Value Investing in Life Sciences(axial.substack.com)
axial.substack.com
Value Investing in Life Sciences
https://axial.substack.com/p/value-investing-in-life-sciences
9 comments
That's slightly misleading.
The market structure as it is today confer a significant advantage (especially, in the drug development market) to big companies with deep pockets who can survive the regulatory approval process.
Therefore, selling to big biotech corporations is a completely viable business model, if you have a technology that has proven itself in early studies and the next step requires you either raising a lot of money and losing most of the control of the company, or selling to a big corporation, cash in on years of time and dedication.
Another pain point, is the involvement of VCs in the biotech market. Most VCs don't like long term investments. long-term is riskier and other markets offer faster ROI compared to biotech. Therefore, most VCs start pushing for an acquisition in the early stage of the development.
There aren't many VCs willing to wait 15 years for a drug / diagnostic product to be approved and reach the market.
The market structure as it is today confer a significant advantage (especially, in the drug development market) to big companies with deep pockets who can survive the regulatory approval process.
Therefore, selling to big biotech corporations is a completely viable business model, if you have a technology that has proven itself in early studies and the next step requires you either raising a lot of money and losing most of the control of the company, or selling to a big corporation, cash in on years of time and dedication.
Another pain point, is the involvement of VCs in the biotech market. Most VCs don't like long term investments. long-term is riskier and other markets offer faster ROI compared to biotech. Therefore, most VCs start pushing for an acquisition in the early stage of the development.
There aren't many VCs willing to wait 15 years for a drug / diagnostic product to be approved and reach the market.
There is another alternative:
3. Develop deep expertise in regulatory approval and manufacture.
There is where essentially all of big biotech. You then in-source products from firms who cant scale or tolerate the risk. These firms operate at a scale where they don't need external investment. Regulatory capture is the more cynical description of this mode.
3. Develop deep expertise in regulatory approval and manufacture.
There is where essentially all of big biotech. You then in-source products from firms who cant scale or tolerate the risk. These firms operate at a scale where they don't need external investment. Regulatory capture is the more cynical description of this mode.
This seems a little low value. It needs to be shorter for one. I don't really get their point about Color genomics. This company offers DTC a product which genetics labs already do everywhere. There are a lot of available resources for interpreting the results of BRCA1&2 testing. It seems silly to claim they 'have a moat'. They just started at the moment that Myriad Genetics lost its monopoly on the gene. They are offering cheap testing which must be subsidised by venture funding - I know this because Color charges less for the test than not-for-profit companies.
This is an interesting article but I feel like there’s a big disconnect between the description of Axial’s focus and the companies used as case studies. They all seem to rely on advantages companies developed well after being “early stage” startups, and it’s not clear how you could ascertain those advantages before the companies managed to pull off their various bets. I would imagine most people would agree Merk & Regeneron are well beyond the point where the idea of value investing is tough to do. Perhaps I just am working with a different definition of early stage.
Earlier detection and treatment of health issues is the holy grail in my opinion. Anything you can do that directly targets this is a guaranteed gold mine.
These are all good points, but glasses over the most important measure, valuation.
1. Patents
2. Selling to other biotech companies
Otherwise they're just R&D facilities funded by research grants. Patents are hard to come by, take a long time and are therefore very expensive to obtain (especially on anything related to humans). By default #2 ends up being the most profitable for this type of investing. There's a weird self-sustaining industry here which is ultimately feed by grant money.