Last Thursday I attended M:Communications annual conference on investor relations for healthcare companies.

 

The conference opened with Oliver Maier, Fresenius Medical Care, discussing the company’s operations and their one-stop shop business model. He noted that one of the key factors in FMC’s development was that they took their time building a thorough knowledge of the industry in which they operate – providing dialysis services. He said the company involved the CEO in its investor relations as well as the CFO as this could provide investors with a broader overview of the company.

 

Jo Walton, Credit Suisse, provided an analysts view of the current state of play – and it is not pretty. She started with her take-away message for investor relations personnel: “if you can educate me about your company, I can educate your investors”. By this she said she meant not just providing the facts and figures, but also describing the science and how it works. Jo said that she is mostly focussed on larger pharma companies and does not follow EU biotech very much. She noted that in her dealings with companies that CEOs tend to be optimistic about the future while CFOs tend to be pessimistic about the future. 

 

Jo was very sceptical about pharm.’s move to emerging markets and is not convinced that emerging markets offer much for the sector. This view was certainly echoed in the networking break as a couple of people I spoke with said their companies were unable to create a market for their high-value products in emerging markets – and did not see a time when their endeavours there would be profitable. Jo said she is very concerned about R&D productivity in the sector and noted that there currently is only a 50% success rate from phase III – and that success rates will not rise in future as a new medicines are being compared against a current gold standard rather than placebo. She noted that Credit Suisse research says that in-licensed products are marginally more successful than company’s internal products at reaching the market. She said that she would prefer companies to offer dividends rather than repurchase shares as a way of rewarding investors. Her final message was that companies should help analysts understand the full picture – to help themselves.

 

Charles Mayo, Simmons & Simmons, looked at legal aspects of business models. In particular he discussed the recently introduced UK Bribery Act and its implications. He said companies needed to make positions clear in their corporate procedures for dealing with “entertaining “ clients.

 

The following panel discussion, led by Andy Richards, and featuring Dan Mahoney, Polar Capital, Anne Mareike Ezendam, ING Asset Management, and Ian Crosbie, Jeffries International, discussed a number of issues:

  • Is there was still an appetite for M&A given that company growth rates are currently low? Ian suggested that there would be “bolt-on” acquisitions in the near future, but unlikely to be the sort of big M&A as in the past. Ian noted that one of the challenges for biotech companies is that – Vertex apart – there has not been a biotech product launch in the last 12 months that has met expectations – and that this might reduce the appeal for acquisition. (In the post-discussion networking I wondered whether the expectations – of companies and analysts – had got out of step with reality. One delegate mentioned that Provenge is widely considered a failure, but when the figures are analysed it is set to be one of the top 10 biotech product launches of all time.) However, Dan said that if a company believes it can add value via M&A then they will pay for it.
  • What are the risks for investors? Dan said the risks were different in the EU and the US. In the US investors are more prepared to take risk, few in the EU are. He said that Polar invested mainly in US biotech, that they invested early and got out when Americans get excited about the company. Ian said that European investors do not want companies to diversify their risk – whereas US investors expect companies to do so. Ian said that many US investors like the look of EU biotech, but are concerned they can’t get out – they want stocks with liquidity – and need M&A.
  • Few therapeutic companies are now being set up to become “big companies” but are set up for exit by takeover? Dan wondered if there is actually any need to create companies and whether the virtual model might work better. Andy said that most VC-backed companies are set up very tightly and are mostly virtual. He added that he is seeing platform companies spinning out each product into individual separate companies.
  • Dan said he had noted a change in the US and that public companies there are looking for non-dilutive funding for early  stage projects. He added that it was a shame that companies in the UK/EU were not so able to access this sort of funding and wondered if trade associations could help facilitate this.
  • Andy said he was seeing pharma partnering activity move to earlier phases so that they can do more to keep the product on track as many small companies do not follow good practice.
  • Andy wondered that with the rise in corporate venture funds how this would affect partnering as companies were “in early” through the fund. He also wondered if pharma was investing in other venture funds.
  • Ian said that the public markets do not value pre-phase II assets. However, EU investors will mark down a company if there is a pre-phase II failure, but not add value for success. So he said that despite what they say investors do consider pre-phase II to have value. Andy said that it was odd that values rose when companies partnered products, when really they should go down as the company had effectively have given something away.
  • Jo Wilson said that a lot of big pharma acquisitions were not necessarily for the product, but to get entrepreneurial and innovative people into the company. There was some disagreement on this as  several recent acquisitions had resulted in almost all of the acquired company staff getting dumped.
  • What is the best way for investors to make money – share buy backs, dividends, acquisitions, licensing? Anne said there should be a mix. Dan said he hated share buy-backs as the
    y simply massage EPS growth.
  • Predictions for the next 12-8 months? The panel did not really have many predictions as the macro environment is uncertain. The overall opinion was more of the same with some bolt-on M&A. The new normality is extreme volatility.

 

The event ended with Mary Clark, M: Communications, giving 10 tips for successful communications:

  1. Know the audiences and what they need
  2. Gather market intelligence
  3. Understand the macro environment
  4. Have a compelling story
  5. Integrate your communications
  6. Maximise every communications channel
  7. Manage your management team
  8. Understand your peer group
  9. Monitor, gather feedback and adjust
  10. Be proactive and constantly challenge your approach
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