There’s no single definition of value in the life sciences. Big pharma, investment bankers and venture capitalists each have different goals that affect their perception of value and guide their investment decisions. Panelists at a luncheon plenary session at Biotech Showcase™ 2015 made that point patently evident.
For a small biotech, the key to getting investors—regardless of whether they are big pharma, venture capital, investment banks or others—is to carefully match your programs and technologies to their needs. Then, articulate the benefits of your program to the potential investor extremely clearly. This means detailing not only why your technology is superior, but how it helps that potential investor achieve its goals.
Iain Dukes, Melinda Richter, Ross Hammerman discuss perceptions of value in biotech
At JLABS, for example, “We look at our areas of strategic interest holistically. We understand the space and know what may or may not work, so when looking at technologies we are clear on what we need, and our teams can take it to market,” said Melinda Richter, head of JLABS, part of Johnson & Johnson Innovations. Therefore, “learn what resonates with us, know our gaps and target your message accordingly. Make it clear what I’m buying and how it adds value to me. Get to know us at networking sessions. Bounce ideas off us and fine-tune your presentation based on what you hear.”
Additionally, Ross Hammerman, Managing Director at UBS Investment Bank, stressed the need to deeply understand your market and how your solution can fill unmet medical needs. This goes beyond a scientific understanding to address reimbursement issues, for example. Realize too, that sometimes, investment decisions are based simply upon the potential return on investment.
Late-stage investor Frank Yu, Founder and CEO of Ally Bridge, however, warned companies against over-promising. “We avoid investing in companies that say they have the best technology and management team and can deliver a product in half the time and a fraction of the cost of other firms.”
Although there have been some significant investments and partnering deals in the past year, the industry still suffers from a somewhat negative reputation that is affecting investments, suggested Mike Griffith, President of the Commercial Division at inVentive Health. Expensive medicines and payers with strapped budgets, combined with a poor understanding of the overall value, contribute to that negative perception.
Additionally, Hammerman added, “People take (the pharmaceutical industry) for granted and don’t understand how the ecosystem works to create value.” The development of therapeutics for orphan diseases and underserved regions is one example of how the industry adds value but, he said, “people dismiss this.”
With negative perceptions of the industry, “there will be more discussion (at a policy level) about outcomes-based pricing,” Richter predicted. The industry and policy makers will be examining pricing, patient satisfaction with therapy and access to treatment. “Those also are the dimensions we consider when bringing something to the market.”
Ross Hammerman, Frank Yu; Biotech Showcase 2015 Day 1 Plenary Panel
Investment also was slowed by an uncertain regulatory pathway, as never-before-seen categories of products were presented to regulators for evaluation and guidance. Medical devices are a key example. The FDA and other regulatory bodies also have lacked expertise to deal with new types of products. Now, Stephan Bloch, General Partner at Canaan Partners, “is an interesting time at the FDA. There is incredible consumer pressure on the agency to make it easier to get products to market.”
But, as Yu pointed out, “In this country, most people don’t realize how lucky they are, compared to other nations. The US FDA is most advanced and transparent in the world.”
Griffith also suggested—with widespread agreement—that biotech may be in a bubble, similar to the one that rocked the IT industry in 2000.
“This is a bubble,” Bloch said. “Enjoy it while it lasts. We’ve been in it since 2013, and this feels like 1999 to me. Valuations in the stock market are disconnected with reality.”
Hammerman was less convinced. “Investors are rewarding companies with higher valuations when they solve unmet medical needs. Success is defined by regulatory and market success, not just scientific success.” The greatest concern, he said, is that companies will have setbacks that may cause investors to rethink valuations and their investment strategies.
Yu, consistently optimistic, said that current biotech valuations are minor compared to those of the internet giants. “You have true innovation that has a positive effect on outcomes.”
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