A conversation between a value investor and a biotech company with a similar approach. Finding potential over 100 baggers in a systematically underfunded segment of the biotech industry.
GreenWood Investors: Finding Value in Biotech
Q4 2019 hedge fund letters, conferences and more
Transcript
Dan, so I wanted but I wanted to give like 1000 foot view of the industry and talk about how where [inaudible] fits with the he value creation lifecycle of drugs. And so particularly because phase one, phase two is generally very underfunded in biotech space. So, I guess I'm wondering, have you seen any changes in funding availability in the in the companies edge in getting stuff from lab into patients over the last five years or essentially?
Yeah, thanks for the introduction. [inaudible] Quite an honour. So I think in general, there's been a monumental change in the industry. Getting drug from the from the bench into phase one, phase two was, at least in part was the task of venture capital. And the goal was to get the company and have proof of concept. Company would be sold or go IPO. That was the exit, no longer VCs, they don't invest for an IPO as an exit. Because it just that isn't how the industry is working anymore. In fact, most of the a successful IPO is in biotech, the insiders have to put in at least half to get them funded. So that is monumental change.
Value in biotech: Finding in M&A?
The other thing that I think we've seen fairly recently, both on the private side and the public side, is there's been a lot of m&a and value destruction over the last 5-10 years in biotech. And so the amount of money that's available for investment is huge right now. And so you're seeing big gambles, you'll see an A round or B round of $100-120 million. It's not unusual. It used to be when I started a company in 2000, I think our seed round was $5 million, something like that. And so that is a monumental change.
Is that capital less available for little tickets now because everyone wants soft banks unicorns, right?
Right. So that is the issue. It's the, I hate to say because I'm in the industry, but I think that there is a lot of what I call it just planning that the investment community they latch on to a really good idea right now. They're really good idea that everybody's investing in is cellular therapy and gene therapy. And I mean, witness CRISPR.
CRISPR is a gamechanger
So CRISPR is this I believe this is a monumental like this is up with PCR when PCR occurred, just changed the industry completely. That's how we find in sequence DNA back many years ago. Now, CRISPR, I think, is that next revolution in science, that you have three or four companies, public companies and never wants treated a patient not even close to treating a patient with a cumulative market value of billions of dollars. Literally billion. [inaudible] Are getting funded public and private.
And that so you're it's interesting I you've always, we've talked about how there's a dearth of people of funding willing to do a $5 million trial, that creates the value of proving that concept. Right. And so that has that actually not gotten better with the amount of liquidity available?
I think if you're not in one of if you're not standing under that streetlight with everybody shining on, it's very, very hard. It's very hard.
Finding Value in Biotechs tips
So what do you do? I mean, like your year investors, I mean, we've been a long term partner for you. We've been buying actually the last few weeks, but your investors have pretty much refused to fund this. So what do you do when you have four potentially billion dollar drugs in the market says your net net you're worth you just read the cash on your balance sheet,
Right. So again, it's a I think it's 1) the nature of what you're trying to do we take, you know, you mentioned about madhab is to me is the premier clinical trial is in the United States bar now. And so whenever with our portfolio for drugs in the clinic. We take a very, very hard look at how we create evidence that people are going to really believe in and really buy into and so we try and be smart on how to minimise the cost and maximise the evidence base.
And hopefully, you get to a point of critical concept where you can attract either a partner, or last year we did a large financing for us. It was a very large, you know, nowadays it was nothing but for us. It was a very large financing and it was because we were out there talking about it. We had this data, and I got a call from a couple of VCs crossovers. We said we think you're the best in class and we want it passed. So they went under the hood and they liked it and they wanted.
