The current biotech bull market is fundamentally different from past rallies. It's driven by small and mid-sized companies successfully launching products and generating revenue, shifting the sector from a "dream-based" industry to one focused on execution and profitability.
Amidst growing turmoil at the FDA, a viable strategy is to "invest around" the risk. This involves prioritizing companies whose drugs show clear data on well-understood, validated endpoints, as these are most likely to navigate the current political environment successfully, regardless of leadership changes.
The FDA's current leadership appears to be raising the bar for approvals based on single-arm studies. Especially in slowly progressing diseases with variable endpoints, the agency now requires an effect so dramatic it's akin to a parachute's benefit—unmistakable and not subject to interpretation against historical data.
Unicure's setback with its Huntington's gene therapy demonstrates a new political risk at the FDA. A prior agreement on a trial's design can be overturned by new leadership, especially if the data is not overwhelmingly definitive. This makes past regulatory alignment a less reliable indicator of future approval.
Biotech firms are beginning to selectively disclose clinical data, citing the need to protect R&D from fast-following competitors, particularly from China. This forces investors into a difficult position: either trust management without full transparency or discount the company's value due to the opacity.
Unlike the 2020-2022 bubble, the expected wave of biotech IPOs features mid-to-late-stage companies with de-risked assets. The market's recent discipline, forced by a tough funding environment, has created a backlog of high-quality private companies that are better prepared for public markets than their predecessors.
Contrary to market convention, a trial delay can be a bullish signal. When an independent data monitoring committee (IDMC) recommends adding more patients, as with Bristol's ADEPT-2 study, it implies they've seen a therapeutic signal worth salvaging, potentially increasing the trial's ultimate chance of success.
Praxis Interactive's essential tremor drug succeeded in Phase 3 despite an earlier data monitoring committee (DMC) recommendation to stop for futility. This rare outcome shows that interim analyses on a small fraction of patients can be misleading due to high variance, and continuing a trial against DMC advice can be a winning strategy.