In today’s capital markets; this old but new (usage) capital-raising rage has many small-cap healthcare companies filling their coffers after finding that public equity (PIPE) offerings are limiting due to their “current” stock price circumstance. Registered Direct securities offerings (RDOs) raise capital from investors groups. The issue has been avoiding the depreciating pricing that usually accompanies a PIPE offering provideing investors with registered stock that is immediately tradable and liquid.
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The stock market and overall economy are still depreciated; but, this sector is holding up better as there are signs that drug companies and biotechs seem to be recession resistant. Regulatory constraints are still the event driver (with about 23 major decisions due in the next few months) of this sector as many biotechs are still struggling to stay alive. One important factor is increasing merger activity; another reason to like healthcare smaller cap stocks as larger drug firms “should” be looking to acquire biotechs to augment their pipelines and diminishing patent protection.
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I get calls and e-mails re where to begin, whether one should invest, what should be bought and I state investing in this sector has a high degree of risk. Understand the sector by reading and garnering/surfing the web re the industry could lead you to individual companies. The biotech sector can be volatile day-to-day but can be expected to show the best returns over the next few years.
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In my 7/16/09 blog, I wrote described company “x” in “How does one anticipate the pitfalls of sustainability” as I was left scratching my head about yet another biotechnology Chapter 11 bankruptcy or should I have been? I hate to dwell upon negativity but, I had thought they might emerge a smaller but less encumbered company. Dash that thought
Investors are now asking more questions about the short, near and long term viability of healthcare stocks. In a slowly rebounding market, despite today’s volatility; there is a silver lining; smaller, leaner healthcare companies are emerging stronger from the past crisis.
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Scientists, managements and investors get excited by a candidate compound’s potential; but small-cap companies can’t afford to singularly bring drugs through the FDA as development costs are about $800M. Thus, the definite need for partner initiatives; but deals needs to be better – benchmarked – to reward clinical utility rather than receipt of lengthy go/no-go options. A compound “if” it makes it through clinical trials to approved drug has about 5 years of good market penetration therefore deals need to be better compensated to create ROI and market value on an ongoing basis.
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Cash is king … in this environment. But, can too much cash be a “perceived” as a “liability” in light of mounting losses? Many have small-cap healthcare companies have hung on too long to their early development-stage programs. Biotechnology companies with cash are not failing but seem to be “floundering” with compounds that are not in demand for partner initiatives. Many trade at a very small premium or a deep discount to their cash – liabilities with little or negative value implied to their current compound or pipeline.
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Every time the markets rebound, investors deliberate whether this marks the bottom for share pricing and if so, might it be time to get in. However, for those of us who remain skeptical; we have seen too many spikes in momentum, resistance, confidence and resilience as second quarter earnings were good but will it last? Valuations provide indicators when compared to the rapid decline and slow moves to present market levels.
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The ongoing economic crisis had made bankruptcies; one of the newest “EXIT” strategies for many emerging small cap healthcare companies. The companies most at risk have less than 6 months of cash and usually no “definitive” clinical data in the near future. It has been stated that 25% of emerging small cap healthcare companies (usually biotechs) fall into this category of teetering on the edge. Is one of the issues the plethora of “me to” platforms?
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Blogging is reshaping the web impacting the dissemination of new conviction ideas. It is shaking up markets and journalism enabling millions of people to have a voice and connect with others. I blog to add commentary, update news flow and insightful opinions that are intelligent, fit – to print and SEC – compliant. Wall Street has dramatically slashed its ranks of analysts providing research but, scientific platforms and industry sectors need to be better researched for conviction ideas. As an industry veteran, I am continually mortified about the gross inaccuracies of message boards that deal with fiction, inaccurate prognostications and rants. The role of my internet blogging, I believe increases transparency.
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