Biotech's volatile nature demands combining PR and IR like no other industry.The final quarter of last year saw more venture capitalist-backed IPOs than any other quarter since the fourth in 2000. Considering the medical/health sector accounted for approximately 30% of all IPOs that took place, biotech played a large role in making the period what it was. However, while IPOs in general saw a 29% average gain by the close of last year, the average biotech offering posted a 13% loss. Acusphere, Advancis Pharmaceutical, Myogen, CancerVax, Pharmion and NitroMed - biotechs that went public in the fourth quarter - all reported negative post-IPO performances at year-end. Ironically, despite the IPO market's lackluster showing, 2003 was a year in which biotech stocks overall did quite well. Due in large part to positive news about Genentech's highly anticipated cancer drug Avastin, as well as FDA commissioner Mark McClellan's vow to accelerate the agency's new-drug application process, the Nasdaq Biotechnology Index rose as much as 60% from where it was at the start of 2003. That percentage fluctuated throughout the year, but by mid-December, the index remained up 40%. Relationships with investors The inherently volatile nature of biotechnology has forced those who practice communications in and for the industry to combine IR and PR in a way that other sectors have not. The majority of biotech companies are heavily grounded in technology - in that they've come up with a great way to make a product, but haven't actually made one yet - and, hence, have not made any profit. This puts them in a position where they are almost entirely dependent on the investors and venture capitalists backing them. "Biotechnology has a much longer product time horizon than other industries," says Safi Bachall, CEO for Synta Pharmaceuticals, a private biopharmaceutical company with two drugs in phase II development and one in phase I. "Because many of the companies are not profitable, your main source of capital is investors. You have to treat them as your customers." Bachall says communications strategies targeted at this set of "customers" have changed in recent years, as "the financial community has become more sophisticated about biotech, drugs and trials." As a result, those developing messages targeted at investors have evolved away from mainly educational approaches and toward ensuring clarity and consistency in communicating the vision behind the company. This, Bachall says, "is critical to earning the trust of your three most important audiences: investors, the medical community, and the pharma companies." Jeff Richardson, Amgen's former head of communications who now operates his own biotech-focused consultancy, agrees and adds that cultivating that trust from key constituencies is "the PR person's job," regardless of what stage a company is at. To biotechs with products already on the market, Richardson says, "It's up to the biotech company's PR person to set the cultural and political environment so that when someone buys your product, they're buying from people." Regarding biotech companies without marketable products, Richardson says perception "is driven by good news and bad news." He adds, "If that's not a call to PR people, I don't know what is." Several companies have vowed to create positive news about themselves by playing into investors' favorable perceptions of biotechs that are partnered with pharmaceutical firms. Bankers have to answer to investors who want to see returns as soon as possible. Knowing that a big drug company's well-known name, along with marketing and sales muscle, are behind a biotech can make the decision to invest seem like less of a gamble. Gianfranco Chicco, president of Chandler Chicco Agency and Biosector 2, says the majority of the work his agencies did in 2003 and early 2004 was focused on enhancing a company's visibility to attract partners and not necessarily investors. "They look to us for the strategy so that what they are saying is consistent and telling a broader story, not just driving stock," says Chicco. The ability to do that is enhanced when a biotech has a pharmaceutical firm's resources behind it. In addition to added resources, a drug company's affiliation, says Tony Russo, CEO of Euro RSCG Life NRP, "gives [the biotech company] credibility. When you have a late-stage product that is close to market, having the endorsement of big pharma bodes well for the investment in the IPO." Eyetech Pharmaceuticals' IPO, which took place in January, shows Russo's point. The offering was highly anticipated, as analysts and bankers saw it as the sector's best bet for renewing interest in biotech IPOs and, ideally, spearheading a trend. Not only does Eyetech have a drug - Macugen, for age-related macular degeneration and a diabetes-related eye condition - that it's expected to file with the FDA for approval in the third quarter of this year, but it also has the backing of the world's biggest pharmaceutical company, Pfizer. According to The Wall Street Journal, "Pfizer paid a $75 million licensing fee for Macugen and invested $25 million in Eyetech. In the future, Pfizer is obligated to invest as much as $25 million more in Eyetech. ... Pfizer has to fund the majority of the continuing development costs for Macugen, pay as much as $195.5 million at certain regulatory milestones, and pay as much as $450 million when Eyetech accomplishes certain goals." Eyetech's bond with Pfizer might have helped the firm feel strong enough to enter the public realm, but even for biotechs whose shares are already trading, the pharma factor is a boost. The halo effect Jenny Moede, VP of Waggener Edstrom Bioscience, says that once a company is public and has a product on the market "investors become more demanding because now they want to see if [the product] actually works." She explains, "To an investor, alignment with a pharmaceutical company is a huge win because it increases predictability. There can be a halo effect when you are a biotech company because of the public's discontent with the pharmaceutical industry, but when you're talking to investors, it's a much different story." This halo effect has traditionally protected biotech companies from much of the heat that the pharmaceutical industry has endured over pricing strategies. By continuing to categorize themselves as 'biotech,' or even 'biopharmaceutical,' companies have managed to keep themselves inside a bubble, and out of harm's way. But as investor interest in taking a gamble on companies without any products to show for themselves has continued to dwindle, many biotechs have had no other choice than to team with a drug company and, therefore, open themselves up to many of the harsh criticisms that their partners have been dealing with for years. Similarly, the larger biotechs, like Amgen, Genentech, and Gilead, with profitable products are attracting attention outside the financial community as they struggle with reimbursement issues. The costs of some drugs made by pharma firms often pale in comparison to the price of biotech products because of how long and expensive their development processes are. "As the [biotech] industry succeeds in developing new drugs, the hurdles for the next generation only get higher," reports a January issue of BioCentury. Further, the article predicts: "One of the primary negatives this year is likely to be a fact of life going forward: the increasing importance of reimbursement as the next hurdle after clinical trials and marketing approval. Although this has been true for some time for big pharma, biotech companies are starting to feel the effects as they get more products to market." As is the case in all lines of business, success and growth inevitably leads to changes in strategies. In the case of biotechnology, it might just mean that the sector is finally growing up. "Biotech is coming of age and starting to act more maturely. We are on our second and third generations of CEOs, so a lot of the mistakes have already been made," says Marcia Kean, CEO of Feinstein Kean Healthcare. She believes the sector, for the first time in its 25-plus-year history, has begun to come to terms with the fact that "You don't have to be a pioneer in everything. You can be a pioneer in the science, and not in the business." ----- Maximizing counsel Tony Russo, CEO of Euro RSCG Life NRP, highlights 10 key ways that agencies can help biotech clients communicate during pre-, middle- or post-IPO periods: Counsel on Reg FD and Sarbanes-Oxley Develop disclosure policy Identify key investors and industry analysts Develop positioning and key messages Outline a crisis communications plan Know your industry and competitors Clearly define competitive advantages Write scripts and prepare Q&A documents Develop IR presentation and marketing collateral Establish criteria for material information ----- Jenny Moede, VP of Waggener Edstrom Bioscience, suggests five questions that biotech clients can ask themselves to help maximize the benefits of agency counsel: How do we communicate both opportunity and risk to establish a realistic vantage point for potential investors? How can we demonstrate a predictable revenue stream when we're still navigating the clinical-trial process? Is it possible to secure partner investments or licensing revenue in lieu of financing vehicles? How can we more responsibly promote progress and growth potential after our IPO and/or financing? Are we demonstrating a sense of focus and business acumen in our communications or do we appear random and reactive?