We at V2M® believe that the 21st Century will be the century of biology and medicine much like the 20th Century was the century of physics. That belief is based on the observation that advances in the field are occurring exponentially. Never before in human history has our understanding of human biology grown so dramatically in such a short period of time, and the pace of advances is likely to continue for the next several decades. This has enormous implications for the life sciences industry, the commercialization arm of human biology, and for human health and life expectancy. We see two things driving the dramatic progress. First is the many advances that have been made in pure biology such as the discovery of DNA’s double helix, the sequencing of the human genome, and the development of gene editing technologies among many others.

The second results from the application of computing power, artificial intelligence and machine learning to the human biology puzzle which is the most complex natural system in the universe. The many new discoveries and resulting technologies have formed the foundation for the creation of numerous companies to tackle the 6,000 plus diseases for which treatment is inadequate or simply not available. And these companies are developing products that are superior and safer for the diagnosis, imaging, and treatment of patients and consequently will ultimately reduce the cost of care. Yet, it must be noted that human biology is very complex and, therefore, developing products that interact with a complex system is necessarily complex.

The life science industry itself is subject to multiple growth drivers: demographics, a growing middle class in developing countries, and the spread of infectious diseases beyond their traditionally confined territories in historically a limited number of locations with tropical climate. In addition to those macro drivers, there are economic and financial characteristics that can fuel the creation of financially secure corporate entities. Such company specific elements are high gross margins, the global need for products, the occasional monopolies even for a short period of time, robust acquisition premiums in a vibrant M&A environment, the recent highest of which was 498%, and pent-up demand from patients whose conditions are inadequately treated or have access to no treatments at all.

Given the industry’s inherent complexity, the capital market for life science companies, not surprisingly, has some unique characteristics.   Perhaps, the most pronounced and attractive element is how dramatically inefficient it is. The reason is twofold. First is that for some earlier stage companies, and there are many, which do not have products on the market, there are no conventional financial metrics by which the company can be easily judged. This means that only individuals with the appropriate scientific and clinical expertise are adequately equipped to access the probabilities of successful product development. Even then, it is not a perfect science. Second, there is insufficient capital in the hands of pure life science institutional investors with the requisite expertise to support fair value for all quoted companies. The result is that appropriate valuations require generalists to participate as investors. Generalists, however, can invest in any industry and will alter the weightings of their portfolios to accommodate the most attractive growth dynamics at any point in time. This, in turn, leads to extreme volatility. This can be disarming to the inexperienced.   However, with the right expertise, experience and in the context of a long term investment horizon, volatility becomes an asset not a liability. It creates low entry points for building a position and higher exit points at which to unwind a position.

V2M® has developed a strategy to specifically address this capital market dynamic.