Thursday, August 16, 2018
Investors Hate Antibiotics - With Good Reason!
Back in the mid-1990s and even beyond the tech crash of the early 2000s, an antibiotic biotech could frequently raise $50-100 million in their first investment round. This was often in the setting of only one or two preclinical assets. Well folks, those days are long gone.
Private investors are afraid of antibiotics. In April of this year, I had a chance to speak to several private investors - angels and venture capitalists. These were folks who strongly believed in the necessity to pursue antibiotic research and development. But they were unanimous in noting that it was becoming more and more difficult to invest in the space. Among their colleagues there was a clear disdain for the area. And as I investigated further, I found that this disdain is well founded in data.
Recent antibiotic launches have been disastrous. Avycaz, tedizolid, dalbavancin, oritavancin all had launches well under $50 million. Melinta now sells four approved antibiotics and their total sales revenue was under $15 million. Partly as a result of these figures, the market capitalizations of publicly held antibiotic biotech companies remain in the doldrums in spite of recently approved and launched antibiotics in many cases.
Market Caps –
Achaogen - $252MM
Tetraphase - $163MM
Nabriva - $169MM
Paratek - $319MM
Spero - $191MM
Melinta - $234MM
The dynamic leading to these market cap numbers is an interesting one. When a company goes public, it shares its own data and market projections with investors. The analysts then carry out their own market survey research to one extent or another and come to their own conclusions. But, in fact, they generally rely heavily on the company’s own projections. Some CEOs believe that the analysts do not have a good understanding of the antibiotic marketplace and that this leads them to go along with what the company is projecting. But the company has a vested interest in promulgating, shall we say, optimistic forecast numbers.
An interesting dynamic can be seen with Achaogen. I have no specific information on what sales revenues Achaogen projected. But analysts generally thought that peak year sales of plazomicin would be around $300 million including both cUTI and CRE bacteremia indications. Their stock price (figure) plummeted from $12 to $5 when they did not achieve approval for the CRE bacteremia indication even though the analysts’ own projections indicated that cUTI would account for 80% of sales revenues. Why? Was this an emotional response to disappointment? Was this a true reflection of what they considered to be an important effect on plazomicin sales? Or was this a return to reality given another impending launch of an antibiotic into a broken marketplace? Or was it all of the above? I don’t know and I haven’t inquired.
One biotech CEO I have spoken to over the years is praying for one good, strong antibiotic launch to rejuvenate investment in the antibiotics space. I don’t think that even that will be enough at this point. Investors will consider that to be a blip in an otherwise dismal environment. Two good launches might help. But I honestly don’t see that happening.
In my view, our only hope for preventing a complete collapse of the antibiotic R&D space is government intervention. (Wow!! Did I really say that?) Government will have to step in beyond their important and considerable push incentives supporting antibiotic R&D. They will need to provide substantial pull incentives to fix the broken market. I don’t see any other solution.