Event Recap: BIO Investor Forum 2018

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By Marie Daghlian

Attendees at the BIO Investor Forum braved the cacophony of striking hotel workers’ shouts and drumbeats to meet with each other, tell their stories, seek investment and partnering opportunities, and gain insight into ongoing trends in the sector over two days in mid October in sunny San Francisco.

According to the Biotechnology Innovation Organization (BIO), attendance was up compared to past years, with more than 340 public and private investors from 34 countries in attendance, 3,000 partnering meetings through BIO’s One-on One Partnering system, and 170 company presentations. Educational panels covered emerging areas in digital therapeutics, microbiome-based therapies, and new ways of targeting neurodegeneration. Other panels focused on using artificial intelligence to improve drug development, and accelerating biotech R&D and clinical development through cloud computing.

And of course, as a business forum, there were panels devoted to investment opportunities such as cross border investments, market trends, and a lively discussion based on a hypothetical case of a company board responding to an acquisition offer.

Note: It was interesting to note that all the panels had at least one woman on them, many had two and some had more women than men, including the board response to an acquisition panel.

Despite recent volatility in the stock markets, attendees were upbeat about biotech’s prospects in the year to come. The convergence of rapid advancements in science and technology, strong capital inflows, and global investment bode well for biotech’s near future.

Panel Spotlight: Market Outlook – IPOs Ascendant and Watching M&A Valuations

2018 is shaping up to be a very good year for biotech IPOs and company valuations.

Panelists of this session concurred that several macro factors have contributed to this environment. Ken Haas, partner at VC firm Abingworth, sees a perfect storm of three things: a general bull market, technology that has captured the imagination such as gene editing and cell therapies, and pharmaceutical companies continued cutting of their internal R&D and their strong buying power. Other panelists’ viewpoints:

  • Rajeev Dadoo, venture partner at S.R. One, added the inflow of capital into the system from non-traditional geographies and non-traditional investors. He also mentioned recent changes at the FDA have contributed to the positive sentiment.

  • Anna French, principal at Qiming Venture Partners USA, added diversity in biotech technology as a contributor to the strong performance of biotech in the markets.

  • Matt McAviney, principal at VC firm New Enterprise Associates, pointed out that post-IPO performance has not been outstanding. Still, excitement and demand for IPOs are often driven by outliers—the ones that have done extremely well.

  • Jimmy Zhang, venture partner at Lilly Asia Ventures, noted that 40 percent of the capital invested in private biotechs in the first quarter of 2018 came from China.

 

As a class, the winners are up more than the losers are down. In today’s market, says McAviney, insiders—those that already own a share of the company—are buying a lot of the initial offering, and being patient after the lock-up period ends.

The management team buys the trust of the market, and tells a story that is readily grasped by potential investors. Haas noted that one of the unique things about biotech is that it does not have a built in news flow. Companies that do better, according to Haas, are those that keep themselves in front of the news.

Certain trends bear paying attention to, such as non-traditional investors coming into the healthcare space, for example, Amazon buying Pill Pack, Softbank investing in healthcare. It’s a trend that could create potential dislocations and opportunities, Dahoo says.

Haas concurred that it is an interesting trend, but not necessarily a good one: “Just because you can build a web browser doesn’t mean you can cure Alzheimer’s.” Managing a biotech company, with its longer timelines, is not easy. “The classic example is Theranos, which had no biotech investors,” Haas said.

The panel also touched on company valuations. Nothing is cheap. The VCs concurred that the higher valuations and bigger series B rounds have moved many to look for earlier stage deals. “What used to be a $50 million series B is now a $150 million series B,” McAviney said. “We have decided to stay on the sideline recently and are doing more series A and company formation.”

Zhang noted that compared to China, US valuations are reasonable. He said the Hong Kong IPOs are trading well below their offering prices.

Although reticent to reveal where they planned to invest next, the VCs said it has to be novel and science driven and the fundamentals have to be there. Matt McAviney summed it up with a metaphor: We need to be restrained about valuation, and wait for the right pitch before taking the swing for the grand slam.

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