How Can I Invest In The Biotechnology Industry?

How Can I Invest In The Biotechnology Industry? – During the last decade, biotechnology has enjoyed the biggest and most successful boom in the history of the industry. But the future is uncertain: public markets and IPOs are down, but the financial market is still close to all time, and there haven’t been many new companies with technology output.

To understand where the market can go from here, this post will explain the biotech boom of the last decade: the stages of the explosion, what caused the explosion, and how the business has changed.

How Can I Invest In The Biotechnology Industry?

The next post will put the current market in historical context, particularly in relation to 1) investor risk tolerance and 2) the level of innovation. This message will discuss where the economy and business can go from here, and companies and investors can prepare for various situations.

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Although biotech’s performance has been poor in recent years, the industry is still in the midst of a historic boom. This boom was followed by a recession, which began with the bursting of the dotcom/genomics bubble, ending a few years after the financial crisis of 2008. Between 2003 and 2011, about $4B went down on investment each year in biotech startups. This is more than 9 times lower than the investment of $37 billion in 2021.

The bubble-to-boom story is also exemplified by the IPO market. From 2007 to 2009, there was no biopharma IPO for nearly two years, until Cumberland Pharmaceuticals went public. Two years without a biopharma IPO is almost unheard of today.

The IPO market has grown between 2010 and 2017, with an average pre-IPO fund of $246M and a total of 24 pre-clinical IPOs (representing 9% of biopharma IPOs). This explosion has accelerated over the past 4 years: as of 2018, the average pre-IPO funding was $691M, and there were 52 pre-clinical IPOs (representing 23% of biopharma IPOs). The rise in the IPO market has been paralleled by an increase in investor risk tolerance.

What has led to the growth of financial markets and IPOs? We divide the drivers of the boom into two types: “creative” and “market driven”.

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These factors are linked. Changes in fundamentals often lead to changes in market-driven factors, but markets do not always benefit from changes in values. If the market-driven factors negatively affect the value of the changes in the values, the market is over or under (Gartner’s hype cycle shows this performance).

Especially in a hot market, it can be difficult to tell how profitable a company is due to fundamental or market-driven factors. But the difference between these two places of value is significant. Traders who focus primarily on speculative trading can get stuck on the sidelines. But investors who ignore (or don’t appreciate) fundamentals are left holding the bag when the sentiment is out.

We cannot predict the market, but studying the history of the market can show how much risk the market currently has.

After the financial crisis, biotechs were hit and miss after ten years of poor performance. The science of the future caused by the genomics bubble of the late 1990s failed, the FDA took a very good position in approving new drugs, and the big pharma “patent cliff” eroded billions in revenue. What has changed?

Pharmaceutical Vs Biotech

The first “significant” cause for investor interest was the success of several “big biotech” drugs in 2012-2014, including Regeneron’s Eylea for wet AMD, Biogen’s Tecfidera for multiple sclerosis, and Gilead’s Harvoni and Sovaldi for hepatitis C.

This drug started very successfully, going from zero to billions of dollars in just two years (Gilead’s Hep C drug went from $0B to $10B in just one year on the market, the pre-vaccination data against COVIDs come from MRNA and Pfizer /BNTX.). These successes have made business people interested in biotechnology, showing how fast drugs can grow if they provide good results for patients.

An important part of this antidote is when the shares are priced on a successful trade. These steps are taken when the drug sells well. Before these companies proved the value of their drugs with real profits, investors did not give much credit to their products (“short” is a common word when there is time). When these drugs release better than expected, investors reward them.

These successes have increased interest in biopharma and given investors more confidence to invest in clinical stage companies. Of the three drug launches mentioned above, Gilead’s Sovaldi was the last to launch. Investors started bidding on the treatment in late 2013, so when Sovaldi was approved in December 2013, Gilead’s market share nearly doubled to $60-120B in 2013. Because Biogen and Regeneron’s pharmaceuticals started before biotech. its “rediscovery”, the biggest increase in the market came after Tecfidera and Eylea were launched in and created great growth.

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Another way of saying this is that from 2009-2012, commercial success is not expensive, even if the drug is approved and the risks of treatment are removed. Before 2012, biotech was in “risk-off” mode, and it wasn’t even taking much risk. After the completion of these productions, however, the market began to make the price in the market complete according to the medical information.

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The next big wave in biopharma is the immuno-oncology wave. Starting in 2013, PD-1 inhibitors (a type of immune “checkpoint” inhibitor) from Merck and Bristol Myers published controversial clinical data on the treatment of breast cancer (CTLA-4 inhibitors, a laboratory testing of antibodies developed before PD-1. , also have strong, albeit weak, data). This leads to interest in other oncology companies, and the search for combinations that can be used to improve the results of PD-1 inhibitors.

This strong medical record translates into a huge market when these drugs are approved. Bristol Myers’ Opdivo generated $3.7B in revenue in its second year on the market, and Merck’s Keytruda generated $1.4B in its second year on the market.

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However, this successful business did not increase the share price. In fact, Bristol Myers and Merck’s sales were lower two years after their PD-1 inhibitors were approved than in 2014, the year they were approved.

When these drugs are approved, the market is already cost-effective. Bristol Myers’ market capitalization increased by 65% ​​(adding $34B in market value) during 2013 as the first clinical data for BMY and Merck’s PD-1 inhibitor were released. Merck, whose pembrolizumab was considered BMY’s second best nivolumab at the time (although the tables turned in 2016-2018), had $14B in market cap (up 14% from the previous year) in 2013. It’ both companies see more business. limited increase in 2014 according to the most published data.

But because the value of the investors in the market is very strong after seeing the medical data, apparently even the start of the blockbuster drug does not make investors interested. Traders continue to increase their risk.

An FDA breakthrough has added fuel to the fire of entrepreneurs interested in immuno-oncology. Merck’s Keytruda (pembrolizumab) was one of the first drugs to receive FDA approval in 2013. After that, nivolumab and pembrolizumab received additional research, rapid development, and rapid approval for many subjects. Many other oncology drugs in development (and drugs for other diseases) have also received these regulatory benefits, which reduce time and cost, and increase the likelihood of FDA approval. Many of the drugs that have received this FDA designation are cancer drugs or drugs to treat rare diseases.

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FDA friendly reduces the risk of investing in biotech. This encourages investors to fund early stage companies. Because cancer and rare disease companies have few beneficiaries of these regulations, cancer and rare disease companies are receiving significant funding and investor interest in 2013. It is important to remember that these companies are not the most important. changes in the FDA – these companies are more profitable because they produce drugs that provide real benefits to patients with serious diseases, and the regulations change at least partially Acknowledgment that these drugs are needed patients faster.

Another tailwind for drug development, particularly for cancer and rare diseases, is the rise of “truth medicine”. Broadly speaking, precision medicine refers to the development of drugs for specific genetic patients (such as the large population of patients for whom drugs have traditionally been developed). Although the number of patients eligible for these treatments is less than the drug manufacturer, the outcome of the treatment is better, and the cost and time required to obtain the material proof of concept is lower ( as the test will be smaller). Because these drugs often treat serious, life-threatening diseases, and are designed to provide good clinical results, they can command higher prices than “over the counter” drugs.

FDA-friendly precision medicine reduces clinical and regulatory risks (real and perceived) and encourages investors to take early clinical risks, especially for blood-eating cancer and rare drugs that benefit the most the tail winds.

A method to show the level of early and late risk assessment the market has

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