Thoughts and updates on platform typology and partnering dynamics
I am struck by the assumption that the final output of all biotech companies is a drug. While this is basically true if you look in the rearview mirror, I think drugs will make up a shrinking percentage of the value created by biology in the coming decades. Everything in the natural world is made by biology, and as we stumble around learning how to design biological systems, we will be able to create a much wider range of valuable end-products than therapeutics alone.
Really impressive presentation Elliot and Patrick! Well done!! 👏
Great post - but I think you'd need to normalize each year's inflation based on the cumulative inflation for all previous years going back to 2009, not just normalizing each year directly to 2009. This is because I assume the annual CPI prints you found were comparing inflation year on year, not to 2009.
Probably won't make a huge difference though.
Loved the analysis otherwise!
Having spent a large chunk of my career at MorphoSys - a phage-display monoclonal antibody platform provider morphing (no pun intended) into a product development organization over time - I really enjoyed this piece. Thanks, Elliot and Patrick.
There's 1) discussion on the relative value generation potential of various species of company which 2) the deal size/quantity analysis simply disregarded (regulatory evolution and risk tolerance over the time period were also conspicuously absent) followed by 3) final thoughts that young technical founders are uniquely positioned to create massive platforms (and presumptively corresponding investor value, though the metaverse as a counter-example) Decree was an appt suggestion, student of history was not.
Deal valuation in our space is simplistically a function of derisking plus a healthy dose of what you state Holtzman indicated in their reply to Levin. Insight companies (maybe there's a bolt we should worry about turning) vs modality companies (this wrench might turn the bolts we care about) vs product companies (by gosh, they turn the bolt!). All within the macro environments of cost of capital and regulatory.
The trend hinted at the end regarding the democratization/commodization of discovery and development activities has considerable implications for the service platform concept. Greater access derisking activities...will exit partners demand it? Will the investors fund it? On one hand, capacity overbuild and geopolitics, plus factors cited, should assist successfully allocating capital to derisk and move up the deal valuation curve, presuming such activities remain net accretive and the insights pan out. On the other, look to the boardrooms of the discovery CROs and observe the value they were unlocking 10yr ago when they were running the development CROs. They, and select academic centers, will continue to invest their revenues into the insights space as a differentiator and value add. Some already command biotech-like deal terms and participate on the upside: some out of strength, some out of weakness, some out of an embarrassment of riches and ego (sometimes on both sides of the table). Paraphrasing Holtzman's point again, context is critical to delivering alpha.
A final point to pressure test is the assertion that as pharma outsources more, power shifts to the partner. We might naturally wish this to be true as capital allocators but as Bezos famously uttered, your margin is my opportunity. Supply follows demand as much as demand follows supply.