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Biotech execs: The eternal optimists


Things are sometimes simple

As part of creating our anniversary issue, we interviewed over two dozen biotechnology executives. After we are done talking about their companies, we ask them about the biotech industry. Yesterday, I shared their beliefs concerning potential drags on valuations over the next twelve months. Today, it's all about what drives the sector to higher valuations.

Every single biotech executive said successful Phase III trials and new drug approvals would be the primary drivers of valuations for the biotech sector going forward. No earth-shattering revelation there, but a good reminder to not make analysis of this sector any harder than it has to be. Good news floats all boats.

Not surprisingly given their opinions about the FDA's effect on valuations, several biotech executives said the appointment of a new FDA Commissioner would help. Interestingly, those who did not choose this as a driver noted the stated time frame in our question was "over the next twelve months." A couple of executives did not believe we would have a new FDA Commissioner in that time span.

A few of our interview subjects pointed to licensing deals and acquisitions as potential drivers. I'd have to agree. There should be some notable licensing deals announced over the next 12 months. These executives pointed out big pharma's problem of increasing pressure to deliver growth to Wall Street, noting the pressure is increasing while generics and price controls are forcing revenues down. The only solution, to the minds of the biotech executives, is to acquire growth via partnerships and acquisitions.

Finally, these executives noted the overall geopolitical and electoral landscape needs to settle down. It was often noted that biotech is a sector about optimism. Given the events on the world stage and worries about the U.S. election are not conducive to optimism, several executives noted biotech valuations would be facing an uphill journey. I don't believe that any of these men and women believe a complete resolution to these macro worries is required for valuations to turn higher. Most, in fact, pointed to the passing of the U.S. election as an inflection point for the return of more optimism for the market.
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No positions in stocks mentioned.

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