The Biotech Recession Shopping List

Yes, that says recession.

Word Count: 4,097 words, Reading Time: 19 minutes

I can’t lie. This is as bearish of news flow over a 10-day period as I personally have witnessed in a decade of biotech investing and 15 years in the overall markets.

More so even than the COVID shutdown.

I’m having a hard time feeling optimistic about anything, even commercial-stage biotech which is primarily U.S-based, mostly relies on U.S. patients, and is somewhat insulated from the chaos at the Food and Drug Administration. But what seems cheap now can even be cheaper in the future. I try to avoid politics and keep the focus on making money here. But what has happened in the last two weeks is the biggest incidence I have seen of political leadership committing own goal after own goal with absolutely nothing positive to show for it. I’m aghast.

If this sounds gloomy, it’s because it is. My net exposure to the markets is lower than it ever has been as I feel the lowest level of hope for our economy since the Great Financial Crisis when I was graduating pharmacy school two months after the Bear Stearns failure. Even then you could see the government pulling every lever they could to stem the tide and you knew things like blue-chip industrials trading at single digit P/Es wouldn’t last if you could stay solvent and avoid leverage.

Now - we have no idea how bad it can get and what the long-tail effects of these policies are. The government is essentially working against us as equity investors. The hollowing out of the FDA and other federal organizations, wildly regressive tariffs, visitors being detained on visas and the effects that has on tourism - we have no idea how to conceptualize how this will affect the U.S. economy, let alone biotech investing.

I have an article on Ideaya (IDYA) in my drafts but how can I share a research piece on upcoming clinical catalysts as if things were business as usual? They are not. I guess I’ll send it next week because the show must go on but I had to do something different for this week’s article. From the firing of Peter Marks leaked at market close the previous Friday to the tariff-induced panic sell-off this recent Friday…my honest-to-God read on it is: However bad you think the news was, it is probably worse in ways we don’t even know yet.

I wish I could be optimistic.

I wish I could give you some good news, because bullish newsletters gain subscribers and bearish newsletter typically lose subscribers. But I have none for you.

If you disagree, that’s your right, but I feel with every sense of intuition I have developed over the last 15 years that we are in for a very bad time in the near future.

I’m writing this Sunday morning. The market may very well bounce on Monday, who knows. I don’t think I’m going to be fully confident going all-in on the historically low valuations in the biotech space until the ground stops moving beneath our feet.

However, one can be prepared and have a shopping list ready. So, despite my utter disgust at the executive branch’s policies and decisions, I have tried to formulate a shopping list if you want to put money to work in the future.

*sigh* Here we go.

And, yes, you have heard a lot of these names before. But the reasons why and the calculus behind them has changed.

In fact, everything has changed. Everything must be viewed through a defensive lens now, unless all the tariffs are immediately rolled back this week AND the FDA is restored close to prior staffing levels, specifically for PDUFA approvals.

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Commercial-Stage Biotech

Evolus EOLS 0.00%↑

Price At Friday’s Close: $10.69

Target Price: $9

Drawdown Needed To Reach Target Price: -15.81%

Current NTM P/S (analyst estimates): 1.9x

Evolus should be fairly insulated from recent policy - their neurotoxin and first filler product are already FDA approved, their product is imported from other countries but should technically qualify for the pharmaceuticals exemption, and aesthetics spending has shown to be shockingly resilient to financial conditions, even growing during the Great Financial Crisis and COVID lockdowns. Their marketing is aimed at younger consumers who have already lived through so much economic upheaval that they may shake off the recent news and continue to spend at a higher rate than older customers who tend to be more cautious. A share price of $9 would be below the 52-week low, a period where Evolus has had numerous bullish earnings calls, grown by over 30% YoY for the fifth straight year, won approval for their filler line, expanded their TAM by adding more U.S. injectors and launching in new countries, and held an Investor Day where they gave guidance for over $700 million in revenue by 2028. Their market cap is $679 million now. At $9/share it would be $571 million. If they meet their guidance, you are buying at a P/S ratio well below 1 for 2028’s projected sales.

Risks to this idea include: Aesthetics products, even though they are pharmaceuticals approved by the FDA, would somehow get targeted for tariffs. But even if the COGS went up by the Korean tariff rate there is still a clear path to huge profits. COGS are actually relatively low so even adding another 34% on to that line is not a huge deal. The other risk is that the aesthetics neurotoxin market was still relatively young during the Great Financial Crisis and the COVID-era market growth was partially driven by a lot of people seeing themselves constantly on Zoom and wanting to improve their looks. If faced with a deep recession and a more mature neurotoxin market, I can’t say with 100% positivity that younger consumers would keep doing injections at the same rate as they do in a good economy. Management is presenting at Needham this week, it will be interesting to hear their tone. But I’m sure they will be well prepared with reasons why investors should not panic. I think someone buying at $9 or below for a multi-year hold would be likely to do very well, though.

Future Catalyst To Watch: Any commentary during the May earnings call about the neurotoxin market’s overall strength and if there are any signs of cracking. Also want to see continued 30% YoY growth and maintained full-year guidance.

Apellis APLS 0.00%↑

Price At Friday’s Close: $19.97

Target Price: $16

Drawdown Needed To Reach Target Price: -19.88%

Current NTM P/S (analyst estimates): 2.9x

The obvious risk to the Apellis idea is they have a PDUFA date on July 28, 2025 for EMPAVELI’s label expansion for C3G and Primary IC-MPGN. I have been hugely bullish on this label expansion, I think upon approval the drug will be rapidly adopted and nearly all of the revenue will fall to the bottom line creating immense operating leverage. And the FDA gave them a PDUFA date sooner than they needed to which is perhaps a sign that approval of the sNDA is a formality, especially given the incredible Phase 3 data. BUT nothing can be taken for granted anymore and there is now a non-zero chance the FDA starts missing PDUFA dates throwing the industry as a whole into panic. But if Apellis does get approval in July, I think they are in fairly great shape. I’m still thinking the Geographic Atrophy opportunity as a whole is mis-priced - they are holding 50% share, injection volume for the market seems to be growing 10% QoQ, there is still a wide addressable TAM left to conquer, direct-to-consumer advertising is picking up, and even in a bad economy older people should prioritize a treatment that helps them preserve vision, even if their savings accounts are chopped in half. The treatment is well covered by insurance and the list price isn’t prohibitive compared to some other therapies. And providers have an economic incentive for their practices to encourage patient compliance. The drug is approved in the U.S. and the market is almost entirely U.S.-based.

For C3G and Primary IC-MPGN, 30% of the market is post-transplant and even at a high list price, preserving the health of a transplant kidney is a high value decision for patients, providers, and payers. I think the severe and moderate severity non-transplant patients will also quickly adopt EMPAVELI, which seems to have the best data on the market. The stock lately seems to be a higher beta reflection of the XBI index as a whole and I’d love the opportunity to grab it down nearly 20% from here as exposure for an unexpected future XBI rally.

Future Catalyst To Watch: July PDUFA date.

Geron GERN 0.00%↑

Price At Friday’s Close: $1.38

Target Price: $1

Drawdown Needed To Reach Target Price: -27.54%

Current NTM P/S (analyst estimates): 3.7x

I try to avoid profanity here but since we are breaking from the norm I’ll just say it:

I know the thought of buying THIS of all things during a recession is fucking gross.

Okay, there, I said it. Buuuuuuuuuuut - despite my utter distaste for the previous management I think I can make a longer-term case.

New CEO incoming. They are only 9 months into the launch of the LR-MDS indication and there is still plenty of time to course correct the field force and get new patient starts growing again. Limited competition. The first two quartes of sales for the drug were pretty good. There is tolerability issues with the product but it can be managed, especially if they do better education. OpEx is actually pretty reasonable. They could and should do a reverse split because the 600 million shares outstanding is a wet blanket on the perception of the company.

But most importantly: By my calculations the Myelofibrosis Phase 3 trial should be enrolled by October. It has been a long (crappy) road to getting this trial enrolled. The interim readout should be in 2026 and it is event-based so they don’t even need full enrollment to reach the required number of events. But given this company’s history I would rest easier knowing they are at full enrollment. The point being - that MF Phase 3 readout is coming SOMEDAY and it has a chance of working. Getting approval in that indication would open up a very large market and one that they could control alone as compared to LR-MDS where they are essentially a third-line option. The stock at $1 is probably way too cheap for just the LR-MDS indication. The company will be profitable so they won’t run out of money. And you get that MF call option which could be massive. The problem is - how far below $1 can it go? I would probably dollar cost average in very carefully, and not until October when I anticipate they will announce full enrollment in myelofibrosis. Usually when I want to buy something in spite of hating its past, it’s worked fairly well for me. A stock price of $1 gives you some margin of safety and very real upside.

Future Catalyst To Watch: Full enrollment in the Myelofibrosis Phase 3 Overall Survival trial.

Other Potential Ideas

scPharmaceuticals SCPH 0.00%↑ is trading like it’s heading towards bankruptcy and with their expenses growing faster than their revenue I can’t dispute that BUT they recently got approval for a label expansion in Fluid Overload in Chronic Kidney Disease. Their first indication (Heart Failure) has been really slow to get traction but if for some reason CKD fares much better this thing could reverse and go much higher. Not to mention they have an autoinjector formulation coming next year which is much better than their bulky current device and will lower COGS. The earnings call in August will probably be indicative of the uptake curve in CKD because May might be just a little too early. It’s already insanely cheap so I won’t give a price target, it’s really all about buying at the first sign they have a path to profitability and won’t go under. This is at a 1.5x NTM P/S, can’t be too greedy.

Future Catalyst To Watch: August earnings call.

Harrow HROW 0.00%↑ is a bit of a polarizing stock because the people who love it like reaaaaaally love it. They basically present themselves as the Berkshire Hathaway…of eye care which might be appealing to you depending on your love of Berkshire Hathaway lore. (I think you’ll see it if you read the annual reports, letters to shareholders, and listen to the calls.) But anyway…numbers don’t lie and they have posted some really impressive revenue growth but the stock has been falling, even before the economy went off the rails. I guess people were nitpicking some language in the conference call about Q1 2025 possibly being a little weak but they are at a 3.0x NTM P/S. They have multiple products that seem to have a bright future. The stock is much closer to the 52-week low than the 52-week high. The 52-week low is 9.86 - if you can snag it anywhere close to there you are probably pretty happy. Since some think Q1 might be slightly weaker, I’ll list the same catalyst as I did for SCPH above just to be on the safe side. Probably wise not to rush into anything right now.

Future Catalyst To Watch: August earnings call.

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Pre-Commercial Biotech

Obviously the next bucket is slightly more risky as they fully depend on a functioning FDA in the next 12 months. Do I honesty think the FDA will start missing PDUFA dates? Probably not. If only for pride I’m sure the administration doesn’t want that black eye. But the fact that stocks have to price in let’s say a 20% chance of that happening essentially means everything pre-commercial and clinical is getting a haircut. And that’s what has been happening and will continue to happen at least through the end of June when maybe the FDA can prove they are still a functioning entity.

If you think the FDA absolutely won’t ever miss a PDUFA then feel free to start buying sooner. Or, you can simply wait to buy until after the PDUFA date because, let’s face it, not a lot of stocks are sustaining a rally!

Okay, let’s start with one where I would be literally SHOCKED if it wasn’t approved on time. Like, I would do an exaggerated swoon on to a fainting couch.