Navigating turbulent markets was the theme of the final panel discussion at Optimum Strategic Communications’ 15th Annual Investor Conference.
Linden Thomson, fund manager at AXA Investment Managers, Geraldine O’Keeffe, partner at EQT Life Sciences, Naveed Siddiqi, senior partner at Novo Holdings, and Joe Anderson, partner at Sofinnova Partners, formed the panel chaired by Stephen Hansen, director of Biopharma Intelligence at BioCentury.
The thesis of the panel was that the pace of world class innovation has quickened, supported by a boom in private investment.
But this has not translated through to public markets, which have weakened in 2023, with life sciences companies struggling to find investment.
The panellists agreed that 2023 has been challenging for life sciences companies, with a large disparity between the U.S. and Europe.
Raising money is always easier in the U.S., but the currently depressed state of the market has made things harder even on the other side of the Atlantic.
There has been a trend of consolidation, and IPOs are few and far between, although the feeling is that many of the companies that went public in 2020 and 2021 were overvalued and went to public markets too early.
The probability of success for these companies were therefore always low, despite the optimism and valuations seen in those years when COVID drove massive investment into life sciences companies.
Now that the markets have changed so drastically, those companies without the clinical data to support their valuations are failing.
But the panellists added that for those companies already out there who have good data from their pipeline products, it is possible to get funding.
The fundamentals of the market are actually good and companies are getting by as the Darwinian principles of the survival of the fittest kick in.
The panellists also noted that being a public company is not necessarily a good choice – there are onerous regulations and shareholders to keep onside. These can prove a distraction at a time when there may be important research to focus on.
There are forms of capital emerging beyond the public markets, such as venture credit and private equity that could offer the financial backing without the hassle of running an IPO or public funding rounds.
With markets less buoyant than during the COVID life sciences investment frenzy, regulators too are playing a role in how investors are deciding which pipeline drugs to back.
The FDA is still reeling from the backlash following its decision to back Biogen’s Aduhelm (aducanumab) Alzheimer’s treatment, despite a lack of convincing evidence of its efficacy and against the advice of its expert advisors.
This decision led to widespread criticism that the FDA had gone too far, and the pendulum has swung back the other way.
Now the FDA is far less likely to approve drugs based on surrogate endpoints – and issues with oncology drugs failing to produce solid efficacy data after approval based on early stage clinical results is also making the regulator more conservative in its approach.
Another factor is that the regulator has lost many experienced leaders, who have been hired by big pharma companies. This newer generation of regulators is playing it safe, perhaps unwilling to be dragged into the kind of controversy that surrounded Aduhelm.
Other headwinds include the Inflation Reduction Act, which contains the key policy of allowing Medicare to negotiate drug prices for certain medicines.
This won’t begin to kick in until 2026 but it is already causing a rethink of the market potential of medicines.
All this has led to the panellists saying that they are much more likely to fund life sciences research in areas where there has been recent success.
One area that they cited was obesity following the approval of Novo Nordisk’s Wegovy (semaglutide) in 2021.
Antibody-drug conjugates (ADCs) typically used in oncology are back in a big way after a difficult start with the first generation of drugs, and neurology is likely to attract funding in the future following the regulatory approval of Aduhelm and more recently, Biogen/Eisai’s Leqembi (lecanemab).
Following the COVID vaccines from BioNTech/Pfizer and Moderna, mRNA therapy could move into other disease areas such as oncology – the purpose for which this medicine class was originally intended.
But, despite the focus on fashionable disease areas, panellists conceded that companies with the right approach can gain funding if they have the right data and the right story in place.
Communicating a regulatory strategy now that the FDA is sticking steadfastly to the rulebook is vitally important.
Many rejections by the FDA are avoidable, where manufacturers have neglected to dot the I’s and cross the T’s on matters such as manufacturing processes.
Investors will want to see evidence of a strong strategy for Chemistry, Manufacturing and Controls (CMC), good management of Contract Research Organisations, along with a strong clinical data set.
If these are all in place, then investors are prepared to take notice and fund projects outside of their comfort zone, despite the turbulence.