Establishing a communication plan that enables effective engagement with multiple external stakeholders is a critical component of any biotech’s strategy. As public, or soon-to-be public, companies map out their investor relations plan, determining whether or not to hold regular quarterly conference calls around the release financial results (the earnings call) is a common point of deliberation.
An earnings conference call with investors and research analysts provides several important benefits. It enables management to discuss progress in a more personal way and at a greater level of detail than can be effectively communicated in an earnings press release or an SEC filing. A conference call also provides an opportunity to directly address research analyst questions and demonstrate transparency to the investment community.
On the other hand, the value of many biotechs is primarily related to their R&D programs and the cadence of quarterly financial results often doesn't align with the timelines of pipeline milestones. Adequate preparation for a call also requires a non-trivial amount of management time. Finally, there is the risk that any live call goes ‘off script' or that management comments are misconstrued.
To gain a deeper understanding of industry norms, we looked at current practice by examining a broad set of biotechs corresponding to the Q2 2019 earnings period. We examined five groups of therapeutic focused biotechs segmented by market capitalization:
Overall, 103 of the 173 (60%) biotechs assessed hold a conference call with earnings. Among the largest biotechs, holding an earnings call is common. All companies examined with a value of over $10 B regularly hold earnings calls and 85% of those with a market cap between $3.0 B-$10 B hold a call. These largest biotechs tend to have frequent pipeline updates, and many have product sales and earnings to report. For these most mature biotechs, a quarterly discussion of results is warranted. Interestingly however, several larger development stage biotechs, such as bluebird bio and Beigene, opt not to hold quarterly earnings calls and instead have investor calls only when they have meaningful updates to disclose.
Among small / mid cap sized biotechs ($100 M-$3 B), approximately 50% hold earnings conference calls and this proportion did not meaningfully vary within that market cap range. While most emerging biotechs. especially the smaller companies, do not have meaningful pipeline updates every quarter, many believe that the external exposure provided by holding an earnings call justifies the event.
Interestingly, of the twenty biotechs in the sample set that went public during the H1 2019, only one (5%) held an earnings call following release of their Q2 2019. This is likely reflective of these newly public companies still establishing their communications approach.
Management teams should consider a number of factors when establishing their approach to earnings; different options may be prudent depending on circumstances. However, once a precedent is set by holding an earnings call, investors and analysts will expect consistency. Questions to consider in determining an optimal communications approach:
Is management prepared to devote the time necessary to ensure that the conference call, and associated Q&A, will be insightful and flawlessly delivered?
Is there sufficient news flow to justify holding quarterly earnings calls on a go-forward basis?
Are company disclosures sufficiently complex / nuanced to benefit from additional explanation?
Does the company have other venues available to provide live corporate updates (e.g., investor conferences, R&D days) to promote analyst and investor engagement?
A core objective in any investor relations plan is to ensure that investors, analysts and other stakeholders remain well informed and engaged, and the earning conference call can be an important component of this plan. We recommend that each biotech develops an individualized investor relations approach that carefully considers the broader communication strategy.