Bio Investor Forum #3: Finding Value in Biotech Innovation

Biotech Innovation Seeks Value

Healthcare Costs Mount

The Bio Investor Forum has become a go-to meeting for biotech investors and company executives. Although the presenting companies are early stage or smaller cap public companies the attendees are broadly represented in the industry. And the panel sessions on topics such as Venture Capital, Government Policies and Therapeutic Categories are highly informative. Technology and financing trends are well covered. One recurring theme was the cost of healthcare and value driven innovation.

For a flashback look at the state of the biotech industry in 2009 after the market crash when funding was scarce.

Here is a brief summary by no means exhaustive, from my notes on the markets and technology trends:

  1. Innovation is exploding particularly in oncology. New platform technologies such as CAR-T, checkpoint inhibitors and gene therapy are at the clinical stage and should offer new therapeutic alternatives in the years ahead. Novel immune therapies such as Opdivo from Bristol Myers Squibb and Keytruda from Merck are already on the market. Biomarkers and companion diagnostics for personalized medicine are accepted trends for targeting therapies.
  2. Licensing deals and clinical collaborations will continue to grow among all sizes of companies.
  3. Drug pricing will be an issue for sometime to come but may not affect the overall market in the short-term because many stocks have already taken a 25% hit. In a global economy and with pricing much lower in Europe and Emerging Markets who will pay for drug development and huge clinical trial expense ? High prices in the US now support R&D innovation for many companies especially oncology. New products should address a “serious unmet need with a change in the treatment paradigm” to warrant a premium price. Value pricing will improve longer term through combo therapies. There are too many marginal drugs on the market.
  4. Innovation can be hurt by the political attacks on drug pricing. The biotech industry needs to do a better job of selling technology and innovation or the business model will be in jeopardy. However the pressure will remain because healthcare is too expensive now at 20% of the GDP. The Affordable Care Act (ACA) has disrupted the market but in the end could open up new business opportunities.
  5. The biotech market has matured now that large caps have evolved into major drug companies with measurable financial metrics. The severe correction may drive some of the generalist investors out of biotech stocks particularly small and mid-caps with no revenues that are hard to value. This year’s momentum driven bull market means some valuation issues have arisen and a price must be paid.
  6. The biotech business model is built upon an accommodating FDA, primary reimbursement by insurance and Medicare/Medicaid and strong Intellectual Property.
  7. M&A and partnerships will continue to grow as the IPO market and secondary financings shrink.
  8. Digital health should be a niche area for breakthroughs but despite all the tools and technology few new major companies have been created.
  9. Macro risks remain for 2016 such as interest rates and politics. Medicare pricing is an issue but it is still business as usual because exciting breakthroughs and clinical developments will continue.
  10. There was an excellent Business Panel on Venture Capital Funding Trends that found three remarkable funding gaps: despite a growth in start-ups there is a bottleneck in Series A Rounds, a shift in popularity away from chronic diseases toward rare diseases and oncology and crossover investors are supporting more private companies earlier. And with IPOs at record levels and valuations are good start-ups getting frozen out? Affordability pressure will increase.

Here is a report available as a download, “BIO’s Venture Funding of Therapeutic Innovation”.

 

 

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