Step 2: Demystify the Pipeline
Rich Mynahan
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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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