning in their data to EMA that shows Nivo – Cabo pfs has not been determined yet which means it is very long also bodes well for Cabo. Do u think a buyout is more likely or a partnership ? Do you think BMY will buy Exelixis , they have been testing their drugs together after all ?


  34. $EXEL Positive OS will definitely be a differentiating factor and they are almost assured of that, and i think CaboSun will read positive too which would mean Cabo is better than Sunitinib for challenged patients in 1st line. Also, i think Len/Ever have not been tested in a large P3 setting so the safety signals have been sorted out, and there is no sub group data possible with a small P2 data set where you can assess the efficacy based on prior treatments received.


  35. ohad

    listened to the JPM webcast for ESPR yesterday.Tim stated that as of sept 2015 they close to 300m in cash and marketable securities.balance sheet on yahoo is showing 215m.Why the discrepency?
    also, with all the securities lawsuits being filed agst them,wont that impact there cash position or is that inconsequential


  36. Hello,

    please tell me what do you think about these stocks:

    – AST (Asterias Biotherapeutics, Inc.)
    – NVIV (Asterias Biotherapeutics, Inc.)
    – AAVL (Asterias Biotherapeutics, Inc.)



  37. Hi Ohad,

    Nice to see you on twitter. Regarding:

    “The PFS data in PD-1 failures is very intriguing although I don’t know how to explain it, I expected these patients to do worse yet the Afinitor PFS is similar to the entire population and most strikingly cabo’s benefit is more pronounced in these patients based on the hazard ratio (0.22). Perhaps this is a statistically fluke due to the small sample size (~30 patients).”

    There seems to be direct evidence from “Novel roles of c-Met in the survival of renal cancer cells through the regulation of HO-1 and PD-L1 expression” that this may not just be a fluke:

    “Next, we observed that c-Met induction markedly up-regulated the expression of the negative co-stimulatory molecule PD-L1, and this can be prevented following treatment of the cells with pharmacological inhibitors of c-Met.”

    This could means Cabo and Nivolumab combine to double silence the PD-1/L1 signaling pathway. The half-life of Nivolumab is quite long, on the order of a month so it’s possible Cabo really is along with the remaining Nivolumab tip the immune system in favor of the patient. Hopefully this holds up in practice. (Also note: “HGF/Met-Signaling Contributes to Immune Regulation by Modulating Tolerogenic and Motogenic Properties of Dendritic Cells”)


  38. curiosgeorge (EXEL) – I agree with your assessment of cabo vs. lenvatinib. It’s important to note that CABOSUN is a P2 so it will provide an indication rather than ultimate proof for cabo’s superiority (if the trial is positive). By that time it might not be relevant for 1st line because NIVO or IPI+NIVO may become standard 1st line.
    Very hard to speculate regarding a partnership or a buyout but a lower share price makes an acquisition more reasonable imo.

    dave (ESPR) – I would go with numbers provided by the company. Don’t think these lawsuits mean anything.

    Andrew (AAVL) – The only one I know well is AAVL, which got very cheap (trading below cash). Will be interesting to see if they use cash to buy external programs.

    Kevin (ADAP) – Too expensive imo.

    Wildbiftek (EXEL) – This is a very nice explanation but it is unclear whether this actually occurs in humans. What matters is clinical data and next year we can expect initial results from cabo+nivo combination regimens.



  39. Hi OHAD,

    MPSYY: what do you think about re-entering Morphosys in the coming months? They are getting fundamentally cheap after those known failures (gantenerumab prodromal failure, Celgene gives MOR202 back) and after building a “rounding top” pattern in the chart.

    IMGN: If Mirvetuximab soravtansine really is successfull in high an medium expressing FRα ovarian cancer in later line as monotherapy and first line as combination therapy, what are your sales estimates? The co itself estimates 500 M in later line patients with only about 4000-5000 patients in US/EU. In earlier lines there are globally 240.000 new cases. IMGN told us, that about 50% of the patients are high or medium expressers. So if IMGN captures only 20.000 patients of the earlier lines then this could be a 2-3B blockbuster drug. If the manage to reach 50.000 patients then it is a 6B drug. What is IMGN worth then in market capitalization? Current MK is only 800M. Is this a 10 bagger potential? And why does the market ignores it totally? Am i overlooking something?

    EXEL: What makes you sure that the lenva/ever combination in RCC won’t be approved? To my knowledge they have breakthrough designation and the combination with ever showed far better efficiacy than Cabo (alone). Ok the safety is one concern, but why no conditional approval? There is still an significant need despite nivo and cabo.
    Second why won’t the physicans prefer the ever/lenva combination over cabo? They know ever very vell, why not stick with it in combination with an TKI?


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