Can’t Stomach Tech Stocks Today? Then Check Out This Biopharma
As big tech stars get smashed this week, I’m taking refuge in a Danish drugmaker.
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It looks like the day I have been predicting for many quarters now has finally started to arrive — the day when big tech investors start to realize impressive revenue growth can’t offset accelerating levels of negative cash flow as a result the surge of capital spending on AI infrastructure.
Alphabet (GOOG) led the Nasdaq down in trading Thursday. The stock was down over 12% in trading after posting Q3 numbers after the bell on Wednesday. It was the biggest one-day decline in the shares history. This followed the second consecutive quarter with a negative free cash flow reading. The second quarter was the first time in Alphabet’s time as a public company it posted a quarter of free cash flow that was in the red. The rate of cash burn picked up significantly in the third quarter and AI appears to be now eating into growth at its core search business.
Look for the same trading action today after Amazon’s (AMZN) posted its third-quarter numbers after the bell yesterday. Free cash flow was much more negative than the markets were expecting. This offset the best revenue growth from its AWS business in a half-decade. Microsoft (MSFT) is now the only major hyperscaler that isn’t bleeding cash on a quarterly basis. And Mr. Softie just offered up to 60,000 employees voluntary buyout and is going back to the bond markets for an additional $25 billion funding raise.
So this is not a column about me getting into tech. Instead, I am again going to highlight a biotech name. This one is from across the pond, and, more importantly, is bucking the trend of negative news flow over the past week with success from several late-stage trials.
The name of the company is Genmab A/S (GMAB), a Danish drugmaker that has recently reported a spate of positive trial results. Wednesday, results from a Phase 3 study evaluating the company’s bispecific antibody therapy, petosemtamab in combination with Merck’s (MRK) blockbuster achieved impressive results in treating first-line therapy for PD-L1-positive head and neck squamous cell carcinoma. Top-line data from this open-label trial showed mortality risks dropped by 50% and met the dual primary endpoints of overall survival and objective response rate.
The previous week, Genmab disclosed data from another Phase 3 study around its therapy Epkinly, a T-cell engaging bispecific antibody that is already approved as a third-line treatment for diffuse large B-cell lymphoma. This study was evaluating Epkinly as part of a triple combination with AbbVie’s (ABBV) and the current standard of care to treat first-line patients with diffuse large B-cell lymphoma. The data was again well-received as it showed the risk of disease progression or death fell by roughly half that of the current standard of care.
Also last week, data from a Phase 3 study evaluating Genmab’s antibody-drug conjugate, rinatabart sesutecan, also known as Rina-S. came out. The data met its primary goal treating platinum-resistant ovarian cancer and boosted the stock last Friday. A trifecta of good trial results that has rallied the shares some 40% over the past week into the mid-$50s. Not surprisingly, the stock has seen some upward price target revisions from analyst firms in October. I would not chase the rally, but I would add to my covered-call holdings if the stock experiences some profit taking and comes back nearer $50.00 a share.
At the time of publication, Jensen was long AMZN and GMAB.
