Our management and strategy consulting firm was founded in November 2008, which was clearly a difficult period for the U.S. economy and a year that many investors would like to forget. The Dow Jones Industrial average recorded its worst annual performance since 1931 and the NASDAQ Composite had its worst year since inception in 1971. The NASDAQ Biotech Index recorded a loss of 13% for 2008, which compared favorably to declines ranging from 30 to 40% for the major market indices, such as the Dow Jones Industrials, S&P 500, and NASDAQ Composite.
As of today, the NASDAQ Biotech Index is down more than 23% from its 52-week high of 1,143 and the stocks of many small biotechnology companies are reaching new lows. Company executives are naturally questioning when investor sentiment will change, buyers will return, and how to adjust their corporate strategy and communication activities. Having been through our share of market cycles, we’d like to offer some of our advice and perspectives on these issues.
First, it is important to note that investor sentiment can change quickly. Although past performance doesn’t guarantee future results, within one year the NASDAQ Composite nearly doubled from the lows reached in early 2009. The NASDAQ Biotech Index increased more than 58% during the same period.
No one has a crystal ball to determine when buyers will return, but it is also worth noting that many of the fundamental drivers supporting a favorable outlook for the life science industry remain intact. These include the large number of products currently in clinical trials, number of new product approvals by the FDA, brisk pace of industry consolidation and licensing transactions, aging population, and attractive valuations among many small- and mid-capitalization companies among other factors.
It may be tempting to dramatically revise corporate strategy and communication activities to fit the current market environment. In both good times and bad, however, we believe in clear and consistent communication with an emphasis on the long-term strategic vision and unique value proposition that your company offers current and prospective shareholders. Speaking with confidence, emphasizing key fundamental attributes, and avoiding spin are the best ways to maintain and enhance credibility with investors and analysts.
Regardless of the market backdrop, regular communications with investors, analysts, and the media through telephone calls, electronic communications, conference presentations, hosting an analyst/investor day, and through one-on-one meetings can help a company stay visible. In addition, make sure that fact sheets, slide presentations, and other corporate materials are up to date. At some point, investors will put money to work again and these activities will help ensure that they remember your company.
Beyond external audiences, clear and consistent communications with employees is also important – especially during periods of volatility. Make sure that your management team speaks with the same voice and offers thoughtful answers to any questions that arise. This can be particularly important for those employees who manage external relationships, such as physicians and nurses involved with clinical trials. The steadfast loyalty and support of your employees can be invaluable – and they may also be current or future shareholders.
Lastly, due to greater focus on a company’s financial strength and ability to survive a downturn, distinguishing your organization from its peers can be beneficial. Beyond current cash position, this includes highlighting assets that can potentially be monetized along with being transparent regarding the size and nature of any corporate liabilities, including conversion features and maturity dates. Investors and analysts also benefit by understanding key metrics such as the company’s cash burn rate, years of cash on the balance sheet, and the magnitude or timing of royalty streams, milestone payments, government grants, and licensing transactions.
In closing, despite inquiries from anxious shareholders about declining stock prices and market volatility in the short term, we believe companies that clearly and consistently communicate their strategic vision and value proposition will attract interest from investors, analysts, and the media in the long run. With deference to the credit rating agencies, the United States – in particular our life science clients working in the areas of oncology, cardiovascular disease, central nervous system disorders, and other major unmet medical needs – will always be “triple-A” in our mind.
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