Now what? The momentum investors are at your door!
Lorraine Ruff, David Gabrilska, partners; Scott Sipes, associate
Milestones – the critical thinking company
Biotechnology year-end stock price comparisons with 1998 year-end are at best a momentary diversion. Of the 12 Pacific Northwest regional biotechnology NASDAQ companies, seven of the 12 posted percent gains in the upper two and three digits.
Most regional life sciences stocks enjoyed the fourth quarter technology up tick as a result of momentum investors who were looking for relatively undiscovered bargain priced stocks. What took the momentum traders into the biotechnology sector?
- An overall sector stock appreciation of 109 percent
- Sector market cap of $600 billion and growing
- Significant media hype during 1999 for cancer-related therapeutics (anti-angiogenesis), results coming out of the genomics revolution (human genome sequencing nearly completed; completion of chromosome 22); and new product approvals.
- Because they could and did relative to disposable income and the strongest economy in 30+ years.
As reported in our Chase Hambrecht & Quist coverage, there’s a high probability that investors may be reacting to the herd mentality and investing based on hope, hype and glitz. News media coverage - financial and health – drove momentum investors into life sciences stocks. It’s clear they will ride the stock up and take profits quickly if they perceive no reason to stay put.
Among the momentum investors, however, are the monied altruistic investors – baby boomers who have had their first touch with middle-aged disease and disorders and reason to believe the drug products of the biotechnology revolution will provide cures to scourges that could take their toll in the near- and longer-term: Alzheimer’s, cancer, diabetes, heart and lung disease.
The altruistic baby boomers have a lot of time to sweat the details, do their research and make sound investment judgments. It is this demographic that biotechnology companies and particularly Pacific Northwest regional life sciences should focus.
When you take a look at regional life science companies and their positioning strategies, they may be missing the fundamentals, sometimes by miles. If they were to refocus on the altruistic baby-boomer, some very positive payoffs could ensue. What if companies communicated their…
- Experienced management with a demonstrated record of bringing products to market. In the case of most regional biotechnology companies, this includes the demonstrated ability to hire and or retain expertise in a timely or just-in-time fashion.
- Strength of patent position and the analysis of whether all aspects of IP are being marketed, including non-exclusive and exclusive licensing of secondary and tertiary product candidates.
- Analysis and review of the company’s product pipeline with the intestinal fortitude to kill a project if it’s not going to create value for the company.
- Selection of product candidates that are in sync with the market they will be sold. Attributes include:
- Is the company’s story intelligent layperson friendly? Biotech companies are in the business of developing products whose underlying technology is complex. The ability to communicate in a clear and concise manner is not only desired, but essential to near-term and long-term success.
- Modality, e.g., urine vs. serum diagnostics and likelihood of adoption by key constituents in the market place, physicians, the people they work for, patients’ willingness to comply
- Likelihood of reimbursement on an international basis
- How the product will be marketed and distributed so that shareholder value is maximized
- Understanding that business development expertise and the ability to form value-added corporate alliances will be as important as research, development, and commercialization.
It occurs to us that it will not be sufficient for regional companies to merely ride the momentum wave. It requires companies to think of themselves not as regional players but as sector players who need to market their science as much as their product applications before the investors show up at the company’s front door, curiosity intact, money in hand.