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Jul 1, 2006 (Vol. 26, No. 13)

Targeting Biotech Institutional Investors

Gaining the Attention of Portolio Managers

  • Most biotech executives are faced with a dual dilemma: dealing with the regulatory hurdles to win FDA product approval and ensuring a consistent flow of capital to fund the company’s R&D efforts.

    There are no real shortcuts to navigating the government gauntlet or the rigors of scientific scrutiny.

    Fortunately, turn-key solutions and pragmatic strategies do exist for identifying funding sources. Several financial professionals have shared their insights to help visibility challenged companies effectively target institutional investors.

    The competition to stand out from the crowd is fierce, especially given the sheer number of small- and mid-sized biotech companies jockeying for investor and media attention. To assist companies seeking to cut through the clutter in the constant battle for capital, Business Wire asked several professional money managers with a biotech focus to explain their criteria in assessing possible portfolio candidates.

    "We primarily look at industry dynamics and use proprietary patient-based models to determine the potential peak sales of a drug or pipeline versus, how a company is currently valued," notes Bryan Knepper, senior biotechnology analyst at Columbia Management. "Secondarily, we look for clinical input, as well as a company’s history in dealing with the FDA, in an effort to risk adjust for the probability of a success of a pipeline drug or a new indication of an existing drug."

    Derrick Tang, a portfolio manager/analyst who is based in Bellevue Research’s Boston office, cites his guidelines. "First, the merit of the clinical programs," says Tang, "and second, the price."

    Elaborating further, Tang points out, "previous trial data and ongoing trial designs are what I spend virtually all of my time on. Once I find a fundamentally correct company, market opportunity and inherent trial risk will determine at which price I am willing to invest."

    The obvious question is how do you get on Wall Street’s radar screen in the first place?

    "Small- and mid-cap companies are best served by having representation at major investor meetings," advises Knepper. "There are a variety of avenues to allow for both public and private companies to reach the buy-side. Once there, data is the key in our view. Data are what ultimately drive the decision tree at both the FDA and clinical levels."

    "Be proactive, contact us directly, and be straightforward about the pros and cons of the development programs during the introductory meeting," counsels Tang. "I especially like companies that do their homework and apply stringent selection criteria to the pipeline candidates in early development, instead of rushing into Phase III to attract financing."

    Is Wall Street bullish or bearish about biotech’s near-term prospects? Knepper is generally optimistic about the investment climate for biotech companies.

    "The biotechnology sector is ripe with opportunities," he observes. "Healthcare spending continues to be robust, and those companies that develop promising therapies for unmet medical needs will be good investments. That said, last year was full of stunning data producing massive moves in the sector. This year too will be one that will have an increased emphasis on stock selection."

    "I expect the biotech market to be a stock picker’s market that focuses on an individual company’s fundamentals in the next six to 12 months and in the long run," forecasts Tang.

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