Pump Up the (Early-Stage) Pipeline - Pharmaceutical Executive


Pump Up the (Early-Stage) Pipeline
Want to impress investors? Try using public relations to promote your early-stage drugs

Pharmaceutical Executive

Step 2: Demystify the Pipeline

Rich Mynahan
Companies traditionally have withheld information from investors, with the mind-set that divulging too much would jeopardize their competitive advantage. Yet not providing sufficient information can also hurt companies; information gaps result in a tendency to undervalue assets, as cautious investors will leave out poorly understood products from their valuations.

This fear is unfounded. There are plenty of opportunities to increase transparency into key products without disclosing insight to competitors. Investors point out that mid- and late-stage products enjoy a substantial head start over any would-be "me too" products. Plus, the information that investors seek is unlikely to endanger a company's competitive position.

For example, for mid-stage products, the most sought-after information can be as basic as mechanism of action, addressable market, and progress against clinical-development timelines and major milestones. This information is important to investors for framing the opportunity associated with these products, particularly for those with a novel mechanism of action or those pursuing specialty indications.

Merck, in particular, earned praise from analysts for charting the progress of all pipeline products—including those that are early- and mid-stage—through the company's Web site, boosting investor confidence in the company's ability to move products through the trials.

For late-stage products, the key information investors seek directly informs valuation-model parameters and includes market size and dynamics, product differentiation, and projected launch timing.

By communicating confidence in the ability to realize this potential both in the short term and beyond the typical five-year forecast window, companies can directly increase the likelihood that Phase II products will be included in their valuations and that the commercial prospects of Phase III products will be reflected accurately in sales projections. Companies that do this well will be making as strong a case for future growth as possible, supporting higher price and earnings multiples.

Step 3: Create a One-Stop Shop

Investors turn first to the company to provide baseline input for their investment thesis, but they typically are forced to turn elsewhere to fill critical information gaps. A company that can provide a true one-stop shop for publicly available information, say through a Web site, would save investors time in aggregating this information from numerous sources and would ensure that the information was reliable. This is particularly crucial when disruptive events occur and perceived secrecy around the details can be cast negatively.

Companies can also use this opportunity to make sure that the information they provide is appropriately framed, with a balance of internal R&D and finance perspectives. They can provide their perspectives on key drivers of commercial potential for existing therapeutic areas and proactively shape expectations in new markets by clarifying what they think of the competitive landscape and how they intend to position themselves within this landscape.

With these strategies in hand, pharmaceutical companies can meet the challenge of communicating an investment thesis in an era in which the historical blockbuster template is evolving and recognition among investors that pipeline value may be distributed across a diversified R&D portfolio has increased. This type of pipeline migration makes effective communication of R&D information more difficult but, as analysts point out, critical for success.


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