Biotech execs are feeling upbeat and looking to grow their companies, but an undertow of fresh concerns nags many
The list of Endpoints 100 executives we surveyed is available here: What is the Endpoints 100?
Biotech execs overall are in a good mood these days.
Yes, the public markets aren’t nearly as wide open as they were a year ago. Not everyone finds it easy to tap venture investors for more cash on the pre-IPO side of the business. And there’s a distinct undertow of concern with clear notes of anxiety that the financing trend is tipping toward tougher times ahead.
But most are still confident in their own ability to raise more money in a cash-hungry business, they’re definitely in hiring mode, largely finding excellent candidates for the work — though perhaps working harder than ever to make sure of that — and more upbeat than ever regarding regulators’ ability to judge their data; all while looking forward to what comes next.
In the showdown between Hillary Clinton and Donald Trump, it’s Clinton in a landslide. (And that was the opinion before Gropegate surfaced.) The pro-HRC camp, though, is dominated by the grudging sense that she represents the lesser of two evils, with no good candidates to pick from. A large minority see no real difference between the two.
That, in a nutshell, is what we found in Endpoints News’ first quarterly confidence survey of the global biotech industry.
But what I found even more interesting than the hard numbers from this survey are the thoughts they shared on dealmaking, biotech valuations, hiring and more. As a group, this executive crowd has been doing a lot of thinking about the state of affairs in biotech. And I’m happy to share many of their thoughts in the analysis of the numbers below.
Altogether 105 biotech execs agreed to take our survey and 96 finished the work. (Many of you might view that as N=96.) The group was largely made up of biotech CEOs, with the rest a medley of C-suite execs and VCs on a variety of biotech boards from both sides of the Atlantic.
Most were based in the US, with heavy concentrations in Cambridge/Boston and California, largely in the Bay Area. About a quarter of the participants were in Europe, weighted toward London and the Golden Triangle. I specifically sought out executives in the three big hubs: Boston, San Francisco and London. But a number of other executives were scattered from coast-to-coast in the US and north to south in Europe.
The results are presented in the aggregate.
The individual responses are confidential, but they also had an opportunity to make comments on the record or not for attribution. And many offered some keen insights on some of the most important issues facing the industry.
You’ll read direct quotes from our Endpoints 100 executives and have access to 15 interactive charts. And learn:
- Has the pricing debate in the US had any impact on biotech development plans?
- How do biotech executives feel about their access to capital?
- How do they rate the public and private capital markets?
- How do they rate biotech asset valuations — both licensing and M&A?
- Are they hiring? What are their thoughts on the talent pool available to them?
- How much do they outsource?
- Who do they support: Hillary Clinton, or Donald Trump?
Access to capital
A largely sunny view on capital
Fully half of these executives said they were either extremely confident (14%) or very confident (36%) in their ability to access capital for their companies. Another 30% said they were simply confident. No one lacked confidence, though one in 5 were only somewhat confident on this score.
That largely sunny mood comes despite a distinct shift in the mood about the public markets. A year after the IPO market began to slow down from a three-year festival of new offerings, 42% of our sampling say that the market for IPOs and follow-on offerings is fair, 30% said average and 16% checked off poor. Only 11 picked good and there was one excellent.
Looking back a year, 42% would have ranked the fall of 2015 as good, with another 39% saying average, 10% fair and 6% poor. Three remember it as an excellent time.
But once you turn to the private assessments of the market, the mood sounds even more grim, depending on how their company lines up with what’s considered hot and happening.
“Strong, well led companies working on technologies that are in vogue and / or with key later phase clinical development milestones are now attracting capital,” said one of our execs, echoing a feeling that is reflected in a long stream of comments on this topic. “Life is tough for those that do not fall into exciting, new, trendy or later phase.”
Several execs said that it seemed that increasingly it was the biotechs with the trendiest technologies – like gene editing – that did the best these days.
Strong companies that need to borrow cash can do so easily these days.
“For profitable/revenue generating companies borrowing costs remain at historic lows. This is strategic capital.”
“Capital is there but more picky. A year ago it was better and much better two years ago.”
To the extent you can reduce risk, though, money is easier to land. “Capital is given if most of the risk is gone,” says Prabhavathi Fernandes, who founded Cempra a decade ago.
Hiring? In a word, yes
There’s no confusing this signal. Whatever nagging concerns execs may have on financing, these biotechs are largely growing staffs.
Eighty-six percent of the respondents say they’re hiring more employees in the fourth quarter, with virtually the same number saying the same thing about 2017. Only 14% of the group said that they had no plans to hire, with 7% noting that they don’t know what’s in store for next year.
Nine in 10 said that the quality of job candidates they’re seeing for open positions is good or excellent. And basically 4 out of 5 felt they had a good pool of candidates to pick from. One out of 5, though, said that wasn’t the case.
Sifting through all the comments, though, and I found that everything isn’t as optimistic as it may look at first blush. In the long lineup of responses:
“It has been challenging to recruit personnel with later-stage experience in the San Diego area. As a result, we have built a development organization based in Cambridge, MA to access talent.”
That’s making it tougher on the native biotechs in the field.
“Boston/Cambridge/Waltham area is advantaged by a large pool of talent but competition is fierce as is cost of living and relocation expense.”
Others are looking to big biotech to provide a steady flow of new recruits.
“In SF, very tight market. Harder to access the waves of east coast R&D cuts. And for many G&A positions, intense competition from tech sector. Good news is more folks loose in the socket at Big Biotech — Genentech, Gilead — folks can be picked off much easier than in years past.”
These days, HR is as much about keeping good employees as recruiting new ones.
“Striking war for talent in Cambridge, MA and surrounding region. Retaining key employees is a significant strategic imperative given the choices they have to find alternative employment.”
And watch out for Big Pharma gentrification.
“As a Cambridge-based biotech, the most obvious benefit (by far) of having many large pharmas move into the area is accessing talent from such companies. Of course, the downside is that those same companies are continuing to push biotech out of Kendall Square from a real estate perspective. A comment I heard recently was that ‘there will be no biotech in Cambridge within five years.’ Depressing.”
Here’s some advice to remember:
“Exploiting pre-existing networks to get the right staff with the right experience is key.”
We also have a completely legit help-wanted notice to post from Peter Hecht, the CEO at Ironwood: “We are launching our second product, Zurampic, and doubling the size of our sales force to support both Zurampic and Linzess. We also have a growing R&D pipeline with multiple near term catalysts, and we are hiring to support expanding development capacity needs. We are getting FABULOUS talent.”
Tell them you heard about it here.
Deal numbers are high, but…
True, 42% of the group say that the valuations they’re seeing in licensing deals look high, but an even larger 51% characterize the same valuations as no better than average. When you change the subject to M&A, there’s more of a tilt to high: 49% seeing the prices zoom high, 39% average.
But there’s an underlying problem. The deal numbers they’re seeing are high, but many say the number of deals is low.
“Deal active companies are willing to pay more for less,” says one, a thought that was repeated by several of the execs that offered an opinion on this.
“Tobira is the key outlier,” says another, “but deals such as Medivation even indicate when M&A occurs it tends to tip high.”
But then, there aren’t a big number of companies snapping up biotechs like Allergan. I’ve been seeing a lot more stories about companies that are supposed to be buying something big — Biogen, Gilead, Sanofi and so on — than actual bids. That hasn’t escaped several members of this group. And some are feeling some frustration by the lack of action.
“This is a tough one: there have certainly been a few eye popping deals with shocking numbers that make you wonder what’s going on. But behind those, there are many many other deals that are not getting done at all, and companies with potentially interesting assets that can’t find partners.”
“Tremendous scarcity value of revenue-generating companies with increasingly de-risked pipelines. Surprising to see how many big pharma companies bid on Medivation.”
“Pharma is a bank and they are paying very high premiums when they actually open their check books. The problem is inertia and not enough deals.”
“It seems to be a ‘sellers’ market when deals get done, but not a lot of deals are getting done. Large pharma is still sitting on the sidelines and/or doing deals with one another.”
Give it some time, though, and that may change.
“With the new tax inversion position by the Treasury, we will see many more M&A of big Pharma deploying their cash to buy biotech companies. Pfizer and Allergan already buying lots of companies,” noted Stephane Bancel, the CEO of Moderna.
“There is a clear uptick in activity and interest from larger companies,” said another. “While I don’t think this has translated into as many deals as I would have expected, I suspect there will be an uptick as we move into 2017. Conditions seem excellent.”
The regulatory environment
Thumbs up for the FDA
Both the FDA and the EMA come out with solid marks for their willingness to approve new drugs — but you can see a distinctly bigger vote of confidence for the FDA.
Eighty-two percent of our group said the FDA scored as good or excellent in terms of their receptivity to new drug applications. But that score drops to 57% for the EMA, with a large minority — 36% — rating the European agency as average.
I also asked if regulatory review times are much changed from a year ago, but in all fairness to the group, it was a bad question. A decade ago there was a hard push to get the agency to respond more quickly. New rules were adopted, the agency was left with multiple programs to step the gas on drug reviews. But several execs noted that a year isn’t much time to assess any significant changes in something like agency responsiveness.
Seventy percent said there was no change over a year ago.
Also, when you talk about the FDA, most people in the industry don’t view it as a monolithic group that moves in unison.
“This varies a lot from branch to branch: oncology division is awesome, fast approvals and excellent reviews.”
“Great momentum for truly innovative cancer drugs.”
“After the first ex vivo gene therapy approval we believe that for cell and gene therapies the path is shorter.”
Quite a few of the comments, though, also reflected the fact that many people in biotech don’t necessarily think they’ll be facing the FDA or the EMA — exits should come much sooner than any sit-down with the regulators.
Outsourcing much R&D? Yes, and more.
Every time we do a survey for the first four quarters, I’m going to add one annual question and leave it alone for 12 months before revisiting it. Some things just don’t change all that fast. This first annual question gets to a trend Arsalan Arif and I have been watching for more than a decade: Outsourcing.
The average biotech startup template is constructed on a foundation of outsourcing. There are some exceptions, especially as companies with new technologies look to ramp up their own in-house manufacturing facilities. But for most, you raise money in order to pay a lot of it out to CROs and CMOs to do much of the heavy lifting. The emphasis typically is on keeping in-house teams small.
So I wanted to get a better idea of the level of outsourcing work that is going on now. And it turns out to be quite a lot.
A bit more than half said they outsource most of their drug development work. One in 5 said “about half” and another one in 5 said “some.”
In addition, fully 48% of the execs in the survey said they expect to increase the amount of outsourcing they do in 2017. Forty-three percent expect it to remain flat while only 5% are looking for it to drop.
Bracing for a tougher reimbursement model
It’s hard to complete a day’s work in this business without hearing something about the ongoing debate over drug pricing. New scandals over outrageous price hikes on old therapies seem to erupt regularly now, with a parade of biotech execs being subpoenaed to testify before angry lawmakers. Mylan, Valeant, Turing. Who’s next? And each new controversy breeds Tweets from influential politicians like Hillary Clinton.
So has the din of debate over high drug prices in the US affected the way drug developers are working?
Two thirds of our survey group said no. In many cases, the comments section made clear that’s because they’ve had this subject in mind for some time. Many believe that keeping focused on truly important new therapies that make a difference to people’s health is the one fundamental approach to guarding against a pricing backlash that will stay relevant.
“We only focus on drugs that can make a big impact on patients.”
A significant number are expecting that reimbursement will be reined in in the coming years. They’re already planning to develop new therapies that can do well in that kind of an environment.
“We are using conservative assumptions for reimbursement levels in the future.”
Not all drugs are created equally, though, and some developers want to be careful that they’ve thought everything through.
“More diligent assessment of which indications should drive the value metrics and pricing decisions.”
“Yes. Although we work in the area of oncology, which to date has been relatively less affected by the debate over drug pricing, we recognize that the time is coming for oncology as well, and we are planning accordingly. One must be more thoughtful and planful regarding pricing and plans for price increases.”
Some are just ready to trust their gut on this one.
“True innovation will be rewarded. Call me an optimist, or innocent.”
The election: Clinton vs. Trump
More of an anti-Trump sentiment than pro-Clinton
Don’t mistake the 65% support that Hillary Clinton gets in this group as the best candidate for biotech as evidence of enthusiasm.
“What can I say … She actually at least understands the topic and the questions and challenges. She also understands what she can and cannot achieve with a split Congress and Senate.”
“While not a huge fan of Hillary either, she is the only candidate that seems to be able to string coherent thoughts together. ”
There were several responses like this:
Hillary Clinton – “Not an insane bigot.”
Hillary Clinton – “Just spitballing here, but I think it’ll be easier to get research done if we’re not involved in an ongoing nuclear exchange with North Korea, or perhaps France.”
The 25% of respondents who saw no difference between the two also handily beat out the 10% who thought Trump would do better by biotech. Again, though, that last minority report had more to do with anti-HC thinking than pro-Donald sentiment. One Donald Trump supporter noted:
“Hillary wants to move our country to a socialized medicine model.”
“Don’t get me wrong, he would be a terrible president, but would be ambivalent to biotech whereas Hillary is more likely to have committed herself to an antagonistic role.”
There was at least one enthusiastic Trump supporter in the mix.
“Better appreciation of value to US of biotech industry in terms of innovation, jobs and leadership and how appropriate value based pricing fuels more discover and innovation.”
You don’t come away from this last question on the election with a sense that many people in biotech are looking forward to watching the swearing-in ceremony, regardless of who wins the election. Most, though, would clearly prefer just about anyone other than Trump.
Thanks to our Endpoints 100 executives below for their participation
|Andrea Pfeifer||AC Immune|
|Mary Szela||Aegerion Pharmaceuticals|
|Alexey Margolin||Allena Pharmaceuticals|
|Joe Payne||Arcturus Therapeutics|
|Tim Van Hauwermeiren||Argenx|
|Bruce Booth||Atlas Venture|
|Natalie Holles||Audentes Therapeutics, Inc.|
|Jay Lichter||Avalon Ventures|
|Carmine N. Stengone||Avelas Biosciences, Inc.|
|Robert Connelly||Axcella (Pronutria)|
|Jean-Jacques Bienaimé||BioMarin Pharmaceutical|
|Jeffrey Albers||Blueprint Medicines|
|Andrew J. Phillips||C4 Therapeutics|
|Gregg Sando||Cell Medica|
|Art Krieg||Checkmate Pharmaceuticals|
|Laura Shawver||Cleave Bio|
|Keith Dionne||Constellation Pharma|
|Yuval Cohen||Corbus Pharma|
|ROBERT I. BLUM||Cytokinetics, Inc.|
|Sean McCarthy||CytomX Therapeutics|
|Steve Holtzman||Decibel Therapeutics|
|Kevin Judice||DiCE Molecules|
|Annalisa Jenkins||Dimension Therapeutics|
|Alexander Pasteur||F-Prime Capital Partners|
|Greg Verdine||Fog Pharma|
|Sander Slootweg||Forbion Capital Partners|
|Steve Tregay||Forma Therapeutics|
|Michael Pellini||Foundation Medicine|
|Robert Gould||Fulcrum Therapeutics|
|Mark Velleca||G1 Therapeutics|
|Pierluigi Paracchi||GENENTA Science|
|Chip Clark||Genocea Biosciences|
|Rich Heyman||Heyman Biotech|
|Russell Herndon||Hydra Biosciences|
|Nessan Bermingham||Intellia Therapuetics|
|Kim Cobleigh Drapkin||Jounce Therapeutics|
|Arie Belldegrun||Kite Pharma|
|Troy Wilson||Kura Oncology|
|Paul Sekhri||Lycera Corp.|
|Kees Been||Lysosomal Therapeutics|
|Denise Scots-Knight||Mereo Biopharma|
|Anna Protopapas||Mersana Therapeutics|
|Chuck Baum||Mirati Therapeutics|
|Praveen Tipirneni||Morphic Therapeutic|
|George P. Vlasuk||Navitor Pharmaceuticals, Inc.|
|Jeff Jonker||NGM Bio|
|Don Nicholson||Nimbus Therapeutics|
|Jon Congleton||Nivalis Therapeutics|
|Clifford J. Stocks||OncoResponse|
|Jeremy Levin||Ovid Therapeutics|
|Bernard Coulie||Pliant Therapeutics|
|Kevin Bitterman||Polaris Partners|
|Douglas Treco||Ra Pharmaceuticals|
|Olav Hellebø||ReNeuron Group plc|
|Clay Siegall||Seattle Genetics|
|Glenn Nedwin||Second Genome|
|Armon Sharei||SQZ Therapeutics|
|Glyn Edwards||Summit Therapeutics plc|
|Detlev Biniszkiewicz||Surface Oncology|
|Kate Bingham||SV Life Sciences|
|Nancy Simonian||Syros Pharmaceuticals|
|Mary Lynne Hedley||Tesaro|
|Eduardo Bravo||Tigenix, SAU|
|Niclas Stiernholm||Trillium Therapeutics|
|Laurence Reid||Warp Drive Bio|
|Steve Yang||WuXi AppTec|