First Read: US Pharmaceuticals & Biotechnology "Foundayo Friday… ~26.7K..."

Research evidence excerpt

First Read: US Pharmaceuticals & Biotechnology "Foundayo Friday… ~26.7K..."

Valuation Method and Risk Statement

Industry-specific risks include: (1) underwhelming drug product launches, (2) clinical trial

failure or discontinuation, (3) potential regulatory setback. For valuation, we use PE or EV/

sales multiple methodologies, supported by DCF frameworks.

Large Cap Biopharma: Potential downside risks to large cap biotechs are: (1) political and

geopolitical impacts to healthcare related policies (e.g. pricing, tariff, FDA organizational

changes etc.), (2) similarly, other changes in the US healthcare system, which provides a large

portion of revenues for most biopharmaceuticals companies, (3) disappointing launches or

commercial performance of marketed products, (4) FDA and EMEA regulatory decisions on

clinical candidates or approved products that are both on the market and in clinical

development, (5) potential biogeneric competition in the upcoming years for products that

have lost/will lose patent protection.

SMID Cap Biotech: Investing in small and mid cap biotech is inherently risky and thus we view

investments in this field is more appropriate for investors comfortable with high risk/reward

profiles. The sector is characterized by high volatility (often related to expectations leading

into and out of binary events); heavy use of options strategies where sophisticated investors

often use leverage in an attempt to maximize returns; and sharp stock movements that can

often be driven by pure market speculation. Given the challenges of drug development, the

intricacies of clinical trial design and interpretation of results, and the complexities of the

science, we advocate use of caution when evaluating opportunities in the small and mid-cap

biotechnology sector.