ASCO Week Recap:Good Progress but with Longer Term Issues
- A Flurry of Biotech Stock Trades on Friday brought nice gains for the week: ARKG up 11.28%, IBB up 4.3% to $126.96 , XBI up 6.4% to $84.26 favoring speculative SMID caps.
- innovation themes take hold: Bispecific antibodies, Antibody Drug Conjugates (ADC) and Next-Generation diagnostics for Precision Oncology.
- Downsizing of federal workforce and Funding at NIH and NCI R&D and Regulatory can slow progress.
Upheaval at HHS
On Friday HHS released their proposed budget which reflects the TRUMP Administration’s restructuring of HHS with massive job cuts some already completed through the DOGE structure and now showing the massive cuts to R&D through NIH and its funding at major universities. The proposal cuts the HHS’ discretionary funding from $127 billion in 2025 to $95 billion in 2026, representing a 25% reduction. Under the plan, the NIH’s 27 institutes and centers would be trimmed and reshuffled into just eight bodies. The National Cancer Institute, National Institute of Allergy and Infectious Diseases and National Institute on Aging would be retained., but with lower funding. New agencies would also be created. Many of the proposed actions will be blocked by the courts such as the 15% cap on indirect costs at research institutions.
As one scientific attendee commented when asked how was it going overall at ASCO? ” It is still a rough time out there.”
Many experts on NIH funding and R&D management might agree with government budget restructuring but not in the “modus operandi” as is currently being executed by the Administration. They have limited government and medical/scientific experience, and the massive cuts do not appear to be made from a strategic perspective.
Breakthroughs in Drug Development : Bispecific Antibodies and Antbody Drug Conjugates (ADC)-Searching for New Imunnotherapies
Bispecific monoclonal antibodies (BsAbs) are engineered proteins that can bind to two different antigens simultaneously, unlike naturally occurring antibodies which typically bind to one. This unique dual binding ability allows BsAbs to bridge interactions between different cell types, stimulate specific immune responses, or block signaling pathways. They are being explored for a wide range of applications, including cancer immunotherapy, drug delivery, and other therapeutic areas.
Many of these new technologies made progress through the data provided in studies of new drugs at ASCO. For example:
- Blocking PD-1 and VEGF: The bispecific cancer drugs that could best Keytruda. Merus presented data at ASCO. AND : BMY and BNTX:
- Several papers featured new targeted therapies for breast cancer including Pfizer partner Arvinas.
- Novartis (NVS) presented their results in a Ph 3 study for prostate cancer (mCRPC) utilizing Radio Ligand Therapy (RLT).
- Phase 3 data for Merck with an ADC +Keytruda for Breast cancer (TNBC).
Can SMID Caps Maintain Momentum?
We would expect the biotech strength to continue through July normally a time of seasonal strength despite the backdrop of tariffs and pricing policy surprises. That is why we favor SMID caps based on product news from clinical updates, licensing deals and M&A. We are near the bottom in this bear market so if you know the companies and screen them for cash and momentum it is RISK ON. Alternatively you stick with large caps that have lower risk pay dividends and cano selective deals in coming months to bolster their product pipelines.
In previous articles we covered SMID Caps through a trading list we developed from early 2024. Many of these trades we made are now in the green and were broadly up on Friday. Here are stocks we still own or trade that have momentum: ADPT, BBIO, CRMD, EYPT, GH, NTRA, PTGX, RNA, RYTM, SUPN, TEM, WVE. And are some new trades to consider for next week:PACB, SDGR, XNCR.
Precision Oncology –New Generation of Molecular Diagnostics –MRDs (Minimum Residual Disease).From Leukemia and Lymphoma Society.
Minimum residual disease (MRD) diagnostics are crucial for assessing the presence of residual cancer cells after treatment, particularly in hematological malignancies.All have good analyst coverage.ands trong cash positions.
- Adaptive Biotechnologies (ADPT),10.09, up 6% wk, up 68.3% YTD, Mkt Cap $1.533B. With many ASCO presentations. RSI 65.55, P/S 8.09,Recommendation 1.29.
- Guardant Health (GH), $48, up 18.3% wk, up 57.3% YTD, Mkt Cap $5.95B. Breakthrough Designation by FDA. RSI 68.21, P/S 7.69, Recommendation 1.54.
- Natera (NTRA) $163.76, up 3.82% wk, YTD up 3.46%, Mkt Cap $22.36B, Now have Medicare coverage. RSI 59.13, P/S 12.2,.Recommendation 1.41.
Biotech can be a difficult sector for generalists because of the specialized knowledge requirement and volatility. And as you know small caps tracked by ETF like IJR and IWM are lagging the market. Most funds and ETFs are underperforming the market but if you pick the right basket of stocks you can outperform the S&P 500 because biotech is less connected to the MACRO.
In the meantime as the TRUMP Administration shrinks its budget and priorities for life sciences R&D, China is gearing up it efforts and doing deals with U.S. companies.