What biotech can learn from past stock market downturns

The following article, authored by Stoke CEO Edward M. Kaye, M.D., was published on February 28, 2022 in STAT+.

“Dumpster fire.” “Biotech bear market.” “A market rout.” Going by recent descriptions of the performance of biotech stocks, the industry is on the ropes.

But those of us who have been in biotech for a while know that even when headline writers are using their grimmest language, innovation eventually wins — and so do patients. Downturns like those in 20022008, and 2016 all gave way to better times, and so will the volatile period we are in now.

Downturns put pressure on organizations, but they also catalyze change. They realign priorities and sharpen the focus of the most driven innovators. The price of biotech stocks may be saying one thing, but the continued breakthroughs of the industry are saying something else. And that’s the message we should never lose sight of.

Scientific advancements happen regardless of whether biotech stocks are rallying or tanking.

During the downturn of 2008, I was leading an effort to develop an early-stage drug candidate for Pompe disease. Yet I eventually got to watch two children with this disease walk, something previously considered impossible in those with Pompe disease. When things got tough, those children and their families kept me and my team going until our efforts finally led to the first FDA-approved treatment for the disease in 2010. Many scientists have similar stories.

I’ve seen my share of biotech ups and downs during the last two decades. This business isn’t for the faint of heart and success doesn’t come easily or quickly. Roughly 90% of early drug development efforts fail, but the other 10% keep us going and ultimately produce transformative medicines for patients.

Now is the time to focus on the fundamentals — to push the science forward regardless of setbacks or today’s stock prices. Success will follow.

Here are what I believe are the critical success factors for surviving a downturn in biotech.

Stay focused on the people counting on you: patients and their families. The Human Genome Project opened the gates to new gene therapies and RNA medicines that are saving lives and improving health outcomes for people around the world.

A relentless focus on patients’ well-being sparked a quasi-race between government agencies, universities, and private labs to fully sequence the genome. The finish line was reached in 2003, right on the heels of a stock market downturn that at one point saw the Nasdaq Biotech Index fall 73% from a peak in 2000.

The take-home message for me is that if you’re in this business for money, you are in it for the wrong reasons. To persist in biotech, it’s essential to keep your focus on the end game: delivering life-changing medicines to people who need them. Patients don’t care about stock-price fluctuations.

Innovation wins in the end. Newcomers to the industry tend to worry about market swings, but it’s the hard times that separate the varsity players from the JV. Effective biotech leaders expect the market to turn south at some point, just as they expect science to fail more often than not.

There’s a reason why the fearsome biotech market downturn of 2016 — which at one point saw biotech stocks drop 50% — did little to stop the progress of the world’s first artificial pancreas or the enormous strides made against type 1 diabetes, cancer, Duchenne muscular dystrophy, and non-small cell lung cancer. The teams leading these efforts were not watching the market.

There are numerous other examples. Most successful biotech companies have faced adversity and have doubled down on innovation to get them through it.

Experience leads with a steady hand. Great things often come out of hard times. Plan A almost never pans out, even for leading companies and brilliant scientists. Adapting and evolving — even as setbacks mount — is what leads to real breakthroughs.

Vertex Pharmaceuticals, for example, spent more than $4 billion developing drugs during multiple market downturns and in the face of potentially devastating setbacks. In the end, its perseverance and groundbreaking science delivered for people living with hepatitis C and cystic fibrosis. Moving into cystic fibrosis involved a pivot that some called a “near-death experience” for this highly successful company.

Great science can help people only if it is in the right hands. And those hands belong to people who have “been there and done that.” They know how to manage with a steady hand through as many setbacks as arise.

Funding matters. Raise money when you can. If your company doesn’t need the funding today, it will tomorrow.

Think of the lean times as an opportunity. When investors tighten their purse strings, it is “me-too” drugs and incremental advancements they are reluctant to finance. Smart investors will still get behind the game-changers.

The downturn is a time to shine. It’s a time when the data a company generates is more important than ever. If you have compelling data, raise funding. In biotech, as in life, everyone needs a rainy-day fund.

My friend and colleague Henri Termeer, who led Genzyme for 30 years through many of its ups and downs, used to say, “Good medicine is good business.” And most people who are in the business of disrupting the status quo are fond of saying, “Innovate or die.”

It’s important to keep both phrases top-of-mind during the hard times, because they represent the attitude that leads to survival and success in biotech. And both are important, because patients are depending on them.

Click here to access the article on the STAT website.