Join Graig Suvannavejh, veteran biotech and biopharmaceutical analyst at Mizuho Securities, as he sits down with our host Solomon Wilcots, Sports-Health Alliance Team Leader at Russo Partners.
In this episode, Graig discusses the evolving biotech landscape, upcoming market catalysts, and the key therapeutic areas poised for growth. We also dive into best practices for companies looking to strengthen relationships with analysts and investors.
Solomon Wilcots: Welcome to the Russo Edge Podcast show, everyone. Today, we’re having a very good conversation with our good friend, Dr. Graig Suvannavejh. Graig is the Managing Director of Biotechnology and Biopharmaceutical Equity Research, Mizuho Securities. He has over twenty years of experience in healthcare. Graig has had research roles at both Bulge Bracket and healthcare-dedicated boutique investment banks. He’s had corporate experience with operating roles in business development and strategy at top-tier global biopharmaceutical companies, including AbbVie and Biogen. Graig, welcome to the show. How have you been doing, my friend?
Dr. Graig Suvannavejh: I’m doing well, Solomon. It’s great to see you. Great to be part of your forum here and I look forward to this discussion.
The New Reality for Small and Large Biotech Companies
Solomon Wilcots: Yeah, it’s going to be great. Let’s go ahead and get started because I know you’ve been following the biotech industry for more than twenty years now. How has the sector evolved over the last few years?
Dr. Graig Suvannavejh: Part of the reason that I’m excited to be part of the biotech sector and industry is just based on all the progress and innovation that we’re seeing across small and large companies, both here in the US and outside the US. A lot of the learnings over the past several decades are starting to bear fruit. We are seeing lots of innovation as it relates to new treatments for cancer and Alzheimer’s disease and metabolic diseases as well.
I think in the last few years, what we’ve seen is we’ve certainly seen an explosion in the number of companies that are publicly traded, so a lot of capital has flowed into the sector. I’d say over the past five years, in particular, we are seeing that because of high interest rates. That is making the capital available to the biotech sector a little bit more constrained, a little bit more limited, and it is creating some pressures, by and large, for the smaller, less well-capitalized companies.
It is, unfortunately, making them think about which are their programs that they want to place the highest priority around, and that means sometimes deprioritizing other, maybe earlier-stage or riskier programs.
So, we’re at a place now where, ahead of the 2024 US presidential elections, the XBI, which is the ETF that many of us in the industry track to kind of serve as a gauge of sentiment in the sector, has been relatively flat over the past year and change. We’re hoping to get through the elections to hopefully have a lower interest rate environment which could make capital raising for some of our companies, make it a little bit easier for them. Would you agree?
And unfortunately, we still have some greater geopolitical uncertainty, which creates kind of a risk-off environment. And biotech is very much a risk-on type of investment. So, a lot of these macro factors are making it a bit challenging for the biotech sector.
Key External Drivers Influencing Near-Term Biotech Performance
Solomon Wilcots: Let’s look ahead to Q4. I know you just talked about the election as one of those things, what are the other key factors you think will impact the biotech sector in the coming months?
Dr. Graig Suvannavejh: Well, I think it is primarily we need some clarity around who’s going to be the next president here in the US. I think it’s just the markets, generally speaking, prefer certainty. Obviously, we’ve got a big election whether the country stays more democratic in terms of the presidential, you know, who’s sitting in the White House, versus going Republican—that’s a big event that we kind of need to get past. Hopefully we have an orderly election. Hopefully, we can get back to business relatively quickly. That will provide some certainty in the markets.
We have seen the US Fed indicate that it is not raising interest rates anymore. In fact, if anything, it might be lowering interest rates. So those two things in particular, at least here for the US biotech market, are going to be what’s most important for us to kind of know what’s next for the biotech sector, more broadly speaking.
Where Capital Is Flowing Across Biotech Therapeutic Areas
Solomon Wilcots: Let’s get maybe more granular. What therapeutic areas or technologies within the biotech sector do you expect to see maybe significant growth in terms of investment?
Dr. Graig Suvannavejh: It’s something that we focus on a lot here at Mizuho, and a lot of my other colleagues who sit at other firms. You know, we talk to investors, we talk to folks in venture capital, and we also think about what we think will be kind of the emerging technologies. And right now, it seems like the top three areas that the biotech and pharmaceutical companies are kind of investing in will be things like, no surprise, obesity. And what is everyone’s kind of, at least from a large company perspective, what is their obesity strategy? And whether it involves going down a GLP-I route or not, we have some other more interesting, novel, and promising mechanisms of action, including those that target kind of maybe myostatin or CB1 or other areas, maybe the inflammasome as well.
But beyond obesity, which is what everyone seems to want to talk about most, we do have major interest in what’s called the INI space or inflammatory diseases or immunological diseases. We’re seeing a lot of companies who maybe previously were working in oncology. Because of a little bit of an overlap between how drugs work in oncology, they may also work in kind of inflammatory diseases, so we’re seeing a lot of interest in the INI space. Neuroscience has been an area of a lot of growth recently, whether it’s Alzheimer’s disease or it’s psychiatry diseases. A lot of that is driven by new drug approvals, but also by M&A that’s taken place where large companies have acquired small companies.
We saw two companies last year. One got acquired for fourteen billion. That was Karuna Therapeutics, a name we used to cover. There was another company called Cerevel Therapeutics that was acquired by AbbVie for about nine billion dollars, also a company we used to cover. Those companies were focused on psychiatric diseases. Neuro is making a big comeback as well, I’d say over the past five years. Then lastly, there will always be a focus on oncology because, unfortunately, cancer is still with us and affects all of us on some level. We still need better treatments and certainly if we can find cures, that would be great.
Company-Specific Readouts With Market-Moving Potential
Solomon Wilcots: Graig, with companies that maybe you’re following more directly, are there any specific key mid- or late-stage clinical datasets or other catalysts that you’ll be watching or paying attention to, especially when it comes to the impact for investor sentiment?
Dr. Graig Suvannavejh: I think that the biotech sector is full of clinical data-related catalysts. That is kind of a lifeline of investing in biotech. Investors try to get really smart around a phase two or phase three clinical trial and make a big bet. I think there are a number of events that we’re looking for. As it relates to companies that we follow here at Mizuho, and especially under my coverage, there’s one particular company—it’s one of our top ideas actually—Axsome Therapeutics, they’re a New York-based biopharmaceutical company. They’ve got in the fourth quarter, two different big phase three readouts. One for a drug that’s already on the market for depression. That drug is called Auvelity, but they are also testing that same drug in Alzheimer’s disease, particularly as it relates to patients who are very agitated. So, treating agitation in Alzheimer’s disease.
There’s one drug that’s approved on the market right now. It just got approved last year. That drug is called Rexulti, but that drug unfortunately has a black box warning for an increased risk in mortality, and unfortunately, an increased risk in mortality in elderly patients with dementia, which is exactly the Alzheimer’s patient population to begin with. So Auvelity, which is approved in depression, does not carry a black box warning for depression. And now it’s being tested in phase three clinical trials for agitation in Alzheimer’s disease. We are expecting that readout in the fourth quarter. We already have a positive phase two dataset, and we already have a positive phase three first dataset. There’s a lot of expectations and interest in Axsome for this one drug, Auvelity, in Alzheimer’s disease agitation.
They also have another drug that’s on the market. That drug is called Sunosi. It’s already approved in treating excessive daytime sleepiness in patients with narcolepsy, but they are testing that drug in ADHD. We know ADHD, seventeen million patients in the U.S., affects both adults and kids, and they’re testing their drug on ADHD. That’s also a fourth-quarter readout. That’s a very big, important readout. On the neuro side, we are expecting in the fourth quarter as well, a company that I cover called Alector has an important phase two readout for a drug that’s partnered with AbbVie, which is on the Alzheimer’s disease side.
So, you know, Alzheimer’s, we do have two or at least one newer drug for Alzheimer’s disease that’s called Leqembi. That is from Eisai and Biogen. We’re expecting, or I think we may already have a Lilly drug that’s approved. These two drugs target beta-amyloid. The view is if you can lower the plaque burden in the brain, that’s good for patients. The Alector drug is actually using a different mechanism. It’s not targeting beta-amyloid directly, and instead trying to amp up the microglia, which would clear the debris. It’s a very novel mechanism of action. It’s targeting what’s called TREM2.
We’re going to get a phase two readout in the fourth quarter, and that could be very exciting for patients with Alzheimer’s disease.
Why Investors Remain Cautious but Engaged in Biotech
Solomon Wilcots: Wow, it sounds very promising and looks like a bright future. There are some very good things on the horizon. As a sell-side equity research analyst, your primary client audience is the buy-side institutional investor community. What’s your sense of the current buy-side view of the biotech sector?
Dr. Graig Suvannavejh: Yeah, so I think the buy-side has had a very tough go at it over the past couple of years. If we use the XBI as kind of the gauge of where general sentiment is, it’s been about at the one hundred level for quite some time. I think the buy-side is still very interested in biotech. It’s been hard to make money by and large because it is biotech after all, trying to predict the outcomes of clinical trials. We get very deep into the weeds. We have some very, very sophisticated investors, particularly those that are in the specialist biotech community. We also have more general biotech investors at larger funds that are perhaps more generalist and long-only in nature.
Biotech has always been high risk, high reward. There’s always an interest in like, hey, if I can play a certain name, maybe I’ll get like a twenty, thirty, fifty, eighty percent return in a very short time. There’s always going to be an interest from the buy-side community in biotech, but it is very hard sometimes to correctly call whether a trial is going to work or not. I think net-net, the sentiment is still positive, but there’s been a lot of data events that have not gone our way. We are hoping to see a lot more positive events that hopefully are good for both patient and investors as well. I would say we are still fighting the good fight and trying to make very smart bets and certainly we want to see new treatments and potential cures for patients. I do think the buy-side is looking forward to though, perhaps 2025 and maybe putting 2024 behind them.
Why Honesty Matters More Than Optimism in Biotech
Solomon Wilcots: Well, one last question, Graig, before we get you out of here. How important is it for management to have a good relationship with analysts, and as an analyst yourself, are there any best practices you can share with our listeners on how management can interact with analysts on the buy side, particularly with investors.
Dr. Graig Suvannavejh: This business is about trust. And I think for management teams, it’s very important to establish credibility. I think the more transparent you can be on the data or the assets that you have, and sometimes data are not perfect, sometimes data are not great, but I think investors, analysts on the buy side, as well as analysts like myself, who sit on what we call the sell-side, we do appreciate when management teams tend to be a bit more direct, a little bit more honest, a bit more truthful. We understand that biotech is about buying into the idea of what you are working on, we want to be there, we want to partner with you, and believe in that vision, but you have to allow us to do our own homework, our own diligence.
I really think that it is very important for management teams to work, I would say, in partnership with their investors, work in partnership with their sell-side analysts and other key stakeholders, and to basically operate in an environment of honesty and transparency. I think that’s what we value the most, I think when we see companies that maybe get into the business of spinning data in a way that perhaps there might be a sliver of optimism but on balance the reality is like when you play Blackjack and the cards speak for themselves – data are data and either you busted or you didn’t. We would prefer to see management teams say look – calling a spade a spade, we gave it our best shot, we are going to move on and that way it is better for everyone involved.
Solomon Wilcots: Great stuff, Graig. Per usual we knew you would knock it out of the park. Certainly, we appreciate you joining us as our guest here on the Russo Edge Podcast Show. Once again, Dr. Graig Suvannavejh, Managing Director of Biotech and Biopharmaceutical Equity Research, Mizuho Securities. Thank you for joining us on the Russo Edge Podcast Show. We want everyone to continue to tune in; we’ll catch you next time.
The Russo Edge Podcast is hosted by Solomon Wilcots and features candid conversations at the intersection of biotech, healthcare, and innovation, spotlighting leaders, scientists, and investors moving medicine forward. The following transcript has been edited for clarity.
