Unlocking Alpha in Biotech Through Active Selection

Clinical execution and identifying companies with differentiated drug candidates yields excess returns, as demonstrated by Xenon's share price, which appreciated by close to 50% on positive data, and Dianthus, which appreciated by 21%.

Xenon Pharmaceuticals

Xenon Pharmaceuticals has reported positive topline data from the Phase 3 X-TOLE2 study of azetukalner for the treatment of focal onset seizures (FOS). This marks an important late-stage inflection point for the company. FOS is a common form of epilepsy, a neurological condition characterised by abnormal electrical activity in the brain that leads to seizures. Despite the availability of multiple medications, a substantial proportion of patients remain in need of a drug with better seizure control.

Xenon’s azetukalner acts on potassium channels in the brain and has been designed for this exact purpose.

The Phase 3 results announced were highly compelling: the high-dose group experienced a 53.5% reduction in seizure frequency, compared to 10.4% for the placebo group. This exceeded the magnitude of the effect observed in the Phase 2 study, where a 34.6% placebo-adjusted reduction was produced. Seeing better efficacy in Phase 3 trials is rather uncommon, which further strengthens these results.

This data represents a significant milestone for the company, indicating a potentially best-in-class profile and reducing the regulatory risk as Xenon prepares to submit a New Drug Application (NDA) in Q3 2026. Analysts are modelling peak sales of USD 2–2.5 billion for this molecule.

The market also recognised the importance of the results, with the stock appreciating by 49.6% on the day of the announcement.

Dianthus Therapeutics

Dianthus reported highly encouraging early results from the Phase 3 CAPTIVATE study in chronic inflammatory demyelinating polyneuropathy (CIDP), a rare autoimmune neuropathy affecting over 40,000 people in the US. In CIDP, the immune system attacks the protective layer of peripheral nerves, ultimately leading to nerve damage, numbness, muscle weakness, and lost reflexes.

Dianthus's drug candidate, clasiprubart, inhibits an element of the complement system — part of the immune system involved in the disease mechanism — in a way that leaves the body's ability to defend itself against infection intact. This addresses a significant issue with previous similar drugs. Clasiprubart is designed for subcutaneous self-administration every two weeks, making it a convenient option for patients.

On 9 March 2026, Dianthus announced an early 'go' decision for the next stage of the CAPTIVATE trial after observing a response rate above 50% in fewer than 40 patients who had completed Part A. Equally importantly, the interim safety profile was favourable, with no serious infections.

These results substantially reduce the risk associated with the programme's estimated peak sales potential of around USD 2.7 billion as the company progresses with clinical development towards commercialisation. Following this news, the stock appreciated by 21.5%, bringing the company’s year-to-date return to 92.3%.