This mood swing may be a sign of a maturing biotech industry or it may be that this new generation of biotech investors are inured to biotech executives embellishing their companies at investment conferences.
In the late 1980s and early 1990s, executives of middle-tier biotech companies were intent on becoming fully integrated biopharmaceutical (FIBCO) companies.
During that period, the FIBCO concept generated great interest among biotech investors, who drove up the stock prices of companies. Investors were trying to find the next Amgen (Thousand Oaks, CA) or Genentech (S. San Francisco), bellwether biotech companies.
With the genomics revolution, the FIBCO concept fell by the wayside as investors became more risk averse and began focusing their attention on platform and tool box companies.
Genomics and gene database companies, such as Human Genome Sciences, Celera, and Incyte Pharmaceuticals, and combinatorial chemistry companies, such as Arqule and Combichem, became the hot firms with their novel business and discovery platforms. Investors began driving the stock prices of these new companies into the stratosphere.
In the spring of 2000 when both the Internet and biotech bubbles burst, the sector was sent into a recession, and biotech executives of early-stage companies were sent into a deep depression.
The financing window for early-stage biotech came crashing down when venture capitalists became mezzanine financiers by investing in public companies, which they perceived were receiving venture capital-type valuations.
During this period, middle-tier biotech companies became more adept at designing clinical studies and eventually received FDA approval for their lead products.
Additionally, monoclonal antibodies made a comeback in the early 2000s with products such as Immunex’ Enbrel, Centocor’s ReoPro, Idec’s Rituxan, and Genentech’s Herceptin being FDA-approved and becoming frontline therapies for their respective clinical indications.
This year’s “JP Morgan Conference” reaffirms that the biotech sector has come full circle; companies are once again embracing the FIBCO concept. Investors are now more interested in companies with products in the late stages of clinical development.
This biotech investment theme has caused entrepreneurs to rethink their business models. Most of the start-up companies that are able to raise money are classified as specialty pharmaceutical companies in which the business strategy is to in-license niche market drugs from large pharmaceutical companies.
There is a negative aspect to this specialty pharmaceutical paradigm.
The current in-licensing strategy will curb innovation, an engine that has been powering the sector since its inception in the late 1970s. It remains to be seen how long this trend will continue.