GEN: Are some firms better prepared than others to ride out this crisis based on their technology, products, services, therapeutic focus, or business model?
Conway: In light of current industry dynamics, we believe that the companies best positioned to weather this storm are not so much those with future potential, but those with sound current fundamentals—i.e., strong product franchises in therapeutic areas with well-defined clinical need that are supported by strong balance sheets.
Masterson: Data, data, and more data will drive the successful companies. FDA cannot approve products that do not perform better than what is already on the market. Human data is better than animal data, and data compared with existing approved drugs will convince more rapidly than NCEs that have no side-effect history.
Companies with large capital reserves and multiple products will survive with cost cutting. Innovative ideas with superior management teams may find investment money if it is the perfect storm.
Products that focus on the baby boomers will have a market in the coming years. This includes orthopedic products for hips and knees, and cosmetic lasers and injectable products. Wound-healing products and antivirals will continue to find market acceptance once they clear FDA. Cancer diagnostics and cancer fighting agents will continue to be used, and their market will grow with the boomers.
The orphan drug strategy seems to help, and we continue to like Genomic Health (GHDX) and Genentech (DNA) as long as it stays independent. Women’s health is an area ripe for growth for products such as Merck & Co.’s (MRK) Gardasil and Repros Therapeutics’ (RPRX) Proellex. The better financed the company is, the better chance it has to get the data and get to market. Companies with less than a year in cash will be in a vulnerable position.
Crucell (CRXL) is attractive because it is one of the few remaining independent vaccine makers following takeovers in recent years of some of its competitors. Whether the early-stage negotiations with Wyeth pan out or not, vaccine innovation remains an attractive area of research, globally.
Other areas of M&A activity to look for over the next 12 months include diagnostics and antiaging technologies. We continue to look for consumer medicine plays in the cosmetic market that are not dependent on reimbursement.
Mehta: The attributes noted above are known to most but not consistently practiced by many. A diverse range of opportunities exist that should enable a number of companies to be successful within their respective therapeutic, product, and service focus. Though not surprisingly, the greatest value will be created by retaining an active role both in innovation, as well as in marketing. Success of such a broad strategy calls for staying power over the long haul through research, a broad clinical development program, and aggressive, yet prudent (and hopefully globally integrated) marketing—the staying power that will be fully tested during this economic cycle.
Raynovich: We are still in a bear market for biotechnology due to a lack of speculative funding from both VCs and investment banks syndicating IPOs. As a result, we have a more bifurcated market with larger caps stable or growing and smaller caps in a funk. There are no megathemes like genomics or lifestyle drugs that can spur momentum. Nonetheless, there is plenty of money on the sidelines, which will drive companies with compelling products and technology.
Sullivan: Large life science tools companies remain well positioned to survive today’s challenging economic and funding environment. For large tools companies, emerging biotech customers often comprise just 10% of revenues, with more reliable NIH-funded labs and pharma companies comprising much larger shares of the revenue base.
Contract research organizations (CROs) also seem to me to be well positioned to ride out today’s difficult economy. Drug companies comprise the largest share of the customer base for large CROs, and pharmas remain well funded. Even their biotechnology company customers likely have to continue to spend on drug development.