Interesting article TL.
Written late January 2020, right on the cusp of Covid. The black swan which flew in and stood everything on its head.
The Nasdaq Biotech Index chart below tells the story. A quick plunge of ~15% for the sector as the pandemic was declared, borders closed and shutdowns commenced. Neuren copped it worse than most stocks as Lang Walker bailed at the equivalent of $0.05. That initial plunge was followed by a spectacular rise in the biotech sector as the medical researchers chasing Covid cures became society’s newest heroes. The biotech index rose 85% from its bottom in less than 18 months. Then came the decline as vaccines became more widely available, deaths declined and government started to turn off the money taps but Covid-caused disruptions and shortages continued to grow. The biotech sector is now more than 2 years into the subsequent downturn.
View attachment 5616518As stated in the January 2020 article “
industry watchers foresee big pharma mounting a return to neuroscience in the next few years, lured by emerging treatments for epilepsy, mood disorders and genetic diseases of the CNS, or central nervous system.”The article mentions the growing trend at the time - following a string of large failures, pharma exited neuroscience, especially big pharma in big indications such as Alzheimer’s.
Although, as one industry insider observed,
“It wasn’t about exiting neuroscience…it was about not taking risks and, as a consequence, diverting cash into areas that they think are going to be incredibly productive in the near-term."Smaller biotech executives were of the opinion at that time that just a few positive studies would be needed for big pharma to come back to the neuroscience field.
Analysts predicted that any renewed interest by big pharma in neuroscience wouldn’t be focused on just large markets but also extend to orphan diseases because of regulatory incentives and potential for high prices.
The article ends by saying that easy access to money from venture capital or public markets would mean big pharma would probably need to pay up big if they were interested in neuroscience biotech acquisition.
So that was January 2020. So where are we now?
One major positive is that we have seen those few positive studies/approvals that biotech executives felt were needed to turn around the neuroscience sector.
Biogen’s Aduhelm as well as Biogen/Eisai’s Leqembi became the first drugs to be approved in the treatment of Alzheimer’s; Reata Pharmaceuticals received FDA approval for Skyclarys in the treatment of orphan neurodegenerative disease, Friedreich’s ataxia (and was subsequently acquired by Biogen for US$7.3bn); Acadia/Neuren received the first FDA approval for a treatment in a neurodevelopmental indication, DayBue in Rett syndrome.
Another positive is that a number of big pharma grew their cash reserves significantly during Covid. The most cashed up now are Pfizer, Merck, Novartis, Roche and J & J.
In addition, due to a prolonged downturn in M & A, the risk posed by patent expiration has increased for numerous pharmas. In descending order of severity of impact, these are BMS, GSK, Amgen, Merck, Lilly, J & J and Pfizer.
Therefore, one could argue that now we have the need, the pharma money and the green shoots of a neuroscience sector recovery. All of which bode well for Neuren.
However, it’s not only green lights ahead.
The early recovery of the neuroscience sector has been somewhat overshadowed by pharma’s newest obsession – obesity. The market cap of Danish diabetes specialist pharma, Novo Nordisk, now outstrips the yearly GDP of its home country as it becomes bloated by profits from Ozempic and Wegovy. Every big pharma now seems to be scrambling to hitch its wagon to the weight loss gravy train.
A second roadblock is the US Inflation Reduction Act. While government price control of high revenue off-patent drugs might increase the push of pharma towards pipeline-replenishing M & A, especially towards “protected” orphan drugs, the uncertainty created by the IRA may also act as a stifler. In addition, orphan drugs approved in more than one indication have not been exempted from the reaches of the IRA.
Perhaps of most importance, the “easy access to money” for biotechs spoken about in January 2020 is no longer the case. In fact, access to funding has become so dire that many biotechs have cut programs, sacked staff or folded completely. Publicly-listed biotechs have seen valuations slashed, and any capital raised is at deep, deep discounts.
It is in this kind of financial environment that pharma typically fires up the M & A cycle again. A downturn like this means that pharma will have a smorgasbord of distressed biotechs to feast on. Steve Davis from Acadia has been saying for some time that Acadia looks forward to this much more attractive environment for business development.
If Neuren is to be acquired for a handsome sum (and “handsome”, I know, is in the eye of the beholder!), the stars will need to align.
Most obviously, NNZ-2591 has to come up trumps in Phase 2. Then, interest is needed from multiple cashed-up parties. Finally, fingers crossed for no more black swans.
https://english.elpais.com/economy-...ion-in-cash-for-mergers-and-acquisitions.htmlhttps://www.bloomberg.com/news/newsletters/2023-01-17/obesity-drugs-are-pharma-s-hot-new-trend
(20min delay)
