Biotech rehearses its 'difficult' second album at #JPM16

It is January 2015, and Thomas Chalberg, CEO of Avalanche Biotechnologies ($AAVL), is excited about the future.

His company, working in gene therapy, was months removed from a well-received, $102 million IPO, and its lead product, designed to correct a common cause of blindness, was progressing through midstage development.

But Avalanche was looking beyond the near term. The year before, the company picked up a major co-sign from Regeneron Pharmaceuticals ($REGN), and Avalanche had a plan to take the route of Big Biotechs past and parlay its development platform into multiple generations of products. It could become, Chalberg said, "the Amgen ($AMGN) of gene therapy."

That didn't pan out. By midyear, those midstage data came to light and were less than flattering for Avalanche's top project. The company's share price tanked, and Chalberg resigned from the CEO position a month later. By August, Avalanche put the whole program on hold, falling back on an earlier stage eye treatment.

Nowadays Avalanche trades at around $6 a share, 65% off its IPO price and 90% cheaper than its all-time high, which happened to coincide with last year's J.P. Morgan Healthcare Conference.

Avalanche is hardly alone among biotech companies that rode high in early 2015 and have since been thrust back to Earth thanks to clinical disappointment, investor malaise or regulatory trouble. The two most commonly watched indexes of biotech stocks have each fallen more than 35% from their July peaks, battered down by a pervasive sense that the frothy days of the biotech boom, when becoming "the Amgen of" anything seemed at least glancingly possible, have passed.

And that sentiment permeated this year's J.P. Morgan, where the familiar crush of besuited investors, executives and reporters flooded the avenues, lobbies and cafes around Union Square, polluting bright Bay Area aesthetics in colors and cuts better suited for Wall Street.

While the cast remained largely the same, the script had noticeably changed from 2015. Many emerging biotechs, only a year or so removed from going public, seemed to abandon talk of "platforms," of "product engines" and of R&D "operating systems," instead harping on comparatively unsexy things like "execution," "validated endpoints" and "FDA meeting minutes." Even the private Moderna Therapeutics, which has inculcated entrancement and derision with its ambitions to turn people into drug factories, finally stooped to disclosing a timeline for actual human trials.

The overall mood seemed to be that the time for fanciful storytelling had elapsed, and that investors, watching dollar after dollar dissipate on Wall Street, were far more interested in hearing about drugs than disruption. Biotech, like a bloated rock star chastened by poor reviews for a double album, was returning to acoustic roots that may or may not have existed in the first place.

And that's how it always should have been, Sage Therapeutics ($SAGE) CEO Jeff Jonas said.

"There's a split in pharma and biotech among these basic science guys with big visions and drug developers who focus on actually getting products approved," he said. Jonas, who began his career at Upjohn Laboratories more than 20 years ago, said a return to pragmatism could do biotech some good, as it is well-designed studies, not captivating stories, that create value in the industry.

"Scientists are pigment makers," he said. "Drug developers make the art."

The same principle holds true for private firms, too, according to Ron Renaud. After brokering Idenix Pharmaceuticals' $3.9 billion sale to Merck ($MRK) in 2014, Renaud decamped to the venture-backed RaNA Therapeutics. And while running a private company affords more breathing room, sparing him "the scrutiny of the 9:30-to-4 report card," the means by which biotechs move the needle remains the same.

"In the end it's about data," Renaud said. "The one thing I've said in good and bad markets is that good data and good ideas will always attract capital."

And for now, the market remains bad, or at least relatively so.

Both the Nasdaq and New York Stock Exchange biotech indexes continued their decline throughout J.P. Morgan, reacting not to the release of bad clinical results or an FDA rejection but rather the creeping consensus that the party is winding down.

And while the predictable spike in announced venture capital deals in and around J.P. Morgan arrived on time this year with nearly $400 million in cash committed, most of the industry's top VCs are now placing bets with funds raised in headier days. If biotech's IPO window closes and leaves VC reliant on Big Pharma for the exits its limited partners desire, the funding rounds of the coming year or so may start to thin out.

But no matter the capital environment, the prevailing diction or the sector's Mad Money clout, drug companies exist to make drugs, RegenXBio ($RGNX) CEO Ken Mills said.

"You can only take out so much risk," he said.

And at a certain point, every biotech needs to take the leap and figure out if it's sitting on a potential human therapy or working at a future shell company, chasing what Loxo Oncology ($LOXO) CEO Joshua Bilenker called "the one currency that should always be accepted": a drug that works. -- Damian Garde (email | Twitter)

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