Investment Framework to Spot Attractive BioPharma Opportunities

InvestInvesting in the BioPharma industry comes with its own share of challenges and uncertainties. The research methodologies employed by the companies are geared towards product discovery and development, but may not always lead to successful outcomes in clinical and real world settings. Perhaps the most important thing to cope up with is the unpredictability of results involved in medical research—each positive result comes after a lot of experimentation which costs considerably to a company’s exchequer. Moreover, a BioPharma company has to successfully navigate through the domestic and international regulatory pathways to make the product commercially successful in the domestic and international markets. The following is a general framework that investors could use to identify opportunities in the BioPharma industry. Note that the BioPharma companies also leverage a similar framework to identify product investment opportunities and to create value for their stakeholders and shareholders.

Addressing Patient Unmet Needs: Though there are plenty of existing drugs to treat a variety of diseases and physiological abnormalities, the unmet needs continue to persist in virtually every disease category. For example, numerous drugs have been introduced recently to treat Type 1 and Type 2 diabetes, but most of the diabetes patients with co-morbidities continue to look for efficacious drugs to better manage their condition. Similarly, though the pegylated interferon/ribavirin combination therapy exists to treat Hepatitis C, opportunities exist for companies to develop new drugs to completely eliminate the virus. Hence, it is important to identify the unmet needs of patients and subsequently evaluate whether it is feasible to target them with innovative drugs with commercial viability.

Targeting Growth Opportunities: Due to a variety of socio-economic and environmental factors, some conditions or diseases are becoming more prevalent compared to others. For example, as obesity rates increase, it will directly lead to increase in diabetes, hypertension, and numerous other complications. Even by itself, type II diabetes has assumed the proportion of an endemic in the United States and across the rest of the world. Diabetes patients suffering from other co-morbidities are facing an uphill battle to effectively manage their condition using the currently available medications. Diseases such as diabetes and others could be targeted with new technologies and products. 

Offering Personalized Therapies: Advances in science and new technologies (e.g., genomics and nanotechnology) are allowing companies to pursue cutting edge medical opportunities around diagnosis and treatment once thought to be almost impossible to target. Companies are leveraging these new technology platforms for drug designing and development to bring drugs faster into the marketplace. Companies with dedicated technology platforms are partnering with other companies to facilitate innovation across the BioPharma industry. The continued success of this industry is heavily contingent on developing personalized therapies that are much more targeted than the currently available options. These therapies require proper diagnosis combined with an optimal treatment to cost-effectively offer quality care.

Targeting Best-in-Class or First-in-Class Products: An attractive product is not only safe and effective but also shows superior comparative effectiveness. Just like any other market, even in the BioPharma industry, one or two products in each disease tend to do well. This is either because these products are superior, they work differently and hence meet the needs of patients and/or the stakeholders gravitate towards these products. In addition to developing and executing superior commercial strategies, companies also have to focus efforts on life cycle management to continually evaluate new applications and to further differentiate the product through real world clinical and economic outcomes data. First-in-class products tend to do well as the demand dynamics tend to be favorable and when there are multiple drugs become available in the same therapeutic class then the first-in-class has to attain the best-in-class status in order to be successful.

Uncovering Overvalued/Undervalued Companies: Just like in any industry, some BioPharma companies are overvalued and some are undervalued due to a variety of factors such as the product or portfolio potential is misunderstood or the company is not fully exploiting its competencies or other market factors may be affecting the performance. The BioPharma industry offers numerous opportunities in this regard and investors could leverage traditional financial valuation techniques to identify and target these overvalued or undervalued companies with appropriate financial instruments.

One of the most difficult things for investors is to gauge the level of risk involved in targeting these opportunities. The next chapter explains the potential risks involved along the BioPharma value chain and should be used a benchmark to gain a deeper understanding of the associated risks before making an investment decision.