PBG Stock Pitch Competition

From mid March to late April, the Penn Biotech Group ran its first stock pitch competition.

VP David Polefrone and co-president Mengdi Tao organized six seminars covering private and public biotech markets, scientific due diligence, and valuation. These talks featured Wharton professors alongside public and private equity analysts from firms including RTW, Commodore Capital, and Foresite Capital, together providing complementary perspectives on biotech investing.

At the end, PBG hosted a stock pitch competition featuring a judge panel of industry experts.

Competition rules

The competition attracted about 20 masters students, PhDs, and postdocs from around Penn. The organizers grouped students into four teams. I elected to participate as a solo team because I wanted to learn all aspects of stock pitching – vetting the company’s leadership team, digging deep into products, analyzing financial statements, and scouring scientific and legal publications to learn about the science behind the company’s pharmaceutical pipeline.

The competition involved a ten-minute pitch of one publicly-traded company. Each pitch was judged on its investment thesis covering company background, scientific and financial due diligence, valuation, and upcoming catalyst analysis.

Picking a stock

The start of the competition was hectic, as the organizers requested from each participant a list of five good candidate stocks. I had no idea what to pick! Their recommendation to stick to stocks listed in the $XPH and $XBI ETFs narrowed down the field, but still left over 200 companies to screen.

I checked every company to find the five that best matched my interests and expertise. I wanted to find a small- to medium-sized biotech firm specializing in data analytics and scientific computation.

Unfortunately I did not find a website with a screener tool for ETF holding lists, stock tickers, and description data. One website had all the data I needed, but not on one page. So, I wrote a 📔 Python notebook to piece the data together. This YouTube tutorial helped me figure out how to bypass the IP blocker to request as much data as I needed, letting me request any data on any stock.

My analysis of each stock’s description narrowed down the field to:

$ABCL AbCellera Biologics
$RLAY Relay Therapeutics
$RXRX Recursion Pharmaceuticals
$TWST Twist Biosciences
$BTAI BioXCel Therapeutics.

In the end, I selected $RXRX Recursion Pharmaceuticals for my pitch!

The pitch

I spent dozens of hours researching Recursion. I read the founder’s doctoral research articles, reviewed dozens of equity research reports, tracked the company’s FDA approval processes, created 📊 my own financial model for the stock’s valuation, and more.

My work is neatly summarized in this 🖥️ PowerPoint presentation (also shown below). The slide notes contain tons of extra details that didn’t make it into the pitch. For example, did you know that Recursion bought a small company called Vium, which was founded by Joe Betts-Lacroix, an inventor who once held the world record for creating the smallest personal computer? There’s tons more tidbits like this which paint a more detailed picture of the people and technologies that make up Recursion.

A brief pitch: Recursion seeks to expedite drug delivery by guiding experiments using machine learning algorithms trained on petabytes of proprietary data. Recursion has collected over 21 Pb of imaging and transcriptomics data and owns a world-top-100 supercomputer to analyze it all. Recursion’s main value drivers are its advanced drugs in Phase 2 FDA studies and its partnerships with the large pharmaceutical companies Genentech and Bayer. In these partnerships, Recursion offers over 3x quicker and cheaper drug development over competitors. In return, they receive milestone payments and resources to enable FDA studies and drug distribution.

My simple valuation provides predictions for Recursion’s top two drugs, partnership revenues, R&D expenses, and taxes. This puts the stock’s value at $10 per share, making it a 📈 strong buy considering the current price around $5 (as of early May 2023).

Conclusion

🎉 I am happy to share that my pitch won the competition! I came in 1st place out of 4 teams, beating teams pitching $PFE Pfizer, $CERE Cerevel Therapeutics, and another team pitching Recursion. The 1st place prize was $900, which will certainly go towards some $RXRX stock. Let’s hope it goes to the moon! 🚀

I had a blast during the event, and I learned a ton about biotech equity markets, company valuation, drug development, reading financial statements, modeling in Excel, and so much more. The seminars and competition complemented each other well, allowing me and others ask the seminar speakers questions about their experiences in stock selection, valuation, analysis, and drug development.

I would like to thank David and Mengdi, the PBG team, and the sponsors Third Rock Ventures and B+labs for putting together such an insightful and exciting event. I’m looking forward to another competition next year!