Biotech after the IPO

Financing windows opened for biotechnology companies amid much fanfare late last year, but the market was not always friendly for the companies that chose to go public.

Financing windows opened for biotechnology companies amid much fanfare late last year, but the market was not always friendly for the companies that chose to go public.

Rather, the initial public offering (IPO) was often the start, not the culmination, of communication challenges for biotechs. Although a select few companies are posting big gains, the overall picture of this year's market is one of falling stock prices and investor skepticism.

"Everyone was waiting for the IPO window to open in 2003," says Amy Martini, SVP and group director of the life-sciences practice at FischerHealth. But the true challenge for a new biotech IPO was "going into a hostile market and defending itself."

With many companies trading below their IPO prices, PR and IR professionals have to answer to the media, analysts, and especially investors. In these circumstances, a company's message must focus on how far it's come since its IPO - if not in revenue, then in the pipeline.

"It's a growth story," says Eileen Morcos, VP of financial communications at Hill & Knowlton. "Whenever you come out with something, you have to make sure you stick with it. You don't want to over-promise and under-deliver."

Michael Rosen, who has led both public and private biotech companies and serves on the board of directors of the Illinois Biotechnology Industry Organization, notes that companies should outline milestones and concentrate on hitting them during a preset time frame. "Basically you've raised money to go out and do things," he says. "You better execute pretty well on your plan that you put in front of investors."

Telling your story
At Pharmion, the two directors of IR and corporate communications acknowledge that the company has been in the unique position of exceeding analyst expectations. (Shares grew more than 250% since its November IPO.) For this reason, the company has generated a surge of media coverage that would belie its lean PR budget.

Still, say co-directors Breanna Burkart and Anna Sussman, the basic story is one of achieving the milestones it had set out to accomplish. And they credit aggressive investor outreach and a transparent management style with helping to achieve those goals.

For Pharmion, which develops drugs for cancer and blood disorders, the financial story tended to overshadow the medical one, a situation that is hardly unique. For many biotech companies, especially new IPOs, the company's story is necessarily intertwined with the financial picture.

Robert Giargiari, SVP at Fleishman-Hillard, distinguishes between biotech firms that are product-focused as opposed to those that are tech-focused. "It's hard to go back to Wall Street with the same story," he says. "[Product-focused] companies have better news flow as a result."

Among tech-focused companies, or those that are research-based, the message often hinges on a company's potential, rather than a product that is moving through the pipeline. "There's no understanding of how the company is going to go from point A to point B," Morcos says.

And when a company's story is its potential, integration between PR and IR is particularly important for strengthening the company's communications, she adds.

Theresa Kennedy, director of North American Life Sciences at H&K, notes that budgets are tight for PR. Yet she recalls one communications officer who was able to create a "web of information" and pass it along to key stakeholders. "Integration is absolutely ideal, although sometimes, due to financial pressure, it doesn't happen," she says. "You have to be fairly creative in terms of how to handle [the PR] budget."

Product-based companies, meanwhile, can generate exposure through scientific meetings or medical journals, both of which have rigorous screening processes that lend credibility to the studies presented there, says Rosen. "You have to create a sort of hook" that showcases "not only the novelty of your technology but that you're ... working on something in the public interest," he notes.

Officials at Orphan Medical knew that they weren't going to create the next blockbuster drug - but that wasn't their intention. Instead, they focused on how they were different from other pharma companies: They treat patients who don't have any other treatment options. (The term "orphan drug" refers to treatments that are intended for uncommon or inadequately treated conditions.) "It really struck a chord because it was different from anything else out there," says Dave Folkens, senior corporate communications specialist, about the company's message.

For biotech companies this year, a potent message is perhaps more important than in the past. "There's been a glut of biotech companies entering the market," says Giargiari. "You have to clearly define your strategy and place it in the life-sciences arena."

PR experts advise putting a communication strategy in place before the IPO, but even the Securities and Exchange Commission-mandated quiet period can present an opportunity to hone that strategy. One of the most successful IPOs of last year was also one of the first to hit the finish line in October. "As one of the first IPOs after a two-year drought, Genitope was receiving significant media attention in the pre-IPO period," says Tama Antonia Donaldson, VP at Dorland Global Health Communications. "Reporters from many of the top financial- and business-press outlets were calling and asking Genitope to comment on a variety of topics."

Working with Dorland, Genitope initiated non-promotional PR activities, including message development, media training, medical meeting support, and physician education. It also created a "stand-by" statement to respond to interview requests from the media. "In the current environment of corporate crises, it was important to communicate this stance openly and honestly from the outset," Donaldson explains. "This was not the time to get creative."

But the strategy paid off with a blitz of media activity at the end of the quiet period. Genitope, which develops immunotherapies used in treating cancer, was the only fourth-quarter IPO trading above its offering price by the end of last year. The period after the IPO is also the time to build long-term relationships with shareholders.

Investors who have seen promising biotech companies lose ground after going public are increasingly looking for a short-term investment, says Martini. "If they can be reminded of what the fundamentals are, that can bring some comfort," she says. Here, too, would companies benefit from integrating IR and PR. Martini suggests planning a media relations strategy that leverages current events to provide context to company news (rather than putting out press releases just for the sake of doing so).

At the same time, companies should gear communications toward shareholders who could be convinced to invest for the long haul.

Anadys Pharmaceuticals, which completed its IPO in March, hired its first media relations specialist just two months ago. The company, which is developing drugs for hepatitis and bacterial infections, has two products undergoing phase II clinical trials and needs to sustain momentum - and cash flow - until the products are approved.

Although the company already has created a strong awareness among investors and local media, "what we want to do is establish a company that stands for quality and integrity," says Pete De Spain, manager of corporate communications. "It's a matter of making strategic announcements," he adds. "Cut out the hyperbole, cut out the fat."

Forming partnerships
Sometimes momentum and resources come from an alliance with a larger company - but PR experts say that mergers and acquisitions are less important than they once were. A number of high-profile partnerships have emerged among the latest group of this year's biotech IPOs, most notably between Pfizer and IPO success story Eyetech.

Yet the importance of such an alliance "has lost its cachet from some years ago," Martini says. "It continues to be a trend; it continues to be a good idea. But from an investor's perspective, it's not as important as it used to be."

Giargiari points to the 10/40/50 formula developed by biotech company Ligand to illustrate the importance of having strategic partners. The Ligand formula states that, during a biotech company's first decade, 10% of financing will come from venture capital, 40% from public equity, and 50% from a larger pharmaceutical company. Investors, on the other hand, will see pros and cons.

While some investors view partnerships as a measure of a biotech company's legitimacy, others are more skeptical. "If you're a product-based company, and you're licensing out your first-born, it's important that you convey the rationale to your investors," Giargiari says.

Whether or not a company finds a partner, the basic message, the "umbrella corporate story," must remain consistent, explains Morcos. "What we end up seeing is that there's no integrated communications strategy," she says.

Orphan Medical, now 10 years past its IPO, has refined messages from year to year, but hasn't strayed from the basic principles of the company. Moreover, Folkens says, as companies continue to form partnerships - and experience marketplace ups and downs - they must make sure that they aren't trading on their "hype and potential." "Credibility is a very big issue, and a young company will have to establish that early on," he says. "That will give them better footing to start with."

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