Two Must Know Themes in Biotech for 2016

As it relates to the biotech industry, there are two themes to be mindful of as we enter the new year. The first theme is correction. Biotech indices have gone and continue to go through a significant correction since September 2015. According to a recent Forbes article, out of 142 VC backed biotech IPOs that were completed between 2013 to 2016, 74% are trading below their IPO price. However, the total value of all the companies is higher than original IPO, meaning that 26% of high quality companies still balance out the rest. For the first time in four years, the entire month of January did not have any IPOs and when February arrived, only a few companies broke the dry spell. All IPOs so far have the following common factors: They have technologies that are in very hot biotech prospects (i.e. gene editing, immunotherapy, immune-oncology, etc), They were backed by large VCs and Pharma, They all had significant (over 50%) insider participation. So what should many other companies with compelling science and sound management do? Get creative. Considerations are those relating to revenue, partnerships, and collaboration. Can revenue be generated early on? Can pharma partnerships generate some income? Can collaboration with foundations be formed to offset some costs? In certain cases, companies should look at going public on a junior stock exchange (i.e. TSX) and graduate to NASDAQ / NYSE when valuation is adequate and markets improve. The second theme is that health economics and reimbursement will be major discussion, given the fact that we are in a hotly debated US election year. It may be coincidental, however, it’s important to note...

How to Navigate a Period of Market Instability in Biotech Financing?

Returning from several Biotech Investment conferences in New York, it became clear to me that there is a consensus among biotechnology sector experts. Specifically, sector analysts agree the biotechnology sector is headed for a period of market instability and possible correction due to two key factors. First, we have witnessed an unprecedented period of growth. Biotechnology stocks were one of the hottest sectors in the U.S. stock market from late 2011 until this past summer. Since peaking in late July this year, the S&P 500 Biotech Index has fallen 23%. This fall is twice as much as the broader S&P 500 Index during that period. The Nasdaq Biotech Index, which includes more small-cap issues, has fallen even further: a drop of 27%. Typically, a bear market is measured when prices fall 20% or more over a period of several months. Second, the recent inflating of certain pharmaceutical prices has led to public outrage, mandated investigation and initiated the potential for government intervention. On September 17th, HIV activists wrote a blog and complained that Turing Pharmaceuticals raised the price of a 30-year old drug from $13.50 to by $750.00 per pill (5,000% increase). On September 20th New York Times ran a story on Turing. On September 21st, Hilary Clinton tweeted that she will be taking on “outrageous” [pharmaceutical] pricing. As a result of a single tweet, a four year period of the S&P and Nasdaq biotech indexes rising as much as 300% came to an abrupt end. It’s hard to believe, but this is how bubbles often begin to burst. It’s not always with some ground-breaking change but rather a single...