Biocom California recently hosted an in-person panel with three equity research analysts: Ritu Baral from Cowen, Laura Chico from Wedbush, and Josh Schimmer from Evercore. Moderated by NIRI San Diego chapter president Jason Spark, the panel discussed the current and future biotechnology climate for both public and private companies.
Our top five takeaways are below:
1.The foundation of strong relationships between analysts, corporations, and investors is credibility.
Credibility, built through objective, long-term engagement and passion for the company, remains the basis for relationship development. The return of in-person meetings is a positive trend in maintenance and construction of relationships between analysts, companies, and investors.
2. New trends on the buy side, such as increasing sophistication of funds and increasing access to information, could reverse the undisciplined investment in the sector over the past several years which generated an excess of biotech companies.
The rapid increase in the number of biotech companies has been fueled by an immense influx of capital where too often clients don’t know or understand their investments. Undisciplined investment in the past few years has caused a significant bubble to form in biotech – a bubble which is currently deflating. However, analysts view this deflation as necessary for long-term sector health. Newer and larger funds have become more creative in how they approach companies, with most large funds only addressing companies with a high market capitalization. Smaller companies face significant challenges in acquiring capital.
3. Analysts and investors look for catalysts, low risk, and a strong management team when making coverage and investment decisions.
Catalysts and stock-moving news within 18 months remains a key factor influencing investment. In the current capital market, risk tolerance has plummeted. Despite investment trending towards earlier-stage private companies, the past year has seen a reversal of this movement as investment flows to de-risked assets. People, products, patents, and cash remain essential for any successful company.
4. The outlook for biotech companies remains challenging in the short-term, but with significant long-term potential.
After a weak year of stock performance, the biotech sector has shown some signs of stabilization, bolstered by the tailwind of strong M&A activity. Initial public offerings are not occurring and will likely remain minimal until 2023-2024. Investors remain nervous about new emerging issues, including the recent rapid action on drug pricing taken via the Inflation Reduction Act. Innovation in the space remains strong, although strategic investment remains exclusive and requires a minimum level of sophistication due to the technical nature of therapeutics and drug discovery. With greater representation on small and mid-cap exchanges due to a rapidly increased number of listed biotech companies, future investment outlook in the sector remains healthy.
5. ESG is underutilized with room to grow in the biotech sector.
Most biotech companies have underdeveloped or non-existent ESG programs. Some biotech companies with resources to allocate to ESG have used the scores to gain access to larger funds. Focused metrics like clinical trial diversity and patient access are most referenced in the biotech space. As companies mature, ESG will gain urgency and influence in the sector.
Gilmartin Group has deep experience partnering with biotech innovators, both public and private, to develop sustainable messaging and build nuanced investor relations and communications plans. To learn more about Gilmartin’s strategic approach to Investor Relations or our healthcare focused ESG offerings, contact our team today.