New technologies and unprecedented impact

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Investors have been swept up in the notion of “philanthropic capitalism” and have targeted life-sciences as an avenue that can fulfill this benefit to society. While laudable in concept, this is non-scientific surrealism. “Hoped-for” is not a reliable business model, and most of the unrealistic goals would not be sustainable even if achieved. Real science and innovation are more impactful and substantial and make life sciences even more.

Life science innovation is compelling, laudable, and sustainable.

  • Over two-thirds of all drugs in late-stage development have been developed by new biotech companies focused on innovative technologies. Essentially, big pharma has outsourced its R&D to these firms and will pay a significant premium to acquire promising innovations.
    • This trend creates spectacular economic opportunities for investments in these new biotechs, and if they are successful the rewards can be disproportionate to risk.
  • There are great opportunities for earlier exits and higher valuations because these new and innovative life-sciences firms represent not only product pipeline, but the competitive advantage and strategic positioning for large, cash-flush but product-poor, pharmaceutical companies.
  • Life-sciences technologies are creating exciting opportunities with increasing attractiveness.
    • These technologies are the result of recent advances in cell and gene therapies, delivery mechanisms, and personalized and customizable therapies targeted at individual patients or patient profiles.
  • New firms are targeting large market opportunities with indications including treatments for cancer, auto-immune disease, and other pathologies of the immune system, the brain, and infectious diseases.
    • While we all want to be investors in the next Moderna, (even as a public stock its value went from $5 billion at the end of 2018 to over $150 billion today – all that and liquidity too!), there are many opportunities from a broad expanse of drug development, new therapeutic approaches, and even manufacturing.

Risks are still significant.

Scientific knowledge, as well as business acumen, are not easily found or combined. A scientific breakthrough is not a business – it may be the foundation, but discipline, cooperative teams driving innovation, intelligent operational, strategic, and capital planning are all essential for real investment success. Creating and motivating teams may be the single greatest challenge to come. After all, life science cannot be done on a zoom call. Many great ideas fail and even successful drugs cost an enormous amount to develop.

Money Matters

The most important question, applicable to any business, and life sciences are not immune to it: will this business ultimately be profitable? Gilead Sciences, an early biotech winner, began in 1987, went public in 1992, but did not turn a profit until 1996 – and that was a great success (currently a $90 billion market value).

But fewer than 20% of all Nasdaq biotech companies were profitable in 2020, and accumulated losses among the remaining companies exceeded $30 billion.

Patience and perspective are essential, but, we are simply not smart enough to know the true winners. There has to be a fairly broad perspective about building a portfolio ranging from finding the desirable indications, most likely quality teams, identify the factors for success, and make as many bets as possible – because you just never really know.

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