The formerly hot biotech sector turned cold this past year, with the broad SPDR S&P Biotech exchange-traded fund down more than 15% and well behind the healthcare group and the S&P 500 index.
The underperformance reflects drug disappointments, a deluge of initial public offerings, and investors’ concerns about the ability of biotechs to capitalize commercially on approved products.
The selloff has left a number of biotech companies whose shares now trade below the cash on their balance sheet.
Barron’s has selected eight out-of-favor companies trading under their cash, based in part by an analysis from former hedge fund manager Will Meade, whose Twitter handle is @realwillmeade.
Buying biotechs below cash can be a winning strategy because investors are effectively paying nothing for their drugs, technology, and platforms. Our analysis is based on cash and equivalents on their balance sheets as of Sept. 30.
The drawback is that some of these biotechs have experienced setbacks in clinical trials, and all are burning cash. That can lead to dilutive equity offerings to replenish their coffers. And in a worst-case scenario, the companies could have little platform value if their treatments flame out.
The eight are: AquaBounty Technologies (ticker: AQB), Atea Pharmaceuticals (AVIR), Avrobio (AVRO), Black Diamond Therapeutics (BDTX), NextCure (NXTC), Silverback Therapeutics (SBTX), Solid Biosciences (SLDB), and TCR2 Therapeutics (TCRR).
The eight are all small-caps. Most have market values below $300 million.
Biotech Bargains
Here are eight out-of-favor biotech companies trading for less than their cash per share.
| Company / Ticker | Recent Price | YTD Change | Cash Per Share | Cash and Cash Equivalents (mil)* |
|---|---|---|---|---|
| AquaBounty Technologies / AQB | $2.24 | -74.4% | $2.66 | $189 |
| Atea Pharmaceuticals / AVIR | 9.11 | -78.2 | 10.12 | 840 |
| Avrobio / AVRO | 3.91 | -72.0 | 4.61 | 436 |
| Black Diamond Therapeutics / BDTX | 5.59 | -82.6 | 6.52 | 235 |
| NextCure / NXTC | 6.18 | -43.3 | 8.51 | 235 |
| Silverback Therapeutics / SBTX | 6.65 | -85.7 | 9.71 | 340 |
| Solid Biosciences / SLDB | 1.91 | -74.8 | 2.08 | 229 |
| TCR2 Therapeutics / TCRR | 4.77 | -84.6 | 7.78 | 296 |
* As of Sept. 30, 2021
Sources: Bloomberg; company reports
The largest, Atea Pharmaceuticals , is regrouping after the success of the antiviral pill for Covid-19 made by Pfizer (PFE), Paxlovid, has sidelined Atea’s Covid pill. Atea’s pill failed to show efficacy in a clinical trial involving patients with mild to moderate disease in the fall. Roche Holding (RHHBY) ended a collaboration with Atea involving the Covid drug in November.
Atea’s shares, at around $9, are down 90% from a February high of $94 and trade below net cash of about $10 a share on Sept. 30. The company is also developing drugs for hepatitis C and dengue, but those are at an early stage.
Silverback Therapeutics has suffered a setback with its lead cancer drug candidate that targets tumors with certain genetic markers. Its shares, at around $6.75, trade below its net cash of nearly $10 a share.
“Given Silverback’s market cap is currently trading below its cash and equivalents position, we see an opportunity for low-risk, modest upside over the next 12 months” based on phase 1 trial updates for SBT6050 (its lead cancer drug), SVB Leerink analyst Daina Graybosch wrote in a November note. She has an Outperform rating and price target of $25 on the stock.
Black Diamond Therapeutics
‘ lead drug candidate targets tumors with unusual genetic mutations.
J.P. Morgan analyst Eric Joseph has called it a “compelling entrant” in its field. The stock, at around $5.25, trades below its net cash of about $6.50 a share. Joseph has an overweight rating and $25 price target on the stock. The company, however, is burning cash, with projected losses of more than $3 a share in both 2022 and 2023, according to Joseph.
AquaBounty is developing onshore salmon farms in the U.S., using genetically modified Atlantic salmon. The farms are designed to avoid disease and the other problems that big farms in Norway and other coastal regions can experience.
An Indiana farm is already producing fish, and the company has plans for a larger one in Ohio. Its shares, around $2.25, trade below net cash of about $2.50 a share.
Solid Biosciences has stumbled in the development of a gene therapy for Duchenne muscular dystrophy, a fatal inherited muscle-wasting disease affecting boys. Its shares at around $2, trade just below its cash of $2.08 a share. Other companies like Sarepta Therapeutics (SRPT) are in that field.
Avrobio, which also is developing gene therapies, trades around $4 a share, below its cash of about $4.61 a share. Its treatments target Fabry and Gaucher diseases, two rare inherited conditions.
Gene therapy stocks have fallen from favor on Wall Street amid setbacks involving several programs.
NextCure is developing drugs that involve the immune system for lung, breast, and other cancers. Its shares, at $5.75, trade below its cash of about $8.50 a share.
TCR2 Therapeutics is developing a treatment that reprograms T cells to target lung, ovarian, and other cancers that express a certain protein. The company’s shares, at a recent $4.70, trade below its net cash of about $7.75 a share, reflecting the early stage of the clinical trial for its lead product.
Write to Andrew Bary at [email protected]
