Even in this market meltdown, seasoned biotech innovators with decades of experience know that strong novel science in the hands of experienced teams will eventually succeed.
We’re in a painful, protracted biotech market correction. The XBI index is down 39% YTD and 60% over the past 14 months. But I contend that this is not the time to pull back on innovation investment. Historically, down cycles such as this – witness 2002, 2008, and 2016 – preceded periods of remarkable scientific innovation. In 2008, for example, Regeneron (REGN) was trading as low as $3 and this year hit over $791 per share. ONYX has ranged from 37 cents to $10.02 per share, and an out-of-the-box new therapeutics company known as Moderna emerged and now has a market cap of over $50B. This is the right time to focus on the fundamentals that have prevailed for decades – the science, the scientists, and forward-looking business development models.
Many market analysts and investors are currently decrying as catastrophic the dramatic first-quarter 2022 slump in biotech startup valuations. But those yelling danger are often looking primarily at near-term public market performance for publicly-held companies that have completed an IPO. Certainly downturns are scary, but earlier slumps were speed bumps on an ascending road fueled by real science breakthroughs that returned significant long-term value to innovators and investors.
Investors avoiding the market in such times do so at their own peril. The most informed are able to identify Series A and B privately-held companies in need of next-round funding that possess the science and the team able to maintain momentum and keep investors engaged.
To be sure, biotech investment always involves significant risk, but returns far outpace losses over time. The time horizon for privately-held Series A and B companies with rock-solid science and leadership extends several years in the future. Investors who fail to identify and invest in these gems will have empty pipelines just in advance of the breakthroughs these biotechs are working on now. What current market pundits sometimes miss is that throughout the biotech sector the pace of discovery continues unabated. Scientific advancements are now accelerating in academia and in early-stage entrepreneurial ventures regardless of whether biotech stocks are surging or plummeting.
When Sharon Shacham and I hatched Karyopharm (KPTI) on a whiteboard in 2008, we focused on creating an entirely new class of cancer medicines and ignored the macroeconomics of one of the worst financial crises of our lives. Our horizon was three to four years out. And KPTI was not a one-off. There were countless other such stories, including innovative science-driven public companies that struggled early on but stayed the course.
I contend, in fact, that with the right team and solid scientific innovation it is possible for early-stage biotech companies to navigate and maintain momentum in this cycle, with returns far outpacing losses over time, on the whole. One simply needs to look at the biotech index growth over the last 20 years. In the mid-80s, the scientific community had just completed the human genome project. Those who cried disaster when the biotech index dropped 73% missed one of the most value-accretive positive runs in biotech history. Similarly, in 2022, with markets down, the life sciences field stands on the threshold of a precision medicine revolution with new therapeutic modalities such as mRNA, exosomes, CRISPR, degraders, and more. At this moment in time, many Phase II and Phase III drug developers are focused on curative drugs for diverse cancer types and other diseases.
Opportunity: Heed the Lessons of the Past
The late Henri Termeer said it best: “Good medicine is good business.”
Now is the time to focus on what’s working and heed the lessons of the past – innovation prevails, talent adapts, and value amasses. It’s the right time to focus on the fundamentals that have prevailed for decades – the science, the scientists, and forward-looking business development models.
The following key factors have been indicators of start-up success in past downturns, regardless of market setbacks in the sector:
- A North Star. Every successful biotech company I know experienced existential adversity at some point in its history. But I have also observed that the companies that win out are those truly committed to reducing suffering and developing cures for patients and that have innovative science and expert leadership and guidance. For example, colleagues like Bob Higgins, CEO of Celgene, which early on achieved a market cap of $300-400M, never wavered from a focus on patients, and ultimately created more than $50B in market value.
- Strong Science. Battle-hardened entrepreneurs who are realists about financial adversity and drug failures realize that it’s precisely during today’s hard times that one must double down on innovation. Our current environment offers unprecedented high-quality opportunities.
- Execution and Leadership. While all companies can tolerate some missteps in business and finance, those that maintain their investment in scientists and science typically exceed expectations. Look for and retain key talent who are able to execute on the science. A steady hand on the rudder is key to maintaining momentum, preserving culture, and creating value through good times and bad. One needs a team on the field with the diversity of knowledge to secure financing, create valuable assets, and unlock their value through business development.
- Money Matters. The potential value of current biotech pipelines with innovative assets has proven enormous. Companies need to continue to raise money whenever and, in whatever form they can – through investors, business development, and grants. Experienced investors are out there even when money is tight. They are avoiding “me-too” investments, seeking instead novel platforms and top talent.
Now is the time to see what we are made of. Are we like the Ukrainians – demonstrating remarkable resilience and courage in the face of terrible conditions? Or will we chose to retreat and lay down our assets?
In these tough times, it’s critical to adopt the attributes of successful biotech companies that have gone before us. More than just money is on the line. Innovative investors for early-stage funding are often able to realize returns and achieve IPOs within two to three years. Although I’m a pragmatist when it comes to drug development funding, I am always driven by the hope of saving lives – in our own times and those of our children. At some point in our lives, each of us – and our families – will likely benefit from the drugs we are creating today.
About the Author
Dr. Ronald DePinho is a physician-scientist who has made scientific discoveries in the fields of cancer and aging. Former president of MD Anderson, DePinho holds the Harry Graves Burkhart III Distinguished University Chair in Cancer Biology and is an MD Anderson faculty member in the Department of Cell Biology, where he leads a research lab. He conceived and launched the cancer moonshot, founded biotech companies developing cancer drugs, founded and serves as Chairman of Opa Health, a non-profit focused on improving disease prevention for impoverished communities, and serves as Vice Chair of Act for NIH, a non-profit which advocates for increased biomedical research funding for the National Institutes of Health.