BIO Buy-Side Investor Perception Survey 2014 BIO Industry Analysis conducted a Buy-Side Investor Perception Survey to gauge investor sentiment for 2014 as it relates to equity investing in biotechnology. The survey was conducted after the JP Morgan conference, the week of January 23rd, 2014. Mark Schoenebaum of ISI Group was instrumental in helping reach a high volume of responses. More than 200 investor responses were received and the results are listed below. Final results will be presented at the 16th Annual BIO CEO & Investor Conference in New York, February 10th, 2014.
PART A: Results from all respondents
1. How would you classify the biotech sector at this point in time? Answer Options
Response Percent
Undervalued Overvalued Fairly valued
12.8% 32.7% 54.5%
2. How will major biotech indices perform in 2014? Answer Options Up 1% to 10% Up 10% to 20% Up 20% or more Remain essentially flat Fall -1% to -10% Fall -10% to -20% Fall -20% or more
Response Percent 24.2% 45.5% 11.8% 3.3% 10.4% 4.3% 0.5% 1
3. What do you believe will be the most important catalyst for 2014? Answer Options Increase in M&A Increase in positive clinical trial results or other scientific breakthroughs Increase in FDA approvals Earnings from industry bellwethers General market sentiment
Response Percent 15.2% 48.8% 3.8% 15.6% 16.6%
4. What are your expectations for biotech M&A during 2014? Answer Options
Response Percent
More M&A Less M&A Same as last year
39.7% 31.6% 29.2%
5. What are your expectations for the number of US IPOs in 2014 as compared to 2013? Answer Options
Response Percent
More Less Same as last year
19.6% 61.2% 19.1%
6. Which Healthcare subsector will perform the best in 2014? Answer Options Healthcare Services Pharma Biotech Device / MedTech Diagnostic / Tools Healthcare IT
Response Percent 12.8% 14.7% 55.5% 11.8% 7.1% 8.1%
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7. Where do you see the most opportunity in biotech right now? Answer Options Small cap (1) vs Large cap (2) Early stage (1) vs Late stage pipelines (2)
1
2
67% 35%
33% 65%
8. Which therapeutic area offers the best investment opportunities? (select one) Answer Options
Response Percent
Autoimmune / Immunology Cardiovascular Central nervous system Gastrointestinal Genetic disorders / Rare diseases Infectious disease Metabolic Oncology Ophthalmology Regenerative medicine Respiratory Skin Transplantation
14.8% 1.1% 3.2% 3.7% 16.4% 5.8% 1.6% 48.1% 2.1% 2.6% 0.5% 0.0% 0.0%
9. Are you likely to invest in a biotech company if its lead product is in (choose 1 per row): Answer Options
Yes
No
Possibly
Preclinical in Phase I in Phase II in Phase III
13% 22% 63% 77%
74% 43% 3% 2%
13% 35% 34% 22%
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10. Which areas in healthcare could have the greatest impact on your investment strategy?(select one) Answer Options Funding of FDA operations Changes to accepted efficacy or safety endpoints by FDA Tighter reimbursement requirements from government Tighter reimbursement requirements from private insurers Implementation of the Affordable Care Act
Response Percent 2.1% 43.9% 16.9% 32.3% 4.8%
11. Has FDA decision making become more balanced with respect to risk/benefit analysis over the last few years? Answer Options No, nothing has changed Yes, there has been a MINOR shift to a more balanced approach to weighing risk/benefit Yes, there has been a MAJOR shift to a more balanced approach to weighing risk/benefit
Response Percent 23.7% 63.2% 13.2%
12. Has regulatory change contributed to increased investment into the biotech sector over that last few years? Answer Options
Response Percent
No impact Some impact Significant impact
22.8% 64.6% 12.7%
13. What are your expectations for R&D productivity for drug developers over the next few years? (Note that for FDA approvals: In 2012, there were 40, in 2013 there were 27. The 10 year average has been 25.) Answer Options More productive than the last few years Less productive Will remain the same
Response Percent 46.3% 8.9% 44.7%
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14. Considering all the clinical pipeline stories you follow (in PI, PII, or PIII), which compounds are you most excited about in 2014?
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PART B: Comparison of Generalist vs Specialist Investors Investors that had less than 10% of AUM in biotech were categorized as generalists to determine any key trend differences with the investors that carry concentrated positions within biotech. Specialists thus include portfolio managers and analysts that manage broad healthcare funds with core holdings across pharma, device, diagnostics, and healthcare services. 60% of respondents were specialists. Over 42% of the specialists are highly concentrated in biotech (50%-100% exposure). Notable differences were found in the following areas: IPOs, subsector performers, Small Cap performance, and catalysts and factors that will impact portfolios in 2014. 1. How would you classify the biotech sector at this point in time? Specialists
60%
Generalists
56% 52%
50%
40% 32%
34%
30%
20% 15% 12%
10%
0% Undervalued
Overvalued
Fairly valued
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2. How will major biotech indices perform in 2014 Specialists
Generalists
60%
49%
50%
43% 40%
30% 24% 24% 20% 13% 10%
11% 10%
10%
5%4%
4% 2% 0% Up 1% to Up 10% to Up 20% or Remain Fall -1% 10% 20% more essentially to -10% flat
1%0%
Fall -10% Fall -20% to -20% or more
3. What do you believe will be the most important catalyst for 2014? 10%
General market sentiment
21%
15%
Earnings from industry bellwethers
Increase in FDA approvals
16%
2%
Generalists
5%
Specialists 60%
Increase in positive clinical trial results or other scientific breakthroughs
Increase in M&A
41%
13% 16%
0% 10% 20% 30% 40% 50% 60% 70%
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4. What are your expectations for biotech M&A during 2014? Specialists
Generalists
50% 45%
45% 40%
37%
35%
33% 29%
30%
30%
28%
25% 20% 15% 10% 5% 0% More M&A
Less M&A
Same as last year
5. What are your expectations for the number of US IPOs in 2014 as compared to 2013? Specialists 70%
Generalists
65%
60%
55%
50%
40%
30%
20%
26% 19%
16%
20%
10%
0% More
Less
Same as last year
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6. Which Healthcare subsector will perform the best in 2014? Specialists
Generalists
70% 63% 60% 50%
45%
40%
30% 20% 10%
19% 16% 14%
15% 10%
9%
10% 6%
9% 7%
0% Healthcare Services
Pharma
Biotech
Device / MedTech
Diagnostic / Healthcare Tools IT
7a. Where do you see the most opportunity in biotech right now? Specialists
Generalists
80% 73%
70% 60%
59%
50% 41%
40%
27%
30% 20%
10% 0% Small Cap
Large Cap
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7b. Where do you see the most opportunity in biotech right now? Specialists
Generalists
80% 68%
70%
61%
60% 50% 39%
40% 32% 30% 20%
10% 0% Early Stage
Late Stage
8. Which therapeutic area offers the best investment opportunities? Specialists
Generalists
Transplantation Skin Respiratory
0% 1%
Regenerative medicine
3% 3%
Ophthalmology
2% 3% 47% 49%
Oncology Metabolic
3% 0%
Infectious disease
4%
7%
Genetic disorders / Rare diseases
13%
4% 3%
Gastrointestinal Central nervous system Cardiovascular
18%
0%
5%
2% 0% 9%
Autoimmune / Immunology 0%
10%
24%
20%
30%
40%
50%
60%
10
9. Are you likely to invest in a biotech company if its lead product is in? Specialists
Generalists
90% 80%
80%
75% 68%
70% 60%
56%
50% 40% 29%
30% 20%
17% 12%
10%
7%
0% Preclinical
in Phase I
in Phase II
in Phase III
10. Which areas in healthcare could have the greatest impact on your investment strategy? Specialists Implementation of the Affordable Care Act
Generalists 4% 5%
30%
Tighter reimbursement requirements from private insurers
35%
13%
Tighter reimbursement requirements from government
23%
50%
Changes to accepted efficacy or safety endpoints by FDA
Funding of FDA operations
0%
34%
2%
3% 10%
20%
30%
40%
50%
60%
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11. Has FDA decision making become more balanced with respect to risk/benefit analysis over the last few years? Specialists 70%
62%
Generalists 65%
60%
50% 40% 30%
26% 20%
20%
12%
15%
10% 0% No Change
Minor Shift
Major Shift
12. Has regulatory change contributed to increased investment into the biotech sector over that last few years? Specialists
Generalists
80% 70%
70% 60%
57%
50% 40% 28%
30%
20%
19%
11%
15%
10% 0% No impact
Some impact
Significant impact
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13. What are your expectations for R&D productivity for drug developers over the next few years? Specialists
Generalists
60%
50%
51%
49%
42%
41%
40%
30%
20%
10%
10%
7%
0% More productive
Less productive
Will remain the same
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BIO Industry Analysis Team David Thomas, CFA Director, Industry Research & Analysis Chad Wessel Coordinator, Industry Research & Programs About the BIO CEO & Investor Conference Now in its 16th year, the BIO CEO & Investor Conference is the largest investor conference focused on established and emerging publicly traded and select private biotech companies. Because our mission is to support industry-wide success, we present a broad and unbiased view of investment opportunities. To learn more, visit bio.org/ceo. About BIO BIO is the world’s largest trade association representing biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States and in more than 30 other nations. BIO members are involved in the research and development of innovative healthcare, agricultural, industrial and environmental biotechnology products. BIO also produces the BIO International Convention, the world’s largest gathering of the biotechnology industry, along with industry-leading investor and partnering meetings held around the world. BIOtechNOW is BIO’s blog chronicling “innovations transforming our world” and the BIO Newsletter is the organization’s bi-weekly email newsletter. Subscribe to the BIO Newsletter.
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