Yet Another Value Podcast• Mar 23, 2026• 1:12:12Interview

Adam May on investing in biotech $NKTR $ABVX

From Yet Another Value Podcast

Adam May•Physician, Dermatologist, and Biotech Investor

Executive Summary

The small-cap biotech sector, after a decade of negative returns, presents significant, uncorrelated investment opportunities for investors who can perform deep scientific due diligence.
Detailed analysis of early-stage clinical trial data can reveal alpha-generating insights missed by the broader market, as exemplified by the case of Nektar Therapeutics' misanalyzed data.
The competitive landscape is critical; the failure of competing drug classes, like the OX40 inhibitors, can dramatically de-risk and increase the market potential for a company like Nektar.
In certain indications like ulcerative colitis, a strong precedent for M&A following positive clinical data makes companies like Abivax highly probable buyout targets, representing a primary driver of returns.

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Concerns Raised

Inherent binary risk of clinical trial readouts, despite high confidence in the data.
Broader market sentiment in biotech can disconnect stock prices from fundamental progress.
Potential for unexpected safety signals to emerge even late in clinical development.

Opportunities Identified

Nektar Therapeutics (NKTR) is positioned to capture a significant share of the atopic dermatitis market following competitor failures.
Abivax (ABVX) is a highly probable M&A target following its upcoming maintenance data release in June.
The small-cap biotech sector is undervalued after a multi-year bear market, offering asymmetric risk/reward profiles.

Key Themes

Alpha Generation Through Granular Analysis

The guest argues that true alpha in biotech investing comes from scrutinizing minute details in clinical trial data that others overlook. The Nektar Therapeutics case, involving a single missed patient appointment and a placebo outlier skewing results, exemplifies how deep analysis can uncover a drug's true, much higher efficacy.

This highlights that for specialists, biotech is not just a game of chance on binary outcomes but an area where rigorous, detailed research can provide a significant, repeatable edge over the market.

Biotech Market Cycles and Volatility

The discussion opens with the guest's experience launching a hedge fund at the peak of the 2021 biotech bubble, only to face a 55% drawdown in the XBI index. This experience frames the sector's extreme volatility but also underscores the current opportunity after a prolonged bear market.

Understanding these cycles is crucial for investors to manage risk and identify entry points when sentiment is at its lowest, potentially capturing outsized returns as the cycle turns.

M&A as a Primary Exit Strategy

A core part of the thesis for Abivax is the high probability of a buyout. The guest notes that historically, every company with a successful ulcerative colitis trial has been acquired, citing the $11 billion acquisition of Prometheus as a key precedent.

This theme emphasizes that for many small-cap biotech companies, the ultimate value creation event is not commercialization but an acquisition by a large pharmaceutical company, making M&A landscape analysis a key part of the investment process.

The Shifting Competitive Landscape

The investment case for Nektar Therapeutics was significantly bolstered by the clinical failure of a competing drug class, OX40 inhibitors, from major players like Amgen and Sanofi. These failures, due to both reduced efficacy and safety concerns, cleared the path for Nektar's drug in the atopic dermatitis market.

This demonstrates that an investment thesis in biotech is dynamic and must constantly assess not only the company's own progress but also the successes and, more importantly, failures of its competitors.

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Topics

Biotech Investing Small-Cap Biotech Hedge Funds Clinical Trials Drug Discovery M&A Due Diligence Alpha Generation Market Cycles Nektar Therapeutics (NKTR)Abivax (ABVX)Ulcerative Colitis Atopic Dermatitis Alopecia Areata OX40 Inhibitors

Processed May 4, 2026 yt-dlp + mlx-whisper + Gemini

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