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With Investors’ Eyes on Biotechs, Biotechs Must Be Transparent

Darcy Grabenstein

January 23, 2019

If recent pharmaceutical mergers and acquisitions are any indication, 2019 is poised to marked by industry deal-making. Earlier this month, the J.P. Morgan Healthcare Conference coincided with Eli Lilly & Co.’s $8 billion acquisition of Loxo Oncology Inc. The news came on the heels of the $74 billion merger of Bristol-Myers Squibb and Celgene, and the $5.1 billion acquisition of Tesaro Inc. by GlaxoSmithKline PLC.

At the conference, dubbed the “the veritable Burning Man of biopharma” by Fortune, Gilead revealed its plans for expansion in the coming year. Investment site The Motley Fool quoted Gilead CFO Robin Washington, when asked about its capital allocation strategy, as saying the No. 1 priority is mergers and acquisitions. Scrip also reported that Amgen appears ready to make deals in 2019.

Prior to the conference, biotechs were a blip on investors’ radars. The recent announcements, however, changed all that.

Reflecting on the conference and recent M&A developments, industry insiders have been sharing their take on what’s to come. Mandy Jackson, the U.S. West Coast editor for Scrip Intelligence, reports that biopharma investor sentiment soared “as industry participants indicated their optimism about financing and deal-making opportunities in 2019.”

John Carroll, editor in chief of Endpoints News, writes: “Is M&A back? The Magic 8-ball says yes.” He notes that “biotech valuations have been hammered hard in the last few months.”

On top of that, the current government shutdown is beginning to have a negative effect on the industry, with administrative delays from the FDA or FCC, and IPOs being put on hold. And many biotech companies are feeling the impact the most. Case in point: The FDA informed biopharma company Aimmune Therapeutics that its application to market its peanut allergy drug would not be reviewed until the lapse in appropriations ends.

What’s a biotech to do?

Small and mid-size pharmaceutical companies seeking funding or interested in being acquired up by a larger pharma company should not ignore the importance of disclosure, transparency and compliance when it comes to financial matters.

Joseph Munda, a senior analyst in the life science technology group of Chicago-based First Analysis who attended the JP Morgan conference, offers these tips for biotech executives seeking favorable reviews in the financial community:

  • Set realistic goals and timelines. Are you overreaching? He warns against using the government shutdown as an excuse for missed milestones.
  • Be as transparent as possible with your client base. Are you merely compliant or are you leading the way in disclosure and transparency?
  • Determine your value proposition: What are you bringing to the market that it lacks or does not understand?
  • Know your ROI. How long will it take to recoup the investment needed to develop the drug?

In his role as analyst, Munda researches, identifies and leverages opportunities in the life science technology sector – both public and private. Offering his perspective on pharmaceutical M&A, he says: “I think biotechs have been on fire for the last few years. There was a lot of activity. Some said it might be time to take a pause. However, I think if some of the pricing pressure eases up, you’ll see more M&A, especially in areas such as immunotherapy or breakthrough therapies for orphan diseases or cancer. While the pace may slow down, I still think you’re going to see M&A in 2019, just maybe not at the rapid pace of previous years.”

While MobiHealthNews Editor in Chief Jonah Comstock passed on the JP Morgan event itself, he attended a variety of conference-related events. He notes that big data was an overarching theme, citing both internal and external data sharing.

Munda cautions that the benefit of data sharing, in terms of the financial community, is somewhat difficult to assess. At the end of the day, he says, whatever gets the drug faster to market is a plus, as long as the inherent proprietary value is not sacrificed in the process. Another trend Munda sees is analytical tools being laid over data sets, allowing sponsors to pull meaningful insights from the data.

He sees clinical trial compliance as another big issue. “It’s the last set of data before a drug goes commercial and includes key components of the clinical program. “This data sits at a very interesting intersection of the approval process,” says Munda, who has been ranked by The Wall Street Journal as a No. 1 analyst for the medical device sector in its “Best on the Street” survey.

Veteran biotech stock pundit Adam Feuerstein also has raised the issue of transparency in the past.  In writing for The Street, he has brought to light the lack of disclosure in the industry, particularly with biopharmaceutical companies.

In the UK, BNP Paribas Investment Partners is working with Ben Goldacre’s AllTrials project in bringing together a group of 85 pension funds and asset managers — representing more than €3.5 trillion in assets — in support of the AllTrials campaign for clinical trial transparency. These investors include RobecoSAM, Aviva Investors, Boston Commons Asset Management, 65 UK local authority pension funds and the investment arm of the Wellcome Trust. Their goal is to get clinical trials, past, present and future, registered and results reported.

Investors aren’t the only ones keeping an eye on pharmaceutical companies. Laura Entis, writing for MM&M, notes that the JP Morgan conference presented a challenge for pharma CEOs. On the one hand, they want to impress investors; on the other hand, they are aware of the public’s negative brand perceptions.

A company’s transparency and its brand reputation go hand in hand. Munda agrees that pharmaceutical companies are being viewed very negatively due to pricing issues. “It’s become a political football to some degree,” he notes. “Anything that’s driving transparency on the clinical development side and educating the public is definitely a benefit. They should be promoting transparency; it’s low-hanging fruit. Those not being transparent, it only hurts their brand. Transparency goes a long way in building the public’s trust.”

About the author

Darcy Grabenstein is Senior Manager of Content Marketing Strategy at TrialScope. With a background in journalism and public relations, she has 30-plus years of experience in communications.