Pump Up the (Early-Stage) Pipeline

Want to impress investors? Try using public relations to promote your early-stage drugs

Many companies these days face a real challenge in communicating their value to potential investors: They can't tell investors the story they want to hear, and they don't quite know how to tell the story investors need to hear.

What investors want to hear, of course, is that the late-stage pipeline is filled with high-value (and easy-to-evaluate) new products. Today, not many companies can boast that. There are exceptions—but throughout the industry, on average, there aren't enough products in the late-stage pipeline to even make up for the revenue lost to patent expirations.

Nina Menezes
That means that companies have to start communicating the value of their mid-stage pipelines. And that, it turns out, is not easy. Phase II drugs are a long way from market, and many of them will fail. Worse yet, there are an awful lot of them using unfamiliar methods of action to treat conditions in increasingly arcane specialty areas. It's no wonder investors find it hard to accurately assess their value.

The good news is that multiple opportunities exist for companies to play a more proactive role in shaping investor expectations. We polled several dozen equity-research analysts and buy-side investors to identify those investor-relations activities that would have the biggest impact in helping value a company's pipeline. They identified the following three strategies as key:
  • Provide more frequent and focused communication
  • Increase transparency with mid- to late-stage products
  • Provide prompt access to publicly available information and company perspectives on core assets

Companies that follow these strategies will achieve a fair assessment of their late-stage pipelines, with a greater likelihood that promising Phase II assets—particularly those that are likely to be on the market within a five-year horizon—would be appropriately reflected in their valuations.

Step 1: Keep the Channels of Communication Open

Frequent and focused communication is essential for any strategy aimed at deriving fair credit for pipeline products. Given the breadth of a company's pipeline and the sheer number of mid- to late-stage offerings, investors need guidance around key assets and the related market opportunities. Companies should consider hosting more R&D days as a venue to showcase products to investors and to keep them up-to-date on important development milestones. When such events are held too infrequently, investors are often overwhelmed by large volumes of data and don't have adequate time to obtain the appropriate level of detail, in effect forcing them to select only a subset of products to focus on. R&D days should be held once a year at a minimum (potentially twice a year for companies with very large pipelines).

For companies with sufficiently diverse mid-stage pipelines, holding events focused on therapeutic areas would provide a way of highlighting a manageable subset of products. Novartis was cited by analysts as a prominent example of a company that does this well. For instance, during the annual meeting of the American Society of Clinical Oncology (ASCO), Novartis hosts an oncology-focused investor event in which data from studies sponsored by the company are presented. Such events inform investors of progress related to key products and frame this progress in the context of Novartis's overall oncology pipeline.

By having the R&D therapeutic-area heads and clinical specialists available to lend additional insight at these events, more sophisticated investors can engage directly with the key managers who are closest to the products. These activities allay concerns and answer questions investors may have on data presented. They also serve to create excitement around important pipeline products and demonstrate the willingness of senior management to be more open with the investment community.

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