Innovative treatments are making meaningful strides against some of the largest unmet needs across medicine at the same time pharma has its greatest ever pressure to replenish pipelines with new products. It should be a good time to be a developmental stage biotech. So why are investors, particularly generalists, as far away from the industry as they’ve ever been? It’s gotten to a point that just doesn’t seem to make sense. Certainly, there are many pressuring factors, both macro and micro on the industry, but none are new and arguably have been worse at certain times in the past. So, why is the XBI trading at levels first seen in 2014 and below its March 2020 lows? The non controllable macros and company specific risk factors only explain so much.
To us, there are two key, controllable factors that have contributed to this substantial enthusiasm gap. The first is a spread between last-generation corporate messaging and capital planning and updated investor expectations regarding timelines and capital needs. In short, investors have moved the bar on what constitutes investible proof of concept. The second is a perception of therapeutic crowding and mechanistic complexity. When I’ve asked generalists about this, what typically comes back is some version of, “I’m just not sure how I win because I don’t really understand it and it all sounds kind of the same.”
To gain traction in this environment, messaging needs to be simplified and capital planning must assume longer duration to value creation. We believe there are four key questions that need to be answered up front as simply and directly as possible in any investor meeting or presentation.
1. What do we have?
2. Why should you care?
3. When will we know?
4. How much will it cost?
By matching clinical development and financial plans to these themes, companies can demonstrate a pragmatic path to returns that aligns with current investor expectations. Those that succeed in this task will be the companies that current investors stick with in the downturn and the first ones new investors will flock to when conditions improve.
From a capital planning standpoint, the choices are both simpler and more complex. The simple part is: spend less and survive longer. The complex part is: what to spend on isn’t crystal clear and slowing or shuttering in process R&D raises numerous questions. A former colleague always quoted a great line in discussing this dilemma saying, “God could create the world in 6 days because there was no in process R&D.” Having said that, it is important to remember that the ability to drive one program past POC is far more valuable than having three that don’t get there.
How can we help?
In a more than two-decade career at the crossroads of life sciences and Wall St. spanning public equity, private equity, and industry consulting, we have worked with countless investors and dozens of companies to create and find value in this industry. In that time, we have established a clear view on both communications strategy and capital planning with numerous industry and investor contacts to educate us and challenge our assumptions. We certainly don’t have all the answers, but we think these are the right questions.