Good morning Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Catalysts are a big deal in biotech.
They don’t come around that often, and they can either MAKE or BREAK a company.
Catalysts, in this context, are data readouts.
A trial result.
The moment a company finds out if years of work and tens of millions of dollars actually amounted to anything.
So how does it play out?
It usually starts slowly.
A company announces that recruitment is nearing completion, and the date for the results to be due starts to materialise.
As that date approaches, interest builds.
Speculation creeps in.
New investors enter the stock, hoping to be positioned ahead of a positive outcome.
ALSO, existing holders are less inclined to sell because they want exposure to the result.
With fewer sellers and more buyers, prices rise.
Sometimes quickly.
The trick with these catalyst bets is to identify the companies BEFORE the run-up to a result, not during it.
BUT whether this happens depends on how Risk-ON or Risk-OFF the market is.
In a Risk-ON market, money chases speculation.
In a Risk-OFF market? Crickets.
I wrote about this in detail earlier in the week: Catalyst Hunting: The Actinogen Story (ACW)
Right now, the sector feels very much Risk OFF.
A number of high-profile binary failures are making investors start to recognise the downside risk as well as the upside potential.
Another blow was dealt yesterday.
Cynata Therapeutics (ASX: CYP) is reporting “no significant differences between groups in the primary or key secondary endpoints” in its Phase 2 trial of CYP-001 in acute graft-versus-host disease.
(Source, CYP)
Translation: the trial showed the drug was safe but didn’t work in acute Graft vs. Host Disease.
Cynata terminated the study early as a result.
We can't even see the damage in the share price, because CYP is sitting in voluntary suspension.
Frozen while the market waits on its OTHER result.
Because Cynata still has a second bite of the cherry.
For the Phase 3 SCUlpTOR trial in knee osteoarthritis, final patient visits are complete, and top-line results are due any day.
So we'll soon know if it's a "double duster"... or whether there's some silver lining to salvage the week.
As I reflected on this result yesterday, I wondered…
What does this result mean for the biotech sector?
The drug development sector on the ASX has been through a rough patch.
I was on the phone with a healthcare broker yesterday, and we discussed how the industry just needs a “high-profile win”.
And although it's FELT like there have been a few near-misses, I wanted to check whether that feeling held up.
So I went through and reviewed all the high-profile clinical trial readouts over the past two years.
Just drug developers - no medical devices, no diagnostics (including radiodiagnostics).
Phase 2 and beyond:
There might be a few I’ve missed, but it paints a challenging picture…
Too many big, binary drawdowns and not enough wins to balance the ledger.
Investing in drug developers is like the big “swing for the fences” in oil and gas drilling.
Expensive and binary.
Glorious when it hits, brutal when it doesn't.
The challenge in the industry is that it's been so long since we've seen what a "win" actually looks like in the share price.
And even when we DO get a win, for example, Dimerix signing a US$330 million licensing deal with Everest Medicines…
It gets used as a liquidity event, rather than a re-rate.
So, what does this mean for the ASX?
FIRST, I think people will start to pay for results, not hype.
This means the run-ups you see in anticipation of a result may be muted, and you'll even see some investors looking to de-risk BEFORE the readout, rather than ride it.
The free option on speculation is getting more expensive.
SECOND, companies starting a clinical trial will need to get creative about funding.
Financing trials is always a challenge.
But in a Risk OFF market, with investors gun-shy after a run of failures, the traditional "raise on the hype, spend it on the trial" playbook gets a lot harder.
Expect more non-dilutive funding (R&D advances), earlier partnering, and some challenging capital raises.
THIRD, things can turn quickly.
There are still a number of clinical trial readouts to come this year.
Paradigm, Avecho, Actinogen, and Recce (I spoke to the Recce CEO yesterday; they're getting very close to a Phase 3 readout and, hopefully, market approval by the end of the year).
A few of these land, and it could be game on for the industry.
Because we do need a win!
Let’s dive in…
The Pulse Check
BCAL Diagnostics (ASX: BDX) develops a second breast cancer detection test, BREASTEST Monitor, a blood test with 91% sensitivity and 95% NPV for detecting local breast cancer recurrence in women over 50. (BDX)
🪑 Same technology, different application.
BCAL will now use this new test as a “monitoring” product (not just a diagnostic). It’s a different value proposition and potentially an easier pathway to get the test into users' hands.
Nice update, and the market loved it.
BlinkLab (ASX: BB1) secures a U.S. patent for its remote neurobehavioral testing technology for autism and ADHD, granting exclusivity until 2041. (BB1)
🪑 Good update.
The US should be a huge market for its autism and ADHD detection product, and patents are an important means of protecting the company’s IP before entering the market.
Actinogen Medical (ASX: ACW) receives a third positive Data Monitoring Committee recommendation to continue its XanaMIA Phase 2b/3 Alzheimer's disease trial. (ACW)
🪑 Good milestone ticked. On track still for November readout.
Memphasys (ASX: MEM) secures $1.2M via share placement to support Felix™ commercial execution, with Peters Investments extending a convertible note by 12 months. (MEM)
🪑 Nice job, at least it answers the convertible note question… the old ‘kick the can down the road’.
But seriously, now that MEM has a product in the market, there should be an inflection point for when the company starts to become profitable.
THEN the note can get converted.
M&A, Big Pharma Wants a Wife
Eli Lilly buys non-opioid pain drugmaker 4E Therapeutics. (Biopharma Dive)
Jazz Pharmaceuticals is diversifying its oncology strategy, signing a deal with AbCellera for its T-Cell Engager, with US$56 million upfront plus $792 million in milestone payments. (Biospace)
Merck will use Protillion Biosciences’ AI drug-development platform to design biologic therapies. Undisclosed upfront, US$510 million in milestones. (Biospace)
See you all tomorrow,
The Armchair Analyst
