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Ep. 3 Hartaj Singh Shares His Optimism for Early-Stage Biotech Companies From a Public Market Perspective
49 Plays11 months ago
Join us as we discuss with Hartaj Singh the essential elements of messaging in the public biotech arena, and his advice to management teams of early-stage companies.
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Transcript
Introduction to Mighty Spark Communications
00:00:00
Speaker
Hi, everyone, and welcome to Spark Time. I'm Dani Stoltzfus. And I'm Will Riddle. Of Mighty Spark Communications. Our mission is to use scientific innovation to drive transformative change. We believe that compelling storytelling is the most effective tool we have in our arsenal to motivate and inspire audiences to invest themselves in audacious goals. We are scientists by training, storytellers by experience, and entrepreneurs by nature. Let's get started.
Advice for Early-Stage Management Teams
00:00:28
Speaker
Hey, Will. Another great conversation for our listeners today. We recently had the privilege of interviewing Hatar Singh, who is at Oppenheimer, and I'm really excited for our listeners to hear the advice he had for the management teams of early stage companies. You know, as well as I do, a lot of our listeners fall into that category, and I really hope they enjoy his pearls of wisdom.
Balancing Dreams and Reality in Client Work
00:00:50
Speaker
Yeah, Danny, I really liked some of the advice that Hartage gave to our listeners. The first piece that really spoke to me is keeping dreams big and alive, but constantly asking how they can be better. And that sort of sounds like something we're saying all the time, which is keep the dream alive, but make it tangible and make it realistic.
00:01:10
Speaker
And of course, Hartage agreed with us that this is a delicate balance that we're constantly refining when we're working with client stacks. Yeah, well, that's so true. All right, let's dive in.
Hartaj Singh's Career Journey
00:01:21
Speaker
Hartage Singh is a managing director and senior analyst covering biotechnology at Oppenheimer.
00:01:27
Speaker
Prior to joining Oppenheimer, Hartage was managing director and senior analyst at BTIG Securities. He began his sell side career at Lehman Brothers and subsequently moved to the buy side, covering biotech at Visium Ascent Management and Tecumseh Partners. He began his career as a clinical trial project manager for Clin Childs Research and also worked as a strategic analysis manager for Johnson & Johnson. He has a BA in biology from Case Western and holds an MBA from Duke University's School of Business.
00:01:55
Speaker
Like I said, welcome, Hartaj. We're delighted to have you. And how are you doing today?
Role of a Biotech Analyst
00:01:59
Speaker
Pretty good. Well, Donny, thank you so much for having me on this podcast. Yeah, awesome. So would you mind telling the audience a bit more about yourself? Tell us about your journey to becoming a biotech analyst and what motivated you to take this path.
00:02:16
Speaker
You know, Will, that is probably one of the more interesting questions that always comes up in my life from other people. And honestly to myself, because it's actually a journey of serendipity, really more than anything else. I was born and brought up in India, lived in Australia for a while to a military father and a family. My mom and dad traveled around a lot because he was part of the Indian military. And then moved to the United States when I was a teenager.
00:02:43
Speaker
a typical immigrant story for me and my younger brother, who's younger by about a year, didn't really know what I wanted to do in the United States because I didn't grow up here, and then kind of went from biology to working in clinical drug development, loving that, going to business school and falling in love with finance there, which then ultimately led me to a career on Wall Street, which
00:03:07
Speaker
By the way, I never thought in my teenage years or my 20s I would ever be doing. So it really is more than anything a journey of curiosity combined with serendipity that's kind of let me hear. As a scientist, I can relate to that. The whole journey in your career feels like a serendipity in following your nose and finding things that you like. So can you tell us a bit more about what you do as a biotech analyst for our listeners?
Mentorship and Information Flow in Biotech
00:03:32
Speaker
Yeah. Well, it's really an interesting area, a great mentor of mine, a gentleman by the name of Mark Schoenbaum, who's probably the greatest, in my opinion, biotech and pharma analyst of all time on Wall Street. When I entered what's called the sell side, meaning a biotech analyst at an investment bank, he gave me an advice. He said, Hartaj, we sit at the nexus of information flow.
00:03:56
Speaker
And as a result of that, we can connect with, because we're very heavily regulated, we can connect with people from all across the biotech arena, whether it's investors, companies, internal clients at our investment bank.
00:04:12
Speaker
physicians, what we call key opinion leaders, scientists, patients. So what we do is essentially talk to a lot of very diverse people, synthesize that information, and then put out our thoughts and what we believe about that one stock or about that one drug that's being developed. It's really nothing more complicated than that.
00:04:31
Speaker
I love how you use the word Nexus to describe the flow of information. To me, that makes a lot of sense and sounds like a super interesting place to be, seeing everything that goes on in the biotech ecosystem.
Investor Concerns in Biotech
00:04:43
Speaker
I really appreciate you explaining your role as not everyone that listens to our podcast is experienced with dealing with the public markets or on public, so this is super helpful. Specifically, though, if you had to say three things that investors are looking for from your analysis, what would they be?
00:05:01
Speaker
You know, Danny, on a daily basis, what we're trying to do, and again, it depends a little on the type of investor, institutional investors, meaning pension funds, hedge funds, mutual funds, a little different from private wealth management, which is different from the typical Main Street America kind of investors, retail investors.
00:05:26
Speaker
I think there are two or three things fundamentally everybody looks for. One is, depending on where the stock is, what do we think about it? We always remind people that the stock is a derivative function of the underlying business.
00:05:43
Speaker
right? And that to understand the stock, you've got to first understand the business and that how does that roll up into what the stock is doing at this moment? So the first thing always is what are your thoughts on the stock, you know, as it stands currently? Then after that, people are always interested in finding out what do you think it's cheap relative to where it's now, or historically or to its peer group? Or is it expensive?
00:06:06
Speaker
Again, relative to historical norms or to its peer group. And then lastly, what should we do with it going forward? And that's really what it boils down to. A lot of information goes into answering those questions, but that's, I think, the three questions we're always trying to answer all the time daily. Great. Thank you for that, Hartaj. That's super simple to understand, and I really appreciate that.
00:06:30
Speaker
Yeah, so there's so much information that goes into making those types of recommendations, Hartage, and I'm curious about what kind of materials you're using to make that analysis.
Regulations in Biotech Information Handling
00:06:49
Speaker
One of the really great things about my job, which I really enjoy what I do for a living, and one of the reasons I really enjoy it is because I'm actually very heavily regulated. The amount of exams I have to pass and the amount of information I have to show or share with my firm and various regulatory bodies is extreme. Even the kind of interactions I can have with people outside my firm are closely monitored.
00:07:15
Speaker
And I believe it should be, because it actually gives me then the freedom to go out and then interact with investors, with companies, with physicians, because they know that if I'm following the rules and regulations set upon me, that things are done in a very specific and regulated manner.
00:07:35
Speaker
So a lot of the information we look at are actually 10 Ks, 10 Qs. These are disclosures by companies that are in the public domain for everybody to consume. Then on top of that becomes the next level of disclosures, which are conversations that we have.
00:07:55
Speaker
either one-on-one with company management or with key opinion leaders or internal clients or patients, physicians. And because those are not in the public domain and we're heavily regulated, we always have to be very careful about what it is that we share when somebody says something to us.
00:08:13
Speaker
And then the last part that goes into these decision-making, a lot of the information sources are just a lot of secondary research that we're doing. The secondary research is reading transcripts, reading the opinions of a diverse set of people in the public domain, media, biotech reporters, people who write blogs, folks like yourself.
00:08:39
Speaker
So it's really an aggregation of all those sources, public, heavily regulated, non-regulated, that then come to us and that's all the information we have to synthesize in order to arrive at a conclusion. A ton of information to synthesize and so it's really amazing to hear how you do that. So I understand that a lot of the SAC filings play a huge role in determining how these companies are doing and for you to make recommendations.
Impact of Public Narratives on Stock Prices
00:09:06
Speaker
But in that second tier,
00:09:08
Speaker
of conversations and seeing companies pitch their materials. How do companies pitching their materials to the outside world, how does that affect the stock price? Because they have a lot of control about how that narrative goes out to the world.
00:09:25
Speaker
You know, it's a really great question, Will, and it actually, the question that you're asking, in fact, has some implications, you know, for example, against potential future competitors, you know, for me and my job. One is, by being very heavily regulated and, you know, following these companies as closely as we do, me and my team does, and having these relationships, that actually creates a barrier to entry for future competition.
00:09:52
Speaker
Not in an unfair way, we don't want to be unfair, but in a way that the more time I spend aggregating this information database that I possess in my mind and then the relationships I've created, the harder it becomes for somebody to supersede that, which would happen in most jobs of this nature.
00:10:12
Speaker
The other thing that's actually really interesting about our job is that I'm one of those probably few people on Wall Street that really thinks artificial intelligence will help me in my job but will not replace me. I'm very sure about that. And I'll give you an example. An example is of a large company, for example, Gilead Pharmaceuticals, a very well-regarded large biotech company that does great science.
00:10:37
Speaker
And when they give guidance on the fourth quarter call, they also tell you usually that the first quarter that follows the fourth quarter call, the revenues are down quarter to quarter. Now, at the last fourth quarter call, the company said, well, the revenues will be down 10% to 12%. Historically, the last three, four years, they've been down 13% to 14%.
00:10:59
Speaker
So because my team and I have followed this company very closely, we picked up on that. It was just a little script and part of what they said, right? We picked up on that. And then when we talked to the company later, the IR and the chief financial officer, we said, hey, just by the way, you mentioned it's 10 to 12, but historically it's 13 to 14. So it seems like the downtrend might not be as bad this time around. And they said, Hartad, you picked up on something and you could be correct.
00:11:26
Speaker
right? And that's not something that a piece of software could possibly do, right? Because it depends on a lot of different synthesis of data that we've done and the relationship we have with the company. So if we go out to our investors and say, hey, look, historically, the stock has always been down this much, and this time it could be not down as much, and so maybe beat those expectations, well, that's possibly a buy signal.
00:11:51
Speaker
right, from us to our investors and our clients. So that's the kind of like what I call unofficial, you know, communications that go on, and where we have to synthesize a lot of data combined with relationships that then lead us to helping our clients make these investment
Guidance and Future Planning for Companies
00:12:09
Speaker
decisions.
00:12:09
Speaker
That really speaks to the depth of your knowledge and your team's amazing ability to synthesize information and come out with a positive recommendation as to what to do next. I think that's really valuable when you're talking and thinking about public stage companies. But I want to come back and think about early stage companies who are not having those type of data releases just yet that you described. And what do you think those early stage companies can do to maximize the potential positive impacts of the future?
00:12:39
Speaker
Johnny, that's again a really, really great question because it's actually one of the things our team really prides itself on. I have two associates, and we talk about this all the time with our smaller cap companies. We remind them that we talk to 100 plus management teams per year. There's 250 days in a year, 200 days of work, roughly. And we're spending a lot of time talking to management teams from very tiny private companies to very large companies.
00:13:08
Speaker
And the example I give, the analogy is athletics. I grew up playing sports. I wasn't great, but I was decent. And if you're an athlete in the fifth or sixth grade and you want to start for your junior high team, then you're looking at the people you want to emulate. How could you be better with them in order to start?
00:13:29
Speaker
And then you're for junior high and you want to start for your high school team and you're looking at the high school players and trying to figure out what can you make better so that when you get to your high school, you can be starting for your high school team, right? You can't be in high school, an athlete, and at that time thinking, okay, how can we be better now? Because that time's already passed you by. You need to be thinking ahead.
00:13:47
Speaker
Right? And so for us smaller cap companies, what we keep on reminding them is that, look, you are great entrepreneurs and your board is a great set of investors. You've had a lot of success. You wouldn't be doing this. You wouldn't have been given access to all this capital and all these experts, you know, in the private markets, you know, if you didn't have great ideas and you weren't driven as entrepreneurs.
00:14:08
Speaker
But you also need to check that at the door when you have conversations with people who are talking to management teams across the board. And the questions you need to be asking is, hey, so as we get bigger, you know, as we're going to that next step of series in our evolution, you know, series B funding, crossover, public company, what are the things that management teams do that we can do better?
00:14:31
Speaker
you know, what is the standard, right? What is the bar? And so it's really that simple, Danny. In a lot of ways, we are, like I said, that nexus of information flow, one of the things we pride ourselves on is helping our management teams get to that next level of corporate messaging, of understanding how to manage expectations. We assume that they know what they're doing in terms of the science, in terms of clinical development, regulatory development. We might be able to give some feedback there, but in general,
00:14:57
Speaker
I would say 90 plus percent of the time, they actually have a pretty good handle on what they're doing. For us really, it's more so about how do you get to that next level so you can get an investor's attention and that investor is going to want to invest in you because they think, okay, these people are actually going to get stuff done as opposed to, well, these people might just be interested in an idea and maybe not in it as an investment.
00:15:21
Speaker
Yes, yes. I think that's really, really valuable advice and great for founders and management teams that are in those early stages pre-Series B and crossover rounds. And, you know, we spend a lot of time talking with the management teams we work with explaining these same concepts. But of course, we don't have nearly the depth of information you have around this subject. So I really appreciate you sharing your insights there.
00:15:50
Speaker
And Donnie, if you don't mind, I'll just add one thing to it, right? It's a very difficult balance, right? It's a very difficult balance because you want to encourage the entrepreneurs. I personally believe that entrepreneurs really, at least for hear us in American society, are one of the cores of what keeps us driving forward and transformation and change, their visions and their
00:16:13
Speaker
the energy that they have to get things done is truly something special. But we want to encourage these people, we want to keep their dreams huge and alive, right? But at the same time, we want to ask them to be humble and always be asking how I could be better.
00:16:32
Speaker
Right. And that's the balance. It's always difficult. Sometimes people get so caught up into the largeness of their dream that they lose the ability to want to get better. Right. It's the dream supersedes anything else. And that's the tension we try to keep at the right balance.
00:16:50
Speaker
Yeah, that makes a
Learning from Failures in Biotech
00:16:51
Speaker
lot of sense. And another way that we think about that is, you know, with respect to the messaging, it has to feel like it's big, but it also has to be feel tangible and realistic at the same time. So I think that speaks to the balance that you're talking about and getting that right can be very challenging, especially when you're very close to the situation. It can be hard to see the big picture and realize how to achieve that balance naturally. Right.
00:17:20
Speaker
No, I completely agree. Yeah. So transitioning on from there, I think my next question comes to investments that seem like a great good value. But for some reason, they failed to attract investors because of some sort of mistakes that the management team or the founder has made with the pitch. Are there any examples of that that you can share?
00:17:50
Speaker
I think that's one of the things we struggled the most with smaller companies, both private and public. They come in gung-ho, really big dreams, big ideas, lots of energy in the beginning. They might hit a rough patch. They might hit a rough funding environment. And then just like air let out of a balloon, literally it kind of
00:18:14
Speaker
for lack of a better term, sort of collapses to like almost a lot of negativity and a lot of like, it goes from like really huge to really, you know, this is not gonna work and things are just really bad, right? And you know, what we try to always remind our management teams all the time is when I talk to them, and I tell my team this all the time, we have to be, we have to hold hands, we have to be cheerleaders from time to time.
00:18:41
Speaker
And part of that is reminding them that, look, you're not in this alone. This almost sounds like superficial. But one of the things we have to do when ideas are not well done is we come to them with data that shows that, look, there are other companies out there suffering also. There are other management teams also going through a really rough time. Here's the data that shows you that also biotech drug development doesn't work all the time.
00:19:07
Speaker
45, 50% of projects in phase three fail. There's a current company right now that's actually based in the Bay Area start off with huge dreams working in cell therapy. And we casually mentioned to them about a phase three change that they made, and they don't view it as a failure, which is fine. But at the same time, admitting that, OK, this has not worked is actually the first step to recovery.
00:19:35
Speaker
So again, these sounds like superficial things, but part of our job is to show them data that says, you know what, you hit a bump in the road, that's actually pretty normal.
00:19:44
Speaker
And it's how you recover from this bump in the road that's actually gonna define you really in the future, right? And that then becomes the second part of the conversation, which is much more qualitative, right? Which is that what are other teams that have succeeded when they have stumbled and fallen on the path forward? What are some of the things that they've done to help them recover and then move on, move forward? And if you can get to that point, it actually starts a really constructive dialogue at that point.
00:20:13
Speaker
Yeah, just a couple of thoughts there, Hataj, thank you. I really like the concept of partnering with the management teams to get their messaging correct and acknowledging that it's not easy and that mistakes do happen, but you can always turn that into a positive and accept that something unplanned happened, as we all know it does in biotech. And yes, there are a lot of failures, but despite all of that,
00:20:39
Speaker
We're all on this journey together and we're all working towards something positive and good for the future. It can be really challenging to see that when you're in the midst of the failure, but having trusted partners such as yourself that could point out, look, hey, these guys went through that too. Look, what will they manage to do with that?
00:20:58
Speaker
and giving people a path to see that there's something better on the other side, I think is a really nice way to think about it. For me as someone in this space, I think that I need to hold on to that sometimes too because otherwise the world can feel a little depressing in the space of biotech, but holding on to those positive ideas and while we all got into the industry in the first place seems to be something that resonates with you as well.
00:21:28
Speaker
Danny, a really, really good point, as you said, and I'll give you a concrete example of another type of learning that comes out of this. A lot of times, biotech executives, and I think these executives across the board in any startup industry, I tell the executives we work with, it's like, look, even if this doesn't work,
00:21:48
Speaker
The knowledge that you've gained in working with a failure actually is going to help you in your next endeavor. Yeah. I'll give you a concrete example of that. When I first started Oppenheimer in 2016, I covered a company called Katabasis based in Boston.
00:22:06
Speaker
And the management team there, led by Jill Minley, had a drug that could possibly replace steroids and DMD, Duchenne muscular dystrophy, which is a muscle wasting disease in young boys, and it's just horrible. And it worked in phase two, but unfortunately it didn't work in phase three.
00:22:24
Speaker
And one of the conversations I had with Jill and her team after the failure was, what's next? And I kept on reminding them, and they knew this, that the entire process that they had gone in phase two, phase three as a small company, they had learned a tremendous amount. And that maybe they could take on another project that they could turn around and actually, because of all their learnings, the next time around, increase the probability of the chances of their success.
00:22:48
Speaker
And that's in a roundabout manner is what happened. They were able to in license a private company's product in a space called HAE, these attacks that happened to patients. And they're now on the verge of a proof of phase two concept, proof of concept readout that could validate this mechanism that just kind of changes the standard of care in that area.
00:23:11
Speaker
And they've been able to speed this project along in two years in a way that a new team could not have done. And my belief is, if you ask Jill, a lot of this came from probably the learnings of the failure the first time around.
Case Studies on Learning from Failures
00:23:25
Speaker
In other words, not a failure. It was actually a success. It was just one step in the road. Exactly. One step in the road. And that's where we remind a lot of our executives and management and even regular employees. I'm like, you're learning tremendous amounts of information. And when you go on to your next thing, this will position you for success. When I first mentors, when I worked in clinical drug development, Vernon Nees, I remember he always used to tell me, he was my manager. He said, Hartage?
00:23:53
Speaker
Prepare yourself for success. Don't prepare yourself for failure. And the way you prepare yourself for success is by learning things from the ground up. And honestly, that's become a touchstone of mine. Just by the way.
00:24:04
Speaker
Yeah, I love that. That's such a great story illustrating how the team turned it around and now they're doing another amazing thing. I'm curious about your take on their messaging at that time. When they were in that tricky situation, every manager's nightmare, their phase three data suddenly doesn't look so good.
00:24:23
Speaker
What did they get right in their messaging that allowed them to say to investors, hey, hang on, let's take a beat and it's going to be even better? So what established trust in that relationship again?
00:24:37
Speaker
Yeah, well, you know, I would just speculate, you know, in what, for databases, which is now a company called Astra Therapeutics, you know, I think they just, I mean, they're the vast numbers of the team. I didn't see change that much. The chief medical officer whose specialty was in Duchenne's moved to another company that's actually doing very well in Duchenne's, but overall, you know, they stayed the same. I think when I've seen, you know, failures,
00:25:05
Speaker
What is the key component that I've seen in success for the next step is that management has been thinking ahead. I can't speak for Jill, the CEO of, you know, what was CataBase now Astria, but my gut feeling is, is that once they're, you know, phase two and then phase three in Duchenne, the phase three didn't work,
00:25:22
Speaker
that already she was thinking ahead. And they knew that as a public entity, they could license something from a private company. And that private company then, those investors didn't have the incentive to maybe do an IPO, they could just sort of merge their project into a public company that was essentially a shell in a way now, right? And she probably went to these private companies that had some great assets, many of them, and pitched to them that, hey, look, this is a team.
00:25:49
Speaker
We're very seasoned, we're seasoned executives, and some of that seasoning has come from failure. And these are the things we think that we can do to make sure we don't make those mistakes again. And as long as the drug is well positioned, you've done good work early on, we can probably take it to success. So I think the key thing is that management always has to be thinking ahead. I remind this to my associates, don't assume you're going
00:26:12
Speaker
to be, you're only going to see success. You've got to have scenarios that show failure. In fact, I'll tell you, honestly, when I talk to new management teams that I'm meeting for the first time, I ask them, what's their plan B if things don't work or plan C, you know, for alternate, you know, let's say realities or alternate scenarios. And if they look at me blankly, no matter how great, well-funded they are or how great scientists they are, if they look at me blankly and they say, Hartaj, but we've done the work, we think there's a high chance this trial is going to work, that to me is a red flag right off the bat.
00:26:42
Speaker
Because they've actually not done the scenario analysis for what happens if there's a failure. And you know what? Nothing in life is 100%, right? Absolutely. Absolutely. So I want to take a half step back. And I want to ask you a question. Hartage, you might laugh at me, and that's OK. But I mean, you must see so many different pitches, corporate presentations in your role, people giving you elevator pitches, et cetera.
00:27:11
Speaker
And when you're in that situation seeing them, what aspects of that pitch are critical for you to make informed decisions? So this is the part where you may laugh at me. Let's say if you had to make a decision about investing in a company in 30 seconds, what would you need to hear in that pitch?
00:27:31
Speaker
First and foremost, it would just be a management team that's very upfront, meaning they're very transparent. They tell us very quickly what they've done, what's worked, what hasn't worked, what are the things they're doing to mitigate what's not working with their project, with their molecule or their biologic.
00:27:54
Speaker
The second thing is I want to see that they're realistic. So what is the competition? What are they going up against? If they're going into an area where there's really no competition, no drugs been approved ever, I want them to be realistic and say, Hartaj, you know what? This is a new area. The regulatory and the clinical pathways are going to be very complicated. I'll give you an example of a company in Boston, again, called Intrada Therapeutics. We just picked up coverage of them about a couple of months and a half ago.
00:28:21
Speaker
One of the things I really liked about them in talking to their CEO, Dipodoshi, and his team was when we were doing our diligence on them, they have their own proprietary project in Duchenne's. They have another one that they partnered out to Vertex, what's called DM1. It's a neuromuscular disorder.
00:28:37
Speaker
And they got a $400 million check. Now, of course, the easy conclusion can be, well, you got $400 million. That's all it took for you to partner that out. But I actually wanted to go a level deeper with Intrada. And I said, Deepal, why did you partner it out? I know $400 million is nice, but the economic value of that could have been much more to your stock. And he gave me an answer that really was something that we actually published in our initiation also.
00:29:01
Speaker
He said, Hartage, I'm kind of paraphrasing it. He said, Hartage, we have a pretty good idea of what we're good at and what we're not good at. And he said, we have a framework for the projects we want to take ahead. For example, we need to know the science, we need to know the clinical regulatory and clinical pathways, and we need to know the endpoints for the clinical trials for success. He said, in DMD, I know all these three things.
00:29:26
Speaker
In DM1, I don't know, number two, clinical and regulatory, because almost no drug's been ever approved there, if any. And then I don't even know which endpoints the FDA was going to ask us down the road. So I thought, and our team agreed, that maybe this is a better project, better off for a larger company to do, like Averton. And so we partnered it.
00:29:44
Speaker
And I was like, I like this management team because you know what, they're realistic. They know what they can do, but they also know what they cannot, which is why they went forward and had the partnership. So I think that's the other part of it is that I want them to, I want to know that they're good at things, but I also want to know what they're not good at. What are the things that would, you know, make them partner or consider alternative scenarios for their project?
00:30:06
Speaker
Yeah, I really like that story and that it demonstrates traction, but that they're also being very realistic about what they can and what they can't do. And off the back of that, they're making strategic decisions. So with that, I'm curious about demonstrating traction with compelling data packages. We know that 99% of the time, investors are interested in compelling data packages.
00:30:31
Speaker
But do you think that a – or can you think of any examples where a compelling scientific narrative is enough to attract investor audiences?
Attracting Investors in Biotech
00:30:41
Speaker
Have you ever seen that be effective, Hartage? That, honestly, will is really just connected to the biotech funding cycle.
00:30:47
Speaker
That's the easy answer. There's a slightly more complicated part to it. The easy answer is that if the biotech markets, if funding is really good, and we're one of the most extreme risk on sectors, right? So when the risk on mood is really good, which means that there's a lot of money and money that's willing to go into a risk on environment and money and cash is not tight, as in, for example, today's funding environment with rates being high, et cetera.
00:31:15
Speaker
then a lot of very even tricky and risky and complicated ideas can get funded. So that's the easy answer. And if the funding cycle is down, then really only very robust ideas where the tires have been kicked very thoroughly move forward just because cash is tighter. And so people want to take more bets that have a greater chance of success.
00:31:39
Speaker
Now, there's a slightly more complicated aspect to it, which in biotech is what I call a framework of this mentor of mine once explained to me. He said, Artaj, biotech is essentially, you can divide into three categories. There's the science experiment, there's a clinical experiment, and then there's the commercial experiment, meaning that if it's a science experiment, it's a company that's got a science project that they're doing,
00:32:03
Speaker
And he's telling me, he's like, most likely that probably still needs to be in a university or in a private setting, taking a long period of time. So always as a public investor, always be wary of those, what's called a science experiment, right? It's still three, four, five years from showing some real chances of success to getting commercial. A clinical experiment is one that's been testing the science domain
00:32:25
Speaker
in petri dishes and animals and now actually is approaching or is being tested in humans. That's investable. That's usually done by specialist investors in the biotech realm. And then the last one is a commercial experiment where drugs being launched and either the expectations are too high, which the hedge funds love. They will probably try to short that launch, which in biotech is well known, or the expectations are very low. For example, with Vertex, they have a pain project
00:32:50
Speaker
and that could really re-rate the stock significantly over the next one or two years, which is what generalist investors tend to like. They like those commercial experiments that are not well understood and could beat expectations. For example, the obesity drugs that are coming into the market, but people don't remember three, four years ago, everybody was skeptical of those drugs.
00:33:08
Speaker
Now, everybody seems to believe in them. So I would say it's those two elements that go into ideas that are a little bit more off-center if you want to get them invested.
00:33:23
Speaker
Yeah, I think there's so much sense in what you just described. I really think that innovation truly accelerates when people have the ability to make risky investments to power things forward. Hopefully we're returning to that type of market this year. So far, signs seem to indicate that people are a little more willing to invest and hopefully that turns into some of those riskier earlier science stories being translated into clinical ones. And I'm super excited for that to happen.
Optimism in Biotech Growth Potential
00:33:51
Speaker
Can I just add to that, which is that, look, I'm a biotech optimist. I'm a huge enthusiast of what I do, even through the internet version 1.0 in the 1990s, early 2000, and the more recent one, I chose to stay in biotech. And there's actually a very good reason. There's a selfish reason also. I tell people a lot of times I just am not an optimist, but there's some selfishness there also. And in biotech, I give a very simple example.
00:34:17
Speaker
The NBI index, which is an index that most people tend to use in biotech, is about 220 companies right now. It peaked at 370 companies as components on February of 2021. And those have come down now as projects have not worked or run out of money, et cetera, et cetera. So now here's the thing.
00:34:38
Speaker
It's about 1.3 or 1.4 trillion in market cap roughly or 1.2. I forget what I look. That's not even one Microsoft or one Google or one Apple. I mean, that's right. Now, I asked people a simple thought experiment, right? Where do you think
00:34:55
Speaker
Alpha, as the hedge fund folks love to call it, absolute returns are going to get generated in the next 10 to 20 years. 220 companies that are $1 trillion in market cap going to $5 trillion or $10 trillion in the next 10 to 20 years, or one company like an Apple or Microsoft Google that's $1 trillion or $2 trillion in market cap going to $10 trillion, where do you think, where do you have the more probability of success?
00:35:18
Speaker
up most likely the 220 companies that are at that one trillion, one plus trillion in market cap. So I agree with you. The funding environment is tough, but I just remind people always that as a portion of the economy, we are very small.
00:35:35
Speaker
as a portion of the various indices on Wall Street, we are very tiny. And so really, the only path is up for us in very large fashion over the next 10, 20, 30 years. I think that's most likely what's going to happen.
00:35:52
Speaker
I love that perspective. And for me, I totally am in sync with you on that and why I'm so passionate about being in biotech and really helping companies innovate and really bring this beautiful science to something that brings about transformative change because I agree with you that the path is only up and the future is bright. So I'm really glad that we got to bond over that.
00:36:19
Speaker
And I guess I'd like to ask you one more question and that is, and feel free to answer in any way that you like, but if there was one piece of advice that you could give to a management team of an early stage biotech company, what would
Testing Assumptions and Strategy Adaptation
00:36:36
Speaker
that be? What would be the one thing you would leave them with?
00:36:41
Speaker
Honestly, the management teams that I've seen have success, whether just straightforward without hitting any bumps or those that actually did have bumps and were able to recover, it was a very simple thing. I think that they were a team that always tested their own assumptions all the time, whether it was through conscious meetings,
00:37:01
Speaker
weekly, monthly, whenever, or informally testing the assumptions. But management teams, I think, are relentless about testing their own assumptions about their clinical or regulatory package and their path forward about the types of patients they might enroll in their studies, who would be interested, the physicians that would be participating in their studies,
00:37:28
Speaker
Making your strategic plans and your tactical strategies, but then constantly testing your assumptions, and that is not easy. I've seen those are the management teams that seem to do the best in the long, even in the, I would say mid to long term. Super helpful insight. Hataash, thank you so much. It's been a real pleasure to talk with you today. No, thank you, Dani. Thank you, Will. I really appreciate the opportunity.
00:37:53
Speaker
Yeah, really delightful. Thanks, Hartage. Wow, Hartage is such a wonderful person and so immensely knowledgeable. I think what I found most useful is how he describes himself as a nexus of information because we know what comes out as his analysis to investors, but today we got to hear what types of materials go into that.
00:38:15
Speaker
funnel the funnel of his connection aside from SEC filings and the materials that he uses to connect these two very different worlds, which is management teams and public investors.
00:38:25
Speaker
I was really in awe of his ability to track so much information and then synthesize it into something that becomes so valuable to anyone that tracks publicly traded stocks. I think my brain might explode if I tried to do that. Meanwhile, I have to say that I love that he lived in Australia. It's not very often that I get to hear that when I meet people in the US. And I hope he got to see the Australians kick some serious butt in cricket whilst he was there.
00:38:53
Speaker
So is that the official opinion of the podcast that we like cricket? Are we sure about that? That is 100% the official opinion of this podcast. Well, anyway, speaking of sports, something I really have no business talking about anyway, sports. But I did appreciate his athletic related advice to founding teams. So that was
00:39:18
Speaker
Always be looking ahead with the higher level companies or the higher level athletes are doing and steer yourself toward that level toward their activities and we absolutely know that this is true when it comes to communicating your corporate message. It's just something that evolves over time as your company grows and that's what we love helping teams with.
00:39:37
Speaker
So true. Well, I really hope our listeners enjoyed listening to Hartage's thoughts on messaging and aspiring to become a public biotech company. As we've talked about before, we love discussing these concepts at Mardi Spark and would love to connect with anyone who wants to continue the conversation with us. Join us next time as we continue to power scientific innovation with storytelling to drive transformative change and solve our most demanding challenges.