Monday (January 8) marked the first day of the Biotech Showcase conference in San Francisco, California, and the Investing News Network (INN) was there to take in panel discussions with expert and analyst insight in the markets.
A lot of developments are brewing all across the biotech sector, but the major driving forces behind it are the smaller players in the space, at least according to a panel of investment experts during the opening day of the Biotech Showcase conference.
On Monday, INN attended a panel discussion called “The public markets and biotech: What to expect in 2018,” which included among its experts Gabriel Cavazos, managing director of investment banking with Leerink and Kris Jenner, partner with Rock Springs Capital and biotech investor, talked about the justified optimism for 2018.
Optimism on the horizon for smaller players in biotech
Jenner opened the discussion saying if anyone is investing in biotech, they needed to have “some level of optimism,” a line that drew some laughs from the investor audience. Jenner said there are legitimate reasons to be excited for the area, in particular for mid to small market cap companies.
Jenner explained some of the things he said made him in particular cheerful for biotech:
- Direct access to capital
- A constructive regulatory landscape
- Ample biologic insights
- A significant amount of clinical activity, and
- Valuations that he called “fair”
“I’ve always believed the major drivers in the space come from the small to micro cap companies,” John Nolan, managing director with WBB Asset Management said.
Josh Scheinfeld, managing member for Lincoln Park Capital added to this notion by explaining smaller companies are more efficient with the money given to them. He said large market cap companies could waste $10 million dollars from investors, while a mid to small tier company could use it to take their candidate from preclinical to the phase 2 stage.
“That is something that large cap can’t do,” Scheinfeld told the audience.
Fear of over saturation for immuno oncology
The panel, moderated by Barbara Ryan founder of Barbara Ryan Advisors, also discussed the possibility of this market growing tired already of one of its most recent major forces, immuno oncology.
“I think I/O fatigue has already set in,” Jenner said in response to Cavazos during a segment where each member of the panel was asked what was one of the aspects they believed the market didn’t appreciate enough or just had it wrong. “The valuations you see already do reflect a fair amount for lack of a better term, I/O fatigue,” Jenner said.
Cavazos had explained he was worried the influx of readout data coming in 2018 could “spook” investors if there were all compounded together and if there were significant failures.
“I think the average investor probably sees the sheer body of data coming that this is all going to be very positive for the I/O space but there’s a soft underbelly,” Cavazos told the audience.
For his response to the question Scheinfeld said investors would benefit from remembering the biotech sector is driven by regulation and legal issues. The system at play affects all companies no matter the size. He went on to explain investors need to know whether the people in a company are capable of handling these complicated issues.
Nolan responded to this point saying casual investors often overlook the legal side of biotech.
Scheinfeld compared the situation to using a GPS system, where he said often companies will just follow the instructions, but if the GPS were to be off, can they still get to the end of the line? “The answer is with all these regulatory and legal burdens the real difference maker with the people who know where they are going and the people who are just following the GPS,” he said.
The panel of investment experts explained, as discussed in the INN 2018 Biotech Outlook, this year could see a lot of activity in terms of mergers and acquisitions, since the tax regulation in the U.S. has been cleared, companies seem more disposed to begin conversations for this area.
For investors with the right company, a potential major partnership or acquisition from one of the large cap players could present a significant boost.
Stay tuned for our additional coverage on the Biotech Showcase conference, where we will post information on the various panels and the work of presenting public companies. Follow us on Twitter at @INN_LifeScience for photos from the show floor.
Don’t forget to follow us @INN_LifeScience for real-time news updates.
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.