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EXCLUSIVE LIFE SCIENCE FEATURE leaders LIFESCIENCELEADER.COM MARCH 2014 36 DENNIS PURCELL — BUILDING ON LAST YEAR'S BIOTECH BOOM IN 2014 By W. Koberstein need to reassess governance, because a company just getting started has dif- ferent governance needs than a com- pany that's about to launch a product. We have to get better at not duplicating infrastructure; in other words, outsource whenever we can. If someone else has the expertise, let them do it. And given where stock prices are now, it's a good time for biotechs to be somewhat bold and figure out whether they can build their businesses either by acquisition, licensing, or other means. Whenever a company has only six months of cash left, as was too common in the past, it has few options and is just trying to stay alive. Companies are in a position now where they can really think about shap- ing their own future. LSL Do small companies have trouble managing information and expectations? Sometimes the story a company develops about itself can catch up to it later when things don't go according to plan. I can't think of a single company that has traveled a straight line to accomplish what it thought it was going to accom- plish. When Amgen went public, the company listed Epogen and Neupogen as number seven or eight in its pipeline, but they became two of the biggest-selling drugs in the world. This is complicated science; you're learning as you go, and every company that I know has had to make midcourse corrections. LSL Two interesting companies riding the stock waves are Ariad and Sarepta. What do their examples tell us? One of the good things about 2013 is, on average, the IPOs are up about 40 percent; on the other hand, we've had some recent IPOs that have disap- pointed, for example, Ariad and Sarepta, which hopefully will not drive general- ist investors too far out of the sector. Did Ariad get out ahead of itself with a $4 billion market valuation? Probably. But it's a real challenge to keep inves- tors' expectations in check because, in a booming market, any little bit of good news drives the stocks significant- ly, and any bit of bad news gets the stock killed. That is where we have boom-and -bust cycles. An interesting exception to this cycle is Regeneron, where the pipeline is deep enough so that any one piece of informa- tion does not materially have a signifi- cant impact on the stock. LSL Have regulators played a positive or negative role with small biotechs? Ariad actually had an accelerated approval, and for the past couple of years, the FDA has been acting pretty well toward these companies. In 2013, the FDA did a very good job of approving new drugs, particularly on the oncol- ogy side. We had 27 approvals last year, which was down from 39 approvals in 2012, but was still a very good year on the regulatory front. Investment regulation is catching up as well; for example, the new GAIN [Generating Antibiotics Incentives Now] Act will help get new anti-infectives to the market. So the science is moving quickly, and the federal lawmakers and regulators are trying to keep up with it. The press about 23andMe later in the year is an interest- ing story in the sense of, "Do I have the right to know what's in my genome or not?" The FDA is trying to figure out how it should regulate the personal genome business, so we're in new territory, but investors are giving the companies the benefit of the doubt. In gene therapy, which has been a real problem for years, bluebird got public. LSL Any advice for the large pharma and bigger biotech companies in light of the small-cap boom of 2013? Given the new interest on Wall Street, the biotechs gained a little more nego- tiating leverage on the big pharmas, because if biotechs don't get the deals that they want, they will try to go to Wall Street and raise the money. But Big Pharma is doing interesting stuff in the many new collaborations they are form- ing with academic institutions. Just in New York, Takeda has an alliance with Sloan Kettering, Rockefeller, and Cornell. Big Pharma companies are trying to adapt, and clearly the large majority of LSL How would you charac- terize the small-cap life sciences/biotech sector peformance as a whole in 2013, especially in contrast to previous years? PURCELL: In 2013, Wall Street opened up to biotechology again. Companies were raising capital, and their stocks were going up, so there was good momen- tum, and many more generalist investors came into the sector. Consequently, a lot of new capital flowed into biotech from sources we didn't have before. In the past, only the venture-capital com- munity and the pharmaceutical indus- try funded those companies, and the new investor interest began after a long drought of seven to eight years, during which the science continued to get bet- ter and better, but Wall Street wasn't recognizing it. LSL How are all the new IPOs doing now in company and stock performance? We were pleasantly surprised some earlier-stage companies were able to go public and raise capital and that the pharmaceutical industry was also will- ing to acquire or do deals with some of the companies at an earlier stage than they did before. We also found a whole new set of buyers in the bigger biotech companies, such as Gilead and Celgene. The biotech sector has gone through a big boom-and-bust cycle over the past 25 years — now the question is, how do we "capitalize" on what's going on, and what should the companies be doing to make sure that they remain stable? LSL Do you think one of the reasons bio- tech historically follows a boom-and-bust cycle is that the bigger the boom, the more volatile the stocks and market caps there- after? Yes, I believe that's true. The biotech sector is one of the really hard ones for doing traditional valuations, so you see these wild swings either on the upside or on the downside, even for minor news. Companies now have an obligation to manage their cash better, to make sure that they have enough reserves if the industry goes into a bust cycle. They 0 3 1 4 _ F e a t u r e _ P u r c e l l _ F . i n d d 3 0314_Feature_Purcell_F.indd 3 2 / 1 9 / 2 0 1 4 2 : 3 2 : 3 3 P M 2/19/2014 2:32:33 PM