If you have ever tried telling a life sciences investment story, chances are, you’ve encountered one of three responses:
- “Wait. Slow down. I have no idea what you’re talking about.” This is sometimes communicated nonverbally as a blank stare.
- “Okay. That makes sense. So when do you expect commercialization?”
- “What’s the mechanism of action? And which disease are you treating? I haven’t heard of that study. Where is the research on that, so that I can read it myself?”
These examples illustrate a unique challenge for life science companies: How to communicate an investment thesis to three entirely different groups of institutional investors – generalists; life science investors less familiar with your specific market or science; and investors who are experts in your particular area.
Here are four keys to persuading all three types of investors to buy your life science company’s story now.
- Know your audience – Is management speaking with growth-oriented generalists, as in example A? Maybe the investors look more like the veteran industry investors in example B. Or are they investors who are highly knowledgeable about your specific science, as in example C? In technical fields, such as technology or the life sciences, it is common for management teams to delve deeply into their specific science or technology. And while that makes perfect sense for the PhD or MD-turned-investor, it can be overkill for a generalist growth investor. To cover your bases, you need to describe your technology simply so that all investors can understand it. By having backup slides available with more details, you’ll be able to describe your investment story so that all investor groups can understand it, no matter their background.
- Communicate the catalysts – Life science investors understand the ultimate approval of a drug may not come for years. But they still need incentive to buy the stock now, or remain invested. In the absence of a commercial product or substantial sales and resulting revenue growth, life science investment theses are therefore milestone-driven. By providing a set of milestones, companies keep investors engaged and demonstrate progress as each milestone is achieved. In the life science space, pre-clinical and clinical trials, trial data and positive steps in the regulatory process are inherent milestones. During the commercial stage, companies should be explicit about when they expect a drug to generate revenue, as well as the rate at which revenues will ramp. This will help bridge the sometimes wide gap between market expectations and commercial realities. It’s important to clearly communicate around each milestone as it approaches – its significance in the development process, as well as its expected timing. You’ll need to “connect the dots” as much as possible, drawing a bright line between the catalyst and the rationale for investing in the company.
- Show me the value – As a management team, you must understand what generates value in your stock and be able to communicate value drivers to your investor base. To entice investors, you’ll need to show sufficient potential demand for your product to generate a certain level of sales. For example, is this a drug with a patient population in the tens of millions with an unmet need? Or is it an ultra-rare disease drug for which you will be able to generate significant revenues through a very high price point?
- Clarify the commercialization strategy – In the drug discovery and development stages, pointing investors to milestones and catalysts that demonstrate the company’s progress is critical. But as a drug gets closer to market, the company’s commercialization strategy – the end game, if you will – begins to take precedence. Investors need to understand management’s ultimate objectives and goals. You’ll need to be explicit about your plan for monetization. That is, are you partnering with big pharma to leverage an international sales force, or will you develop your own sales and marketing functions? While the former carries less risk for shareholders, the latter could provide them with significantly greater returns. You will need to communicate to investors why the model you choose is in the best interests of shareholders.
Of course, the ultimate success of any drug development process depends on the science involved and being able to prove that it works. But the success of a life science stock requires sending the right message to the appropriate investor targets. A carefully crafted investment thesis will keep investors engaged, provide entry points for investment, clearly communicate the value of the stock and tie it all up with a compelling commercialization strategy. Doing all of that should make your company a worthy investment for all of your investors.
David Calusdian, the executive vice president and a partner at Sharon Merrill, oversees the implementation of investor relations programs, coaches senior executives in presentation skills and provides strategic counsel to clients on numerous communications issues such as corporate disclosure, proxy proposals, shareholder activism and earnings guidance.