Biotech Optimism Is Returning. Now Is the Time to Engage New Investors

Sentiment continues to improve across biotech, particularly in small caps. Four biotech IPOs successfully priced in the first week of February, raising nearly $1B combined. TD Cowen’s Biotech Sentimometer shows Outperform to Underperform expectations running 2:1 positive for small cap biotech.

How can companies tap into that optimism and engage potential new buyers?

Recent biotech outperformance and the potential for a return to a biotech bull market will draw a much larger pool of investors to the industry than it has seen in some time. Many of them will be unfamiliar to even experienced management teams. Don’t just wait to see who appears on your next conference schedule, proactively identify new targets and directly engage. Shareholder lists of more mature biotech and veteran sell side analysts with long memories are two good sources of information about investors who may be coming back to biotech for the first time in a while.

Here are some general guidelines for how generalists think about biotech

Not interested in validating early data

Generalists typically own a handful of biotech stocks within a much broader portfolio and therefore do not have the same bandwidth to master the nuanced details. What they need is a brief explanation of why human proof of concept has been established.

Looking for proven science on the cusp of opening big markets

For their biotech portfolios what a generalist likes to see proven science with a strong rationale for why it will meaningfully improve patients’ treatment options and represent an attractive commercial opportunity.

Longer term scalability preferred

To sustain strong returns for the longer holding periods they prefer, generalists will always prioritize life science therapies that can access additional patient population over time with the same mechanism.

Low tolerance for unforced errors

Taking a major loss in biotech is a constant fear for generalists. Accepting some degree of scientific risk is inevitable, however, investing with proven management teams utilizing understood mechanisms via validated regulatory pathways is often a desired source of risk mitigation.

Tell your story at a higher level

Given their more limited time to dedicate to the sector, generalists will use parameters such as these as a checklist to quickly assess which companies have the highest likelihood of meeting their required investment criterion. The key messaging considerations for receiving a positive response from this initial screen is to first engage by establishing core strategic themes of therapeutic innovation and breadth of applicability before walking through the scientific and clinical development details with a focus on their derisking elements. 

By productively targeting generalists, companies can potentially reduce turnover while receiving a valuation boost from the increase scarcity value of shares. This potential stock price benefit makes understanding the generalist mindset and how to best engage with them a productive IR strategy especially during times of increased optimism.

In periods like this, the role of a biotech IR advisor becomes more critical, helping companies identify new investors, refine positioning, and capitalize on improving sentiment.