I genuinely don’t get it. Do you find the tech exciting? Are you guys from med backgrounds?
I mean, out of all the sectors in public equities, biotech seems: extremely niche, with very few spots; not that popular among investors (I for one have NEVER heard someone investing in the sector); and seems extremely cyclical, so job security is much lower than say TMT or Financials.
This is not to shit on anyone who likes/wants biotech, this is a genuine question. really.
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Based on the discussions and Q&A sessions on Wall Street Oasis, the interest in biotech among finance professionals can be attributed to several factors:
Innovation and Impact: Biotech is at the forefront of scientific innovation, working on breakthroughs that can significantly impact healthcare and quality of life. This includes developing new drugs, medical devices, and treatments that can cure diseases or improve patient outcomes.
Intellectual Challenge: The biotech sector is known for its complexity, involving a deep understanding of scientific processes, clinical trials, and regulatory environments. This intellectual challenge attracts professionals who are eager to engage in continuous learning and problem-solving.
Financial Potential: Despite being perceived as niche and cyclical, biotech offers substantial financial opportunities. The sector is known for its high-risk, high-reward nature, especially in areas like drug development, where successful products can generate significant revenue.
Diverse Opportunities: While it may seem that biotech has fewer spots compared to more traditional sectors, it actually offers a variety of roles across venture capital, equity research, and corporate finance, particularly in companies ranging from startups to established pharmaceutical firms.
Personal Motivation: Many individuals are drawn to biotech due to personal reasons, such as a background in life sciences or personal experiences with medical conditions. These motivations drive a passion for contributing to advancements in healthcare.
While biotech might not be as universally popular as sectors like TMT (Technology, Media, Telecom) or financials, its appeal lies in its potential to drive significant scientific and financial outcomes, making it an exciting field for those interested in a convergence of science and finance.
Sources: Biotech finance: from IB to VC / HF to funded startup, What's the catch in CRE?, Q&A: Pharmaceutical/Biotech Industry, Biotech/Life Sciences Vertical in IB: Day to day, How Do I Get Smart in Biotechnology Space?
Pays the most
I call that 100% BS, there are infinitely more deals and higher $ volume in TMT than Biotech
Okay
Definitely pays the most. It’s also more interesting than tech. Barrier to entry is high than tech.
Most people on this forum dreamed of being a banker. Most people in biotech are previous scientists so we have less connections in this industry.
Highest paid ss ER analyst is Josh Schimmer making 42 million over 5 years. No tech analyst makes that much.
Biotech bankers don’t make that much lol.
Any monkey could cover TMT…
As a complete newb (finishing my PhD), what does compensation look like for the first few years at a L/S biotech HF, say 1.5B AUM?
If you have your phd and VC background better to shrekli/vivek this shit in private mkts and get backers to scoop a drug the big bois dont want to invest in for 5 - 100 mil that has a reasonable TAM to get through trials and cash burn. Picking the drug and selling the story to them is where your alpha comes in.
So much private money willing to gamble and take the punt with upside that theyre actually helping society. Bragging rights kind of thing. That and healthcare inflation are tailwinds.
Couple different things about this. I think for one, since it's such a niche vertical, people come here to ask questions since things arent as straight forward as TMT or other sectors. Because of the dynamic of PhDs and MDs sitting in BS/SS associate seats and IB associate seats, the question about pay is fair. It's odd to think about that a fresh college grad in a biotech ER seat is making 75% of what a PhD or MD would make in the same role.
To me, I find the science interesting. Pharma is a large part of the US healthcare system (obviously), and biotech is an exciting sector because Pharma always looks for opportunities to develop the next great drug through M&A. Not to mention that you are interacting with (potential clients / pitches / DD process) some of the smartest people in the industry who are on the cutting edge of science.
The mix of science, business, and real life consequences is an intersection that is unique. IB / HF / ER places you somewhere in that intersection.
Because there is "moat." Good analysis of biotech companies requires a different skillset than other sectors. I would argue that I could take a TMT analyst and get him up to speed analyzing A&D, consumer products, etc. in a relatively short time frame. The only hard skill really required in these sectors is modeling which any kid that's been through 2 years of IB can probably do proficiently enough.
I don't think that I can take a former banking analyst and train them to do good analysis of biotech companies. It takes a ton of time and resources to develop the clinical diligence skills necessary to do good analysis. People with advanced life sciences degrees have a leg up in this regard as they've been reading papers/textbooks in an academic setting and have learned how to get through loads of material on a given disease expeditiously.
As such, as compared to other sectors, the pool of qualified candidates for biotech seats is shallower.
Does the biotech 'moat' apply to healthcare more broadly? Is a science background a significant benefit in non-biotech healthcare?
No not really. Covering life science tools, large-cap biopharma, healthcare services (hospitals, nursing homes, etc.) is much the same as covering any other sector. Medical Devices/Diagnostics might offer some "moat" for those with a scientific backgrounds...but I believe price movements are still largely dictated by quarterly earnings, regulatory decision, etc. rather than clinical data as the pace of innovation in Medical Devices/Diagnostics is much slower than it is in biotech.
There’s also no sector that is more idiosyncratic and suited to L/S than biotech.
Sector that is least tied to macro / the overall market esp clinical stage or companies or ones that have recently commercialized a product.
Can’t think of another sector that can generate the asymmetric/uncorrelated returns that biotech can.
Also would like to add that returns in biotech investing (not pharma) skew alpha (vs. beta) due to the binary outcomes of these companies. Most biotech HF returns are driven by favorable clinical trial readout catalysts vs. broader market trends. Easy to point to your exact contribution/clinical analysis that led to the investment vs. investing in a more beta-driven industry where it can be hard to isolate alpha/your true edge.
These companies are typically pre-revenue, so things like market access, consumer preference, sales & marketing efficiency simply don't matter. It's pure science.
Think about a SM fund where it can be extremely challenging and political to (a) isolate alpha from fund performance and (b) allocate that alpha to the various IPs. Biotech investing removes this layer and your comp is much easier to justify.
My SO trades pharmaceuticals at a pod shop. Would argue it is the best sector for market-neutral L/S investing and is printing cash. The alpha pool (i.e. binary clinical trials as mentioned above) is just very huge and there are lots of trading opportunities. Hard to pick up the sector from scratch without any science background (but not impossible). Try reading the science behind those drugs and you will understand why it has the widest moat.
Is it possible to break into pharmaceuticals/biotech market-neutral L/S equity with only a finange major bg? Many thanks!
Martin Shkreli never formally studied life science and he explained that at a very young age (maybe 16) he started reading every single issue of the New England Medical Journal, JAMA and maybe Nature. If you do this consistently for 1-2 years and continuosly keep drilling/googling the terms you don't understand, I am sure you will prove enough understanding to impress people in the field. Will you know enough to invest? No, but with that kind of passion and drive, especially given your background, it would be my belief we can take you the rest of the way. There is also the added benefit that biotech guys aren't always the sharpest when it comes to cap structures and financials. So having someone with a hardcore finance background also helps in that regard and if you are looking at dynamics regarding e.g. commercialisation of an already approved drug by a pharma trading at near cash, it can be sobering to have someone that can share a more markets based view.
Take $20k of your PA and see if you can cut it on your own.
This isn’t really true. The perceived “moat” in this sector is exactly just that…perceived. At some point you need someone who’s science literate to speak to, sellsiders, ideally someone on your team, but not everyone that trades these stocks well at the pods has a healthcare background
Yep. Lot of the consistent alpha is pre and post event.
It doesn't cost alot to pump the news flow via social media leading into an event and retail gravitates to certain strikes you can arb.
Anyone who actually wants to trade this space has already done so in their PA before college imo.
#missyouAMRN
lol you asked rich toad this too. TMT will never come close to biotech. This isn’t 08 and it’ll never be 08 again. Go get a PhD or MD if you wanna make real money on the SS. TMT is sourced by the summer analyst class. They put out separate posts of biotech analyst and associates. Your biotech counterparts in ER will 110% out earn you. Any monkey can do TMT lololol
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