Thanks for this - and for playing along with the Goldman reference! “Nobody knows anything” feels particularly apt in our industry.
On your question: there is a correlation between innovation and share price movement, but it’s not really that innovation is a lagging indicator. If anything, it’s the other way round. Markets spend most of their time trying to anticipate innovation - pipelines, clinical readouts, novel mechanisms, regulatory milestones - and then react violently when the data lands.
Positive pivotal data or a surprise approval can drive enormous moves (especially in smaller biotechs), while clinical failures are merciless, even from other companies.
The real volatility clusters around those binary events rather than after the drug has launched. Once a product is on the market, the share price reaction is often more muted because so much was already priced in during the development journey.
That said, the relationship is noisy as hell. High R&D spend and strong patent portfolios do tend to correlate with better long-term performance, but “innovation” is easy to claim and hard to validate in advance. Many companies talk a great game about being innovative, yet the graveyard is full of novel mechanisms that didn’t survive contact with reality (or Phase 2). I admit to being suckered by Arcus’ TIGIT story (partly as I was responsible for the messaging 😅), and believing that they knew more about the mechanism than anyone else.
So I’d say innovation is more of a leading (and highly uncertain) driver of value than a lagging one. The trick, as ever, is working out which innovations are real and which are just expensive PowerPoint slides.
Since you’re referencing William Goldman Mike, I like his most famous quote-“nobody knows anything!”
Indeed! I'm a massive Goldman fan, since the late 70s... I guess that applies to me, too, but I'll take it!
One other thought: is there any correlation between innovation and subsequent share price movement? Is the former a lagging indicator of the latter?
Thanks for this - and for playing along with the Goldman reference! “Nobody knows anything” feels particularly apt in our industry.
On your question: there is a correlation between innovation and share price movement, but it’s not really that innovation is a lagging indicator. If anything, it’s the other way round. Markets spend most of their time trying to anticipate innovation - pipelines, clinical readouts, novel mechanisms, regulatory milestones - and then react violently when the data lands.
Positive pivotal data or a surprise approval can drive enormous moves (especially in smaller biotechs), while clinical failures are merciless, even from other companies.
The real volatility clusters around those binary events rather than after the drug has launched. Once a product is on the market, the share price reaction is often more muted because so much was already priced in during the development journey.
That said, the relationship is noisy as hell. High R&D spend and strong patent portfolios do tend to correlate with better long-term performance, but “innovation” is easy to claim and hard to validate in advance. Many companies talk a great game about being innovative, yet the graveyard is full of novel mechanisms that didn’t survive contact with reality (or Phase 2). I admit to being suckered by Arcus’ TIGIT story (partly as I was responsible for the messaging 😅), and believing that they knew more about the mechanism than anyone else.
So I’d say innovation is more of a leading (and highly uncertain) driver of value than a lagging one. The trick, as ever, is working out which innovations are real and which are just expensive PowerPoint slides.