Biotechnology Finance: Key Science Concepts

Hi all,

As per my previous posts, I have a longstanding interest in finance within biotechnology. With the help of some of your feedback here I have been self-studying the field to develop a foundation.

I am hoping to get some insight from those already in the field on the key science concepts that are important in biotechnology finance (i.e. small molecule drugs vs biologics). There have been great posts about the finance end for Biotech, hoping to see some of the other side.

Obviously, science is a massive field and the amount of information is limitless, but for those in the field, I am hoping to hear some concepts that are important to understand to be capable of holding your own in a conversation with industry professionals.

 

I write about biotech stocks and sometimes will go a bit deeper into the science (but admittedly never THAT deep; I have no science background) depending on the debates around the companies at the time. These articles are based off of broad reading of equity research reports. If helpful, might be worth checking out some of the posts. For background, I used to cover retail in equity research at a couple different banks, but somehow made my way over to writing about biotech stocks for fun.

These are not broad industry topics, but they might still be of interest. Much of the discussion is usually indication- and drug-specific. As an example, with Biogen, there's been an extensive debate around Alzheimer's given what's at stake and the few assets they have there. Maybe check this out and see if it's what you're looking for. https://thenonconsensus.com/blog/2018/7/20/biogen-a-deep-dive-into-the-…

 

Thanks for this. I enjoyed your breakdown of AD and Biogen's approach. I am curious, how did you develop you understanding in the sciences? Simply through googling terms and science concepts found in Clinical Trial papers and 10Ks? Or was there a certain starting point (i.e. learn about cell function, protein synthesis see how it translates to treatment/drug development etc.)

I have a bit of background in Neuroscience and i'm hoping to understand the in's and outs of some of the disorders & treatments in that field as a starting point. I figure focusing in a specific field vertical will help me understand basic biological processes, while making connections along the way, then branching out to another "sub sector" of diseases.

I suppose considering you have an ER background, a more general question would be, what do you think the best approach to understanding a complex sector like this (or complex sectors in general) would be ?

 
Most Helpful

Thanks! Honestly, I know nothing about that stuff that you asked about. The most I took was AP bio in high school, and I remember 0.0% of that now.

Having a bio background helps you understand things better and can make the learning curve a bit easier, but I actually think the more important skill is to just understand how equity research works, how to find company information, how to do the modeling, how to do the writing, etc. From what I have seen, it doesn't seem that many analysts have a strong, independent opinion on specific drugs before becoming an analyst. Each drug and indication is just too specialized and the industry's latest research is constantly changing. It seems that analysts rely more on key opinion leaders (KOLs) or other experts to develop a better understanding of things. It is extremely difficult for an analyst to have a strong personal opinion that the tau hypothesis will not work based on knowledge that they've built up from understanding science - if they have that opinion, it will come from the backs of other experts and researchers who know a lot more on the topic.

My approach is this: I pick a company that looks interesting and start reading research reports. If you don't have access, you can also read earnings transcripts (available in a number of places online for free), analyst days from the company, or company presentations at broker conferences. All of these things will present an overview of recent results and give a discussion from management's point of view about the important topics around the stock. Pay special attention to the Q&A during the earnings conference calls as that will highlight what analysts are really thinking about.

There are usually a few drugs that everyone is focused on for a company. Once you've figured that out, you can start reading about them some more to understand some of the basics of how the drug works. Because of the nature of healthcare, you can find a ton of information about any illness by googling around. Finding out how a company's drug is attempting to attack that illness is a bit more difficult, but many of the same sources above will describe that for you in enough detail. There are also healthcare conferences that the companies will often present more detailed analysis from their trials. Following these things, and forcing yourself to write about it confidently, will really get your knowledge up about the industry. It will take time initially as you'll probably have to google a lot of things. I only spend the time to really understand a drug though if I find it important enough. Often times all that really matters to investors is 1) how efficacious the drug is, 2) the safety profile of that drug, 3) catalysts such as when the patent is ending (if already approved), 4) what the competing drugs' pros/cons are (whether branded or generic) and the timing of that, 5) addressable market and upside potential, whether from the existing indication or new indications. OK, that’s a lot, but start with one drug from a company and learn all there is to learn about it. My site I think does a decent job at explaining things. Maybe you can start with BIIB and its Alzheimer portfolio (aducanumab and BAN2401). Or, try learning more about Ibrance from Pfizer (not biotech but still relevant, and a huge drug for Pfizer so there should be a ton of resources on it)

A few other things that I think I could generalize as being important: 1) understanding how the clinical trial process works, 2) understanding the lifecycle of a drug and the ways companies can extend that lifecycle, 3) understanding the pros and cons of different drugs that attack the same indication.

I realize this might not be quite as helpful since I just gave you a million directions to run in. But I guess my point is that I would spend less time learning about general science, and more time learning about the drug approval process, what happens after it's approved, and just reading very specifically about companies and their drugs (which will expose you to the types of arguments you will need to get familiar with). Almost everything in healthcare revolves around these processes, and I think that's more useful than learning how a cell works.

 

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