Shock Absorption
by Leslie Whitaker
January 2007
A comprehensive communications strategy is the key to riding out the bumpy road of biotech.
Unlike most markets, the pharmaceutical industry is relatively immune to the broader economy’s peaks and valleys. Large pharmaceutical corporations that have a wide variety of drugs in the pipeline and on the market can ride out the temporary fluctuations better than smaller biotechnology boutiques that have just a handful of products. The share prices of biotech companies are tied more closely to investors’ and analysts’ opinions of a company’s prospects—opinions that may or may not prove to be accurate.
Added to this product–related volatility are factors such as a decline in the potential profitability of drugs, partly due to the health insurance industry’s efforts to contain costs, market saturation and the expiration of patents. The increasing complexity of clinical trials also is extending the time and cost of bringing new products to market, according to the Pharmaceutical Industry Profile 2003, published by the Pharmaceutical Research and Manufacturers of America, Washington, D.C., USA. With all these hurdles, it is essential for biotech companies to carefully manage variables they can control.
Mum’s Not the Word
Taking a strategic approach to investor and public relations is integral to the stewardship of biotech companies’ financial fortunes. Good news must be handled carefully in order to maintain realistic expectations, and bad news must be contextualized, to avoid sinking a company’s reputation.
Maintaining regular contact with both investors and analysts is the first rule of success, says Cynthia Robbins–Roth, Ph.D., founder of BioVenture Consultants, San Mateo, Calif., USA, and former research scientist for Genentech. Robbins–Roth suggests communicating directly with investors at least every six months. “You want to build a relationship ahead of time so if something comes up it won’t be a surprise,” she says. “It’s all about managing expectations.”
It may be impossible to stop a stock slide precipitated by bad news, such as a fatality related to a firm’s primary product. However, much can be done to manage expectations about clinical trials, which also are instrumental in stock price movements.
Front and Center
Successful companies create a public image of accessibility through full disclosure. Being as communicative and transparent as possible pays off every time, Robbins–Roth says. “The most important thing companies need to do is accept the reality that [if they attempt] anything other than full disclosure, reporters and investors will find out,” she says. “Once they believe you have lied to them, they will not believe anything you say [in the future], and that is not a good position to be in.”
If a clinical trial goes awry, don’t try to escape questions from reporters, who often are the primary source of information for investors. Reporters will write about the issue with or without comments from a company’s executives. If executives avoid reporters’ questions, they miss the chance to have any input into the story.
Over–hyping good news can be just as damaging to a firm’s reputation as trying to hide bad news. When staking their financial future on products that depend on positive clinical trial results, biotech companies must be wary of raising the public’s expectations. Many reporters tend not to understand fully the experimental nature of clinical trials. “Companies are doing [trials] to find out how their products best work in humans. That means there should be the expectation that there will be changes [from what was originally forecast],” Robbins–Roth says. But too many reporters are unfamiliar with the process and as a result, report changes over the course of the trial as an indication that a particular product “does not work,” she says.
Reports that inaccurately brand a trial as a failure can devastate a company’s financial resources. For example, a trial that falls short of its primary endpoint may meet a number of secondary endpoints that still warrant the continued development of the drug. A reporter’s lapse often will be laid at the feet of the company he or she covers, Robbins–Roth says. “That shows that the reporter didn’t have a clue [about the trial process] and he or she didn’t have a good relationship with the company.”
To avoid inaccurate reporting, provide reporters with material on potential concerns, Robbins–Roth says. Make the material as forthright and free of technical terms as possible. Educating reporters will help prevent overreaction to changes. “Otherwise reporters get the impression that everything is hunky–dory, and then if something goes wrong they think, ‘Oh, this must have been unexpected,’” Robbins–Roth says.
When All is Quiet
Establishing and maintaining relationships with analysts even when the news cycle is slow may translate into a less volatile investor reaction. Many managers and executives, especially those in biotechnology, prefer to stay behind the scenes to focus on their scientific work. But savvy investors want to know about the quality of the leadership, says Matt Duffy, managing partner of BDR Research Group LLC, an independent research firm in New York, N.Y., USA. “Part of what investors are buying is a management team,” he says. “It’s beneficial to have your management team out there meeting analysts. It’s part of the drill.”
Top communicators should be in touch with investors and the public throughout the year. “You don’t want the first time people hear from you to be when things have gone awry,” Robbins–Roth says.
When there are no major milestones on the horizon, let analysts know what is in the works and when the company expects tangible developments. Otherwise, investors may pull out in favor of higher profile competitors. “Some people sell stock because they don’t think anything’s going on,” Duffy says.
Analysts also look to companies to supply key data, Duffy says. “We rely on companies to give us what they think is their best story, upcoming milestones and endpoints,” he says. “We need to know the timing of their trials, when the data will come out and where. How are they thinking about timing and expenses? What do they expect to spend on research and development, and what are the important drivers going to look like?”
In addition to getting their own side of the clinical and scientific story out, companies should point analysts to experts who are familiar with their products, Duffy says. These experts may be a great source of information for analysts and reporters. When given a lead like that, analysts often will follow up with a phone call or at least read the expert’s writings in the area, he says. Creative approaches like these help companies keep their stock prices where they deserve to be, and not all over the map. Ultimately, planning ahead and keeping a sharp eye on communications strategy will help companies avoid unnecessary rough patches. A successful company will “think strategically about what they might do if they hit a speed bump,” Robbins–Roth says.
Send us Your Comments
Web Exclusives
- An Unbalanced Burden
-
A Q&A with Dr. Kathleen Squires, director of the infectious disease department at Jefferson Medical College in Philadelphia, illuminates the gender differences in the diagnosis and treatment of HIV.
- Turning the Corner
-
After decades of neglect, leading to a rapid increase in incidence, tuberculosis started gaining attention from industrialized nations over the past 10 years. With this new focus, TB’s incidence has started to decrease—but barely.