In this week’s episode we speak with Bailey Lipschultz of Bloomberg to discuss the outlook for the biotech industry and the industry’s recent winners and losers in these turbulent markets.

TRANSCRIPT

Jeffrey Friedman: Hello, and welcome to the RP HealthCast by RooneyPartners. I am your host, Jeffrey Friedman.

Investing in the stock market these days takes a strong stomach, especially with these thousand points swings we’re seeing both up and down, and investing in healthcare stocks takes a keen understanding of both healthcare technology and market dynamics.

To break all of this down for us, our guest this week is Bailey Lipschultz. Bailey is a journalist for Bloomberg News focusing on healthcare equities. He reports on breaking news across the healthcare industry from small medical device manufacturers to big pharma. Bailey it is great to have you here with us today.

Bailey Lipschultz: Yeah, of course. Thanks for having me.

Jeffrey: So Bailey, as a graduate of Syracuse University’s Newhouse School of Public Communications, you certainly have the right pedigree for journalism. But, how did you get into covering healthcare for Bloomberg? How did you get up to speed so quickly on all the science?

Bailey: Well, I had always been interested in either covering healthcare or tech just rapidly advancing Industries. And a role opened up on our equity’s team covering healthcare, and I was able to slide over and get caught up to speed on everything around the science. You just read as much material as you can, as many sell-side notes or journal submissions as you can to try to get a real good grasp on it.

I talked to a lot of people all day and just try to better understand the entire landscape from the perspective of people like bankers and analysts all the way to patients and the doctors that are treating patients in the real world.

Jeffrey: Yeah, that is great. But healthcare investing, it is not for the faint of heart, right? Along with a million other market dynamic issues, you need to really understand the clinical trial process and what it takes to bring a product to market, or what a deal structure could look like if a company is going to partner that product with another company.

Now, just a couple weeks ago, you wrote an article. It is titled, “Analyst Pitch Up to 1,000% Returns in Biotech Beyond Covid-19.” And in the article, you said that Wall Street Analysts expect a hundred and five of the two hundred nine members of the NASDAQ Biotechnology Index to double over the next twelve months. Now, in normal market conditions, these are unprecedented returns. But with the markets so upside down right now, how can these analysts justify these predictions?

Bailey: Well, there are really big swings within the Biotech Sector in particular. A lot of these companies are built on one or two drugs, or even a broader platform. So, some of those returns and some of those big calls for these massive swings in the stocks, can be as little as a smaller dataset reading out positively or a positive patent update for these drug makers. While they do seem kind of unprecedented and crazy, as much as the Biotech Sector is exposed to the broader market, these smaller names are more insulated and protected and have their own fundamentals that will drive these potential returns that these analysts are really playing up.

Jeffrey: Alright. So that is the index. A lot of people do not understand indexes too well. Can investors buy the index instead of individual stocks? And if stocks are supposed to have 1,000% returns, what is the projection for the index over all over the next twelve months?

Bailey: We do not necessarily track the index per se, but investors certainly can invest in things like ETFs that track the index. So you look at something well-known like the iShares, NASDAQ, Biotech, ETF, it’s tickers IBB. It is well-known because it follows the bellwether of investor sentiment, which is the NASDAQ Biotech Index.

Another play that investors can get into is something called the XBI, which is a SPDR ETF that is an equal-weighted index. The difference between the two is the IBB is exposed to larger companies on a greater scale. Whereas, the XBI is an equal-weighted index. So when a small stock like Moderna, who is developing a vaccine for the Covid-19, that ETF will see a greater swing as opposed to the IBB given how it is weighted towards individual stocks.

Jeffrey: So, that one is a little more conservative in nature because of the heavy weighting to the bigger pharma.

Bailey: Exactly. You will see it is more drawn towards the bigger companies, the Gileads of the world, the Regenerons of the world. Whereas, these smaller stocks, they can see more volatile swings on make or break binary data who have a larger read-across two things like the XBI. Exactly.

Jeffrey: Got it, okay. That is the index. Can you give us some examples of some of the top picks that these analysts were talking about on the individual basis?

Bailey: A lot of these companies are big calls, but when you want to look at things that are more consensus plays or examples that the broader Wall Street is swooning over. The first one that comes to mind is a gene therapy company known as Sarepta Therapeutics. A couple others looked at a drug maker, a cancer focus name like ALAgene, or even smaller names like Arcus Therapeutics and Compugen. It is really a broad range just given how widespread Biopharma is. So some of these names are very small, microcap stocks. Now, there is a bigger place like Disreptor, which is well into billions in terms of market value.

Jeffrey. Okay, so I guess you really have to know what you are doing there. Switching topics slightly, two thousand and nineteen was the largest year ever for Biotech M&A. But today is twenty-twenty and we know the world is a very different place. You recently wrote an article titled, “Biotech Packs, Leave Wall Street Salivating for M&A.” Great title. So what is the current state of Biopharma Partnerships and activity now, here in twenty-twenty?

Bailey: Well, we have been seeing, given the unknown with the pandemic, we have been seeing more and more of a push towards things like partnerships. So you are seeing less outright M&A where a large drug maker will go ahead and buy a smaller drug maker for its platform or its pipeline at a marketed premium. You are seeing companies go ahead and team up.

Even announced earlier today, AbbVie is in partnership with Genmab to focus on a broad cancer R&D pack that could bring well over three billion dollars. So we are seeing companies like Gilead Sciences, we are seeing companies like AbbVie shift more towards partnerships in a way from the M&A that really was the keystone over a year ago when we saw AbbVie buy Allergan, the maker of Botox, we saw Bristol-Myers go out and buy Celgene at the beginning of the year. So we are seeing a shift towards more partnerships and being able to walk in step, as opposed to some of the riskier and bigger BioBucks deals.

Jeffrey: Right, with the Amgen and the Celgene.

Bailey: Right.

Jeffrey: So with the market being crazy, you would think investors may shy off a little bit with these big swings. But I am seeing a lot of fundraising, right? There is a lot of cash going into the Biopharma industry right now. Are these companies building war chest right now for these M&A programs?

Bailey: Well, a lot of the fundraising you are seeing is for smaller companies because of how euphoric and how high the stock market in Biotech, in particular, has been running as of late. So these smaller companies are able to raise cash and issue equity, so that they can continue to fund their pipelines, which actually would draw away from a need to strike a deal.

In that sense, these smaller companies are able to fund their research and not have to worry about selling in a weakened position to a larger company looking to take advantage, if that makes sense.

Jeffrey: It does make sense. But as we know, the smaller companies are even more speculative. So I guess investors have a stomach for this sector as opposed to certainly retail right now.

Bailey: Yeah.

Jeffrey: There is not a flight to safety, but a flight to change the sector and what the future may hold. In terms of Biopharma, do you see any sectors in particular that are seeing more activity or specific areas?

Bailey: We are seeing a lot of excitement in terms of cancer research for Next Generation Technologies, like gene therapy or things like CRISPR gene editing. Those are areas that we have seen a lot of investors rush to. We have seen so many of these IPOs take off compared to what has been a rocky market landscape, because investors want to be on the cutting edge of science and be looking at what is next, what can be the next blockbuster drug, or the next billion dollar therapy and opportunity.

And a lot of that is coming from cutting edge sciences and things like cancer research or other areas looking at things like gene editing and gene therapies that were only an idea many years ago, and then now are really quickly being brought to the forefront.

Jeffrey: Interesting. Now, you mentioned cancer. In our last topic, a couple weeks ago at ASCO’s American Society of Clinical Oncology’s Annual Meeting, it’s the Super Bowl of cancer research meetings, right? So all of Biotech’s elite met to talk about their advancements in cancer research and talk about their clinical trials, the good, the bad, and the ugly of it. You wrote an article entitled, “Traders Sift Through Virtual Cancer Meeting’s Winners and Losers.” And in this article you talked about how investors view data coming out of ASCO. Can you tell us about some of these winners, and why did the Wall Street analysts favor these companies?

Bailey: Yeah. As you have said, ASCO is very much the Super Bowl of cancer research in this year with the ongoing pandemic. It was pretty interesting to see it shift to a fully virtual experience. But looking at some of the winners adapting to immune therapeutics, is this small cap that we saw more than double in the trading after unveiling some data and that company, in particular, had early stage results from a group of trials and a range of cancers in showing that its technology, it can work. And that comes back to the point that a small patient group seeing a benefit can really drive some wild swings.

Other companies that were really crowned winners by Wall Street, one was a company named Trillium Therapeutics, which is an originally Canadian company that is loved by hedge funds. It showed its cancer treatment was also shrinking patients with lymphoma, and that could lead to potential upside and other indications. And another company that was a big winner was AstraZeneca, which is a global pharmaceutical giant based in London. It had a terrific conference where it unveiled updates for a trio of its drugs and its blockbuster TIGRIS, a cut risk of small cell lung cancer or lung cancer death, and then, another couple of other cancer studies showcase some pretty strong benefits. So analysts were really key on those three among a couple others.

Jeffrey: Now, there were also some darlings that put out some inconsistent data. Subsequently, they got punished a little bit by Wall Street. Can you talk about any of those?

Bailey: Yeah. Two of them that really come to mind, one is Arvinas, Inc. ASCO for this company, in particular. It is based out of New Haven, Connecticut. ASCO was a big stage for the company to showcase its potential cancer platform in prostate cancer. Obviously, prostate is a very tough cancer to treat. But the benefits it saw in the first twenty patients that were treated, failed to meet the bar that sell side analysts had set. Another company that comes to mind is MacroGenics, Inc. It did not really meet some of the updates that Wall Street really had been looking for. But stock has been on an absolute tear this year, in particular. We have seen their stock price well more than double at some point this year. So it really was one of those that the company was running red hot into the meeting, and maybe it did not meet the high bar that investors were looking for.

Jeffrey: Well, the virtual meeting was certainly different. They did a great job, ASCO. But I have been attending for the past ten years in my annual trip to Chicago to attend the meetings and they will be missed. Hopefully, we will be able to get there again next year.

Bailey: Yeah. I am looking forward to that. I know IHA, which is based in San Diego, they are trying to march forward towards being able to have that conference in person in San Diego. So hopefully, we will be back to some form of normal as soon as possible.

Jeffrey: Yeah. I think that will be a combo. I think it will be a hybrid of that as well. Bailey, thank you so much for your time today. And as I said earlier, healthcare investing is not for the faint of heart, but I guess that is what makes your job so interesting.

Bailey: Every day is certainly a new day. It is what keeps me going and keeps me coming back to work.

Jeffrey: That is great. Bailey, thank you.

Bailey: Thank you.

Jeffrey: We hope you enjoyed this week’s podcast. If you have any questions, comments, or future story suggestions, please reach out to us on social media. Thank you, and we hope you enjoyed the RP HealthCast.