Q&A: Pharmaceutical/Biotech Industry
Hi all,
I've seen a fair amount of discussion on the pharmaceutical and biotech industries across forums on this website, so I figured I would host a Q&A to answer any questions people may have about company/industry dynamics, what it's like to work it in, breaking it and general information.
As a bit of background, I studied a biomedical science at a UK medical target and followed that with a few years of healthcare consulting, heavily geared towards pharmaceuticals and biotech across commercial strategy, pricing, market access, commercial due diligence, M&A work and other industry aspects.
Fire away!
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Do you have experience investing in the biotech sector and forming a pitch? What are the key things to look for?
I do not since I'm usually on the other side of the fence doing the corporate strategy for companies that are either well or somewhat established. What I can tell you from seeing some smaller biotech clients in their early days is that the main success factors are usually:
surrogate endpoints?
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Thanks a ton for doing this. I am newish to the space (and on sellside), feel free to ignore if my questions are off-base.
To add onto q1- what would you say are the biggest red flags for an investor looking into a small biotech name?
Thanks for doing this! How much of an edge do you think your biomedical background gave you in the space? I'm really into the space but worry that I wouldn't have much of a way to succeed because so much of investing in the space is understanding whether or not a drug will get FDA approval. I'm sure you've worked with colleagues who don't have that STEM background, so what do you think separated them versus people from more technical backgrounds who weren't as successful?
Not going to lie, it does help quite a bit. It helps in terms of speed more than anything. I can look at a trial and understand what the main points are, what certain red flags are (medically speaking) faster compared to a non-stem background. But generally speaking, the level of science covered does not exceed that of UG education. Having a PhD is not necessary at all and is mainly used as a marketing tool to win projects. I truly don't mean to brag, but I have a combined medical and business background and run circles around freshly minted PhDs who only understand the science side of things, especially when it comes to M&A advisory and the need to understand the business rationale behind decisions. The gap narrows as time goes on, but it is quite evident at the start. Same with non-STEM people.
I also work in the field, doing primarily buy side M&A and licensing. I did not study a scientific subject in undergrad or have a 'healthcare' focus in my MBA. It has not made a bit of difference in dealing with my clinical colleagues. Either you can hang, or not.
How difficult would it be to break into the life sciences arm of a PE fund after a few years of healthcare consulting? Would that mostly depend on the type of projects you worked on? Thanks in advance for your response!
PE funds rarely venture into pharma/biotech because of how risky it is and the long timelines before you get a return on your investment. When they do buy companies, it is mainly about internal restructuring, optimizing operations in preparation for successful launches or optimizing their on-the-market portfolio. You can break in by doing CDD work, operational projects and portfolio optimization work.
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Even growth in pure pharma is rare these days, simply because of the inherent nature of the industry and the risk. VC is big, but that's a different dynamic.
Besides what news sources (Endpoints, STAT, Fierce, etc.) say about a clinical trial data readout, what else do you think investors pay attention to but that the news might miss? For example, the news will talk about primary endpoints, but maybe you want to open up the press release and presentation and look for x/y/z.
Good question. I'd say, besides the nature of the endpoints (composite, surrogate etc.) maybe also look at the general safety data, secondary endpoints, quality of life measures (super important in Germany and France for reimbursement) as well as what patient advocacy groups have to say. Benlysta was the first treatment for Lupus and was given pretty solid reimbursement in Europe. The issue is that Lupus patient advocacy groups pressured incredibly hard for it to be reimbursed even if the clinical data was a bit shit. On top of that, it has major safety concerns so many physicians are hesitant to use it freely. Remember, hitting the primary endpoint doesn't always mean the drug is good in the same way that missing it doesn't mean its shit.
Another key thing to look at is the nature of the trial. What it vs placebo or an active comparator? How relevant is the active comparator? Payers don't love placebo controlled trials, especially if there are drugs for that indication on the market. I've also seen a fair share of drugs with active comparators get crappy coverage. Why? Because they may have been the 4th drug to launch and ran their trial vs the 1st drug which launched 10-15 years prior. Payers see through this.
bioRxiv is another good source for papers published prior to peer review
Do you think a MD/PhD/JD/MBA etc. is needed for biotech C-suite or Board level advancement? Do you have to get lucky to make it to the C-suite with a bachelors or would you be on an equal playing field versus your peers with these degrees?
Do you have any managers with a bachelors who are directing people with PhDs? Are they well-respected and what is this dynamic like? Thanks!
It depends on the role, but generally you'll find that most do. Thing is, many of the have MBAs which they may have been sponsored for when courting the C-suite role. However, there are notable exceptions. The CEO of Incyte ($20Bn) just has a bachelors and so do the CFO of BioMarin, CBO and CFO of Ipsen as well as CFO of Regeneron to name a few. In those cases, it's pure grinding your way to the top.
In the consulting space, it's more about experience. Hell, I boss around PhD students simply because I have the consulting years under my belt.
1. Which major is best to get into pharmaceutical/Biotech equity research/IB/ HF?
2. Do you have any suggestions for (Small cap) biotech or pharmaceutical stocks to watch in 2021?
3. Any good books for investing in biotech stocks?
4. Is there a bubble in biotech?
They're pretty smart, they have a good business model that is quite successful on a small scale (not really possible on a large scale - did my postgraduate thesis on this). Royalties for pharma will always be lucrative because we're still taking about billions. If drug prices were slashes, companies would make less money but still enough to keep the industry being one of the most attractive out there. COVID hasn't really brought on a "lack of regulation" per se, it has found ways to expedite a slow process only for extreme emergencies in a similar way to what happened (on a smaller scale) for Zika and Ebola drug development. Post-COVID drugs will still need the usual 10-15 years and $1-2Bn for approval.
How do ex-bankers do when they join corporate? I'm asking about Associates, VPs and Directors who have exited to pharma.
Also wondering if it's better for ex-bankers to move in a large pharma or a small biotech? Or put another way, how should ex-bankers at the Associate, VP and Director level decide what kind of biopharma company is the best one to begin their corporate life?
They do pretty well in their specific roles (due to the skillset IB provides, you're still stuck of a finance-based role most of the time). In small companies you could be CFO or some high level finance role to guide companies through funding processes or transactions. In larger companies you have more finance roles so more to pick. A big one for many is to work on transaction teams that do internal M&A. Companies like UCB, Roche and Gilead have dedicated teams for this (many other do too). Worth checking them out.
Thanks. A follow-up question: do companies have a preference for BB or EB experience? What experiences and/or skills do they value?
2 questions
1. how much do you believe research & innovation would slow if the US nationalized healthcare? would the profit motive be the same, reduced, eliminated, or larger?
2. if you could go anywhere in the world, where would you get your medical care assuming travel wasn't an issue? 3 separate instances - regular checkup, chronic disease treatment (like cancer), and elective but necessary surgery (like a knee or shoulder operation). I have a hard time believing that any one healthcare system is best across the board, but I'm uneducated since I've not been a customer of the healthcare industry, curious on your thoughts
Good Qs. Here's my thinking:
thank you so much!!! for years when I was a libertarian bordering on anarchist I didn't want the gummint involved in healthcare in a bigger way because I thought innovation would slow down, but you make a good point that plenty of european companies successfully operate in a nationalized system, so perhaps the rhetoric of the USA essentially taking the world's medical research costs is overblown. your comments seem balanced and thoughtful, and I like how you make the distinction between NHS (where I've heard horrible anecdotes about waiting for surgeries) and continental Europe where problems seem to be less, though I've not looked into central/eastern europe nor Iberia.
also, if you're not opposed, I'm curious where in Europe you're from and what your anticipation of reopening is
"A drug that can't even pass the very low bar of EMA/FDA approval shouldn't be on the market. Yet, because Sarepta knew that the FDA would likely approve it and that, due to a non-nationalized healthcare system, some US payers would cover it at a ridiculous price it became lucrative as a "US Only" drug. Other companies have followed this path which is the most toxic approach to medical innovation."
This is exactly what Biogen is counting on by pushing forward with the approval process for aducanumab.....
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I work at biotech HF AMA.
What is your take on whether an MD/PhD is necessary in order to make successful investments in clinical stage companies (public or private)?
Md phd’s give you the most optionality and are treated with most respect right out of gate which makes sense given the filters they have gone through to get in and finish those two, assuming they’re actual US mstp types.
Fuck if I know. And even if I knew, I wouldn't tell you since it would be based on NMPI. Also I don't invest in large caps.
Hey man, thanks for the Q&A. Appreciate the info/advice you’ve given this forum in the past.
What do you feel like are the most crowded spaces across the therapeutic areas right now, in terms of $ spent on R&D and amount of drugs in pipeline?
What areas are currently under-invested aside from the typical neglected infectious diseases?
Happy to help! I think immunology conditions such as rheumatoid arthritis, psoriasis and psoriatic arthritis are an absolute money pit. Anyone investing in those is wasting money because you have a huge number of high quality established players (many of whom are going generic or biosimilar) and no need for new drugs. Same goes for many of the common cancers (breast, colorectal, NSCLC etc). The key with cancer is early detection - if you catch it early, standard chemo does the trick. Yes, some drugs have brought about step changes e.g. the first couple PDL1s or ALK inhibitors. But the market is becoming very crowded.
Bacterial infections don't get much love, but to be honest it's a very challenging proposition. Most antibiotics are old as hell and generic meaning that willingness to pay is generally low. Additionally, when you find something that works you have to restrict use if not you risk developing resistance. Those two things make for a crappy commercial proposition. That's why NGOs and medical associations have to pitch in for bacterial infection R&D. If you can find something that does not lead to bacterial resistance, then you've hit the jackpot.
Guess you'd invest into early detection cancer companies then haha.
Thanks for doing this! How would you advise someone without a STEM background to build credibility in this industry? (E.g., in a consulting/strategy context)
Exposure is key. If you start at a generalist firm, try and land on as many HC projects as you can. Nail them and show a genuine interest for the industry. This was you can specialise quickly and end up working for pharma/HC teams in consulting firms.
1. When trying to get to a place like Deerfield or Orbimed, would I need a background in science/graduate level degree or would IB biopharma experience be enough?
2. For small/mid-cap companies that have phase 1 and phase 2 assets do you strictly just value them or do you still try to value their assets that are IND enabling?
1. How do you value a Pharmaceutical/Biotech stock?
2. What are the most important metrics you consider when looking at a stock?
3. I majored in math. Is it possible to break into Biotech HF/ HC IB?
3. Yes, if you're actually really good, went to a top school, and have ideas on how to implement your quantitative skills to biotech. But it'd probably be better if you went to a quant fund.
1. and 2. Mostly what I said above - you look at the clinical data and attractiveness of the commercial proposition.
Good stuff TPG. Appreciate the time you took to put this together. Hope you're staying sane over in the EU.
Thanks man! Hope all is good on your end too
Good thread TPG. What's the over/under on reimportation to the US from the Biden admin.?
Will Brexit raise a similar spectre for GSK?
What do you mean by this exactly? Will the Biden administration be favourable for domestic pharma companies?
For years politicians have threatened to allow reimportation of drugs from places with price controls (like Canada) to the US to 'lower the high cost of Rx drugs'. I wondered if that had more than a snowball's chance now, and ditto for the UK now that it's left Europe.
Hi, thank you for your availability and here are my questions:
1. Do you think that the mRNA technique will impact the way vaccine are made ? If yes which changes do you think will occur ?
2.Do you think that with the advent of CRISPR the research cycle will overall shorten in time, thus increasing the ability of a company to move forward to a new approach in case the previous one proved to be unsuccessful ?
For someone looking to learn more about the different classes of therapeutics on a basic level: CAR-T, Gene therapy, Cell Therapy, etc. Just quick primer type - here what these drugs do, here's who are the big companies in the space, etc, any recommendations on where I could find this information?
I honestly don't know...I'd use FierceBiotech and FiercePharma to learn about companies. Cowen issues massive reports by therapeutic area but I think they aren't free. YouTube is probably a good source to understand the basic science behind some of the newer technologies.
The quickest and easiest thing is to go look at the investor decks that companies put out to present clinical trial results for the areas you're interested in.
Great Q&A man, love your posts on here. Stuff you posted over the years actually helped me a lot with getting a footing in Pharma/Bio IB. Anyone who wants to do that or something else in the space will really benefit from this Q&A. Great thing to do for the community.
Thanks man, really appreciate the kind words!
I’m working in FP&A in one of the large Pharmas, what are some of the things (websites, news feeds, etc) that you use to stay updated on the latest information within Pharma?
FiercePharma, FierceBiotech, Bio Space, Bussiness Wire's healthcare section, PharmaTimes and PM Live. Those are the main ones.
Hey, where should I start to learn about the Healthcare industry, and for you why do you enjoy covering healthcare? thanks
I'd read websites like FiercePharma/FierceBiotech and google ER reports or industry primers. Consulting firms also issue large industry overview pieces (e.g. PwC, Kx Advisors etc). I covered it because it's one of the most interest ones out there. So many innovative drugs and companies in the market, paradigm shifting changes in improvement in QOL and survival. It is also a pretty recession-proof industry so business is always good.
Hi and thanks for doing the AMA!
I currently am working at top 50 real estate fund I am currently thinking about transitioning to Biotech/VC Life Science/Healthcare IB
I plan to do a ggod MBA to transition to this position (IB/Consulting to go late in VCà and plan to go back to study at uni to have at least a Bachelor Degree in Biology (some university here are offering study at home programs with some labs time concentrated in one or 2 week)
Do you think such a move is possible?
Thanks again a lot!
Potentially yes. You're modelling skills will certainly come in useful for healthcare IB. If you can solidify your scientific knowledge that will also give you a big boost when it comes to recruitment.
How do you get into biotech VC/PE?
If you come from IB, PE is quite easy provided you can show a track record of healthcare/biotech deals. VC is also not that challenging from IB, but the industry has some different dyamics and is based a lot on connections and referrals. From consulting, both paths are doable but you need to showcase some financial prowess as well as experience with due diligence, operations and growth strategy projects.
Is a PhD/MD a waste of time to break in? Or would it bolster?
Do you think people in Biotech/Pharma should consider ER just as much as IB? -- Since to me, (outside of top 1% IB MD's), Biotech ER has insane earnings potential (3-5mm at the top). Which is comparable to IB.
What do you think?
I think so. If you have a true passion for industry, developing investment theses and understanding the inherent strategy behind many companies, then ER is for you. That being said, the top earning bracket in ER takes many many years to reach and is also reserved for the absolute cream of the crop. I wouldn't go into ER with the idea that you can make a lot of money because the quickest route to $1M+ compensation is probably IB -> HF. But don't sleep on ER as a career path, it can be very interesting and lead to great exit opportunities.
Do you have views on aducanumab? not even sure why the FDA decided to approve this.
Dud. Biogen jacked the price up way too much and the FDA went from hating it to approving it with an insanely broad label. I really don't think it will see much use and it will face massive access hurdles once it comes to plan coverage. Wait until the EMA deal with it. If they approve it, no country in Europe will reimburse it unless it has an incredibly narrow reimbursement label and they cut their legs off at price negotiations. I think the approval came from political pressure to approve "something". But the market often self-corrects in these cases; Benlysta was approved and reimbursed for Lupus a few years ago due to pressure from patient groups who has no other choice. Since the drug was quite shit, it got poor coverage and reimbursement across the world. Aducanumab is likely going to face the same fate.
Thanks for this super helpful!
It could be on here already and I might’ve missed it, but I am trying to transition to Biotech HF. I come from science background and am in sell side ER. I am even willing to take an internship before. How do I get into biotech HF and do you know of any specific funds you’d think are good to work at? Thanks again for your help!
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