Epoch 10: Beyond the Bucks - How Specialist Investors Fuel Biotech Success

Biotech Haves & Have Nots Analysis

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Hello Avatar! Welcome back for another week of biotech analysis. Today is Sunday, which means this is our Building Biotech newsletter that is focused on discussing biopharma strategy topics. Today we aim to address an interesting topic related to financing strategy. Specifically, does the quality of investors on the cap table influence the long term success of the company? If this is true, then shareholders really need to be as selective as possible in how they go about financing and what kinds of capital they ultimately chose to take. Today we will re-review quantitative analysis on this subject from two independent groups. TLDR - yes it does matter , more than you may want to believe!

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Enough shilling for the day, lots to cover this week, let's get started!

PROFESSIONAL BIOTECH INVESTORS WERE ASSOCIATED WITH ROBUST PRICE APPRECIATION IN 2023

Last year RA Capital introduced a new concept to biotech called the Haves and the Have Nots.  It is not necessarily a new concept, or even something that most were not aware of, however the elegance of the RA quantitative analysis articulates the situation better than the best storytellers in the world are capable with words.

Peter Kolchinsky and Tess Cameron of RA Capital have argued that the world of biotech is bifurcated into companies that can attract healthcare specialist funds (giving them the ability to finance and operate) and other companies that are not able to attract such funds.  Their full analysis can be found here and here.

We also have covered their work a few times which can be found here:

and here:

Stifel, another group that puts out A++ biotech analysis, looked to replicate the RA analysis using their own data.  Below we are going to share a side-by side from both groups to see how the data replicates. (Unfortunately we do not have a link to the full Stifel analysis - please drop in comments if you have)

PROFESSIONAL BIOTECH INVESTORS ARE ASSOCIATED WITH LARGER INCREASES IN MARKET CAP

The chart below from Stifel buckets biotech companies as a function of change in market cap throughout 2023.  The data is cut by “specialists’ (or professional biotech investors) percent ownership of a particular company.  The takeawa shown in the chart is pretty clear - specialist investors are associated with better outcomes across 3 groups of market capitalization analyzed.  AND…for the ultra-risky micro caps it makes a BIG difference.