(Source: Kiplinger)
Biotech is a new sector in Taiwan. It is also a sector investors have a love-hate relationship with. Investing in biotech may make some people strike it rich overnight, or taking a bath when the share price plunges. The Taiwan biotech sector was quiet for some years after the incidences of Medigen in 2014 and OBI in 2016, where share price crashed after clinical trial failure. Since then, not only institutional investors lack of interest in investing in biotech, retail investors also have little interest in the sector.
Recently, the sector seems to be making a comeback. However, aside of very few bellwethers, most of the listed biotech companies still didn’t understand how to communicate with investors. Good investor relations practice can give a positive impression to investors, and benefits the long term development of a biotech company. Also, as more companies practice best investor relations practice, it will help to draw investors’ interest back to the sector.
You can start reviewing your routine investor relations practice based on the following aspects:
1. Know your company: Pharmaceutical is a huge and complex business with a variety of business models and sub-sectors. The value of a product depends on multiple factors. For example: What is the indication of the drug? How crowded is it in this indication? After the drug is approved, which line of treatment would it be? Why physicians like or dislike the current products? What problem are we solving, and why do we believe we can grab a bigger market share by developing this product? In this area (indication), what is the success rate in each phase of the clinical trial? Many biotech companies are confident of their science, technology and product. As a result, they often spend a great deal of time explaining technological terms and like to a throw out big numbers and try to persuade investors to invest in the company. However, they usually do not provide the link between the numbers and the science.
We encourage biotech firms to review the competitive landscape of the designated indication and future strategy. Prepare thoroughly before you talk to an investor, see if you can connect the dots from discovery, development, all the way to the end of the product life cycle. Since adopting different science/product/strategy impact the outcome it will also affect how the company is valued.
2. Let the evidence speaks for itself: Any pipeline project is merely a hypothesis, before the MOA and efficacy have been proven in a well-designed clinical trial. The authorities will only approve a drug after carefully review the results of clinical trial, and believes the drug will benefit patients.
The communication between biotechnology companies and investors is to help investors evaluate if the drug is able to achieve that crucial milestone: drug approval. Investors need a sound logic to understand why this potential drug can benefit patients, and what has the Company done to prove it right now, and what information are provided to back that proof. Most importantly, what kind of risk investors are facing going forward?
3. Your behavior of communication decides your shareholding structure: the capital market is composed by different types of investors. You will encounter retail investors that don’t bother to know anything about the company, or diligent ones that like to dig into details. There are institutional investors that would like to build a good relationship with the Company, of which may have backgrounds in medicines, science, or the pharmaceutical industry. Biotechnology companies often worry about investors do not have much interest in in understanding about the science and technology. So they over simplified the science and strategies. Even worse, some companies may just provide investors a target price, and try to influence the market. Imagine what will happen when an investor that does not care about the fundamentals, meets with a company that does not share the specifics of the fundamentals? We believe a company should gather a group of right audiences by telling the right story. By doing so, the right investor will also come along.
4. Don’t just communicate the facts, but also the impacts: There are some news or events that may serve as a positive catalyst to the share price. For examples, a re-designed clinical trial may achieve an anticipated result faster. Or, as the drug has entered the next clinical trial phase, the risk of the previous phase had been eliminated. Enriched pipeline and, more indications discovered from the drug can also serve as positive catalysts. In contrast, change of trial design due to interim results not as good as expected, failure of clinical trial, a new product emerged from competitor will be negative catalysts to the share price.
The impact of the event and company’s strategy in response to those events are more important than the event itself. A comprehensive communication should include all the information that can help investors to better evaluate the impact.
5. Consistency and transparency to build trust: Each and every communication with investors needs to be well documented, especially when the material involves important information that will significantly impact the value of the company or the product. For example, the schedule of clinical trials, expected milestone or marketing. Follow up with investors proactively when there the schedule is ahead or behind of expectation. Moreover, communicate any bad news in a timely, clear and transparent fashion.
It requires hundred millions of dollars and usually over 10 years to develop a drug. A biotech company would need several rounds of fundraising to achieve certain milestone. Trust and support from long term investors is crucial for biotech company to succeed in the capital market. If you need help set up a communication plan, QIC is here to help. We have been advising healthcare/ pharmaceutical/ biotechnology clients on investor relations for many years. Please reach out to set up a strategy call with our team to address your questions and discuss ways that we can support your IR strategy and communications.
Contact: yvonnehuang@qtumic.com