December 10 Biotech Update

It seems like the sector might breakout and run yesterday morning but it came back to reality in the afternoon. While it would have been nice to see a run, the pullback does not change the trend. Perhaps we will now see a little weakness and pullback to higher lows (as had been the case) instead of a runner to new highs but until we see a clear break of the trend, one has to assume that it continues.
1. I never short stocks but CNST really makes me reconsider it. I am not going to short it to be clear but this would likely be overvalued at $300M let alone $1.3B. Usually in these cases one has to dig through the data spin to see that the market is overvaluing the company but one does not even need to dig to understand this drug is worthless. It has ZERO monotherapy efficacy and the only efficacy is in combo with ruxo in patients who are ruxo naïve. They are then touting its efficacy in a high unmet need (front line MF is not a high unmet need especially if it is in combo with standard of care). There is nothing in these data that indicate a drug that is competitive in MF or even a drug that has efficacy.

2. If it is so overvalued, then why not short it? I thought about it but there are two reasons I will simply stay away. First, when something seems so obviously overvalued (or undervalued as well) I have to wonder if I am missing something. I am clearly missing something in the CNST story because its valuation is where it is and the market is generally not this inefficient. Is there is big holder that is defending it? Is there a float issue? Is there something in the data that I am missing? Is there news coming? Something is holding it up and I doubt it is the data, so there is something I am missing. Second, it only takes on strategic buyer to be fooled and buy the company. Years ago I was spot on correct that ANAC was overvalued and its lead asset would never be a big commercial successes. PFE disagreed and bought it out for a lot and now the drug they said would sell $2B a year is barely selling $100M. I was right but the ANAC bulls were paid. So in these cases I tend to just leave the stock alone.

3. REGN was trading lower on reports that SNY might sell its stake. This seems like an overreaction as they would not be able to sell before December 2020, so even if that did this is over a year away. In addition, the context was that they have the ability to monetize the stake if they needed it for strategic deals. So it was obviously not great news for REGN but essentially SNY is looking to make a major reset for the organization and this is on the table as a way to do so. I get the weakness a little but I would not really read too much into it at this point.
I will end it here as we recover a little from yesterday afternoon. I hope everyone is having a good week.

Disclosure: No position in stocks mentioned.

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