As part of our Investor Relations Luncheon Series, we recently hosted a select group of biotechnology executives for a discussion with David Nierengarten and Heather Behanna, biotech analysts with Wedbush. The theme of the lunch was “How Best to Engage with Research Analysts.”
CEOs, CFOs, and IROs spend a lot of time cultivating relationships with existing and potential covering analysts. Our luncheon provided a forum to get answers to all those questions that company management teams yearn to ask, but rarely have the opportunity. Both David and Heather provided candid and honest responses, which I have summarized below.
If you cover me, how often do you expect to hear from me?
It’s important to understand that analysts can have as many as 25 to 30 companies under coverage, even more if they have a team of junior analysts supporting them. That means they have a limited amount of time to interact with you. While you try to foster a healthy dialogue with your covering analysts, the litmus test before you make a call or request a meeting should be, “Do I have anything new and informative to talk about?” If the answer is no, you might want to hold off from that email, call, or meeting until you actually have something new to say.
Has your bank ever done an IPO for a company you didn’t ‘like’?
David and Heather were explicit in their respective answers, “No and no.” That came as no surprise to us. Our consistent advice to clients is pick your banking syndicate based on your relationships with the research analysts. At the end of the day, companies have a longer term, on-going relationship with analysts relative to the bankers, who tend to be more transaction-oriented. Relationship building with an analyst who doesn’t understand, doesn’t like or isn’t enthused by your story will ultimately not be rewarding for either party.
How early do you want to hear from private companies contemplating an IPO?
David’s view was “The earlier the better” and this ties into the preceding question. It takes time to develop an understanding of a company’s investment thesis. It also takes time to establish trust. And when you’re dealing with biotech companies, whose value is dependent on the successful achievement of future milestones, trust is earned by demonstrating a track record. This entails meeting early and discussing your near-term goals, then meeting again later and reporting on how you achieved exactly what you said you would. Then repeating this.
How often should public companies host investor days?
In short, no more than once a year and even then, only if you have something new, insightful, and preferably in-depth to cover. Investor days take a lot of time for companies to plan and for analysts to attend, especially when travel is involved. If analysts are going to block that kind of time out of their schedules, it needs to be worthwhile and should truly enhance their understanding of your company.
What makes a stock a Buy or an equivalent rating?
When analysts write their reports, they typically calculate a valuation for your company. This is an opinion on what your current development programs are worth in their various finished and unfinished stages. Taking that valuation and dividing it by your number of fully diluted shares produces a target price (or range). A company with shares trading below a target price is typically a Buy. If the stock trades up with no change in valuation, a lower rating could result since the relative upside that existed before no longer does. Don’t take it personally if you’re given a Hold or even a Sell rating. Remember, there has to be a buyer for every seller of your stock, and thus a divergence of views in the market is welcome. Retreating from an analyst relationship because you disagree with their rating or opinion will only further muddy their understanding of your company. Keep them close and try to change their mind in time.
How can I get invited to your healthcare conference?
Investor conferences are often in the hands of banking departments; however, research typically plays a key role in which companies are invited, with a bias toward companies already under coverage. The analysts play a key role at the conference, since they typically give a brief introductory speech before presentations or conduct a fireside chat, and are the first point of call for investor inquiries following a conference. As such, the key to getting invited to a healthcare conference is either to be covered or be a strong contender for future coverage. Don’t be afraid to ask, but equally, don’t be dissuaded if your request is declined.
Remember, analysts who cover your company can be powerful advocates in telling your story to the Street, to the institutions who could own your shares and to their institutional salesforces that service institutional investors. Maintain an open dialogue with all investor groups and strive for a constructive long term relationship.
At Westwicke, we’re experts in advising private and healthcare companies on all aspects of investor relations and capital markets advisory. If you would like to discuss how we can help your company, please get in touch.
And for our best guidance on the entire IR process, download our new eBook, Westwicke Insider’s Guide to Investor Relations.