Whether your company is on the road to an initial public offering (IPO) or currently operating as a publicly traded company, cultivating and then maintaining a strong relationship with Wall Street requires strategic planning and thoughtful execution. Interacting with the buy-side and sell-side is not a simple process, and we often observe companies making mistakes in their investor relations (IR) programs that can damage management’s credibility with the Street.
What are some common IR mistakes healthcare companies make, and how can you avoid them? To answer, I turned recently to the Westwicke team — and its more than 200 years of combined Wall Street experience. Here’s what they told me.
The biggest mistake
The biggest IR mistake I see is management teams not wanting to deliver bad news. After all, CEOs and CFOs are human beings and want to have positive updates to share with their investors. They also want their investors to like them.
Management teams can often see issues or problems developing over time and, for many reasons, avoid communicating about them until it’s too late. Sometimes they convince themselves that they will be able to “pull a rabbit out of their hat” to fix the problem and, as most of us know, this rarely happens.
Face the issue as soon as it becomes apparent. Investors know that things don’t always go according to plan. At times, plans need to be altered and adjusted to deal with unforeseen circumstances that arise. If a painful message has to be delivered, communicate it as quickly as possible. Don’t try to hide or deny that there is a problem.
You don’t want your investors coming to a negative conclusion before you have had the time to tell them first. Articulate the problem in an honest and candid manner, and then explain to the investment community what the solution is going to be. Investors don’t like bad news, but they dislike management teams who “hide the ball” more. At Westwicke, we believe that investors will respect a straightforward assessment of your situation — and be more likely to remain supportive of your business — when you communicate honestly and in a timely manner.
One mistake I see companies make often is failing to consider the guidance implications after beating quarterly projections. This, of course, is better than the alternative (missing your numbers), but there are steps to be taken when it happens.
Beating quarterly estimates is great news and typically an easy story to tell. That said, companies need to provide enough detail on what drove the upside in results so the analysts don’t get overenthusiastic and extrapolate the quarterly results to an annual basis and raise their estimates too high.
On the flip side, management teams need to consider how beating a quarter affects the annual guidance. Management should be cautious when saying things like, “It’s too early in the year to raise the annual estimates,” or “I can’t tell if this is a trend yet.” This can send confusing messages to analysts and may imply that your future quarterly results will be below the Street’s current expectations.
A common mistake is focusing too much on stock price fluctuations and how to influence positive (and short term) upward stock price movement.
Premium valuations are earned over time and are based on consistent, transparent, and successful results. By trying to counteract short-term stock price fluctuations, management teams are expending undue energy that is not likely to be successful.
Instead, we recommend that you:
- Execute on your strategy, and communicate when that strategy has changed.
- Be realistic in setting guidance that is achievable. As you know, it is far better to beat modest growth expectations than to miss aggressive expectations, so keep in mind the old “under promise, over deliver” mantra.
- Be consistent in how and what metrics you report. Remember: you don’t need to be ahead of expectations to achieve solid quarterly results, but hiding or changing information makes investors nervous.
The combination of these three things will help you build long-term credibility with Wall Street and enable a premium valuation over time. Be patient with your stock price — sometimes markets are inefficient over the short term.
In the world of drug launches, I see time and time again Wall Street expectations (especially from the sell-side) that are too aggressive. As a result, when a company delivers reasonable performance, the launch is characterized as a disappointment or worse, a failure.
Far ahead of a launch, investors and analysts should be educated on the complexities of the specific drug launches — the regulatory pathway and timing, potential patient identification based on the clinical data, competitive positioning, sales force build out, and market uptake. What can help immensely is a fully thought out IR strategy that incorporates what data is to be communicated, when the data should — and can — be disclosed, and who would benefit from understanding it.
One of the biggest IR mistakes companies make is including too much information on PowerPoint presentation slides.
Investor presentations for many companies are a good example of TMI (too much information) syndrome. Some management teams seem to believe that more words per slide make it better. In fact, the opposite is true. With each slide, try to make a clear and specific point, and weave together all of the slides into a comprehensive “story.”
An overload of data, graphs, words, bullets, flying animations, and jarring colors can distract and confuse your audience. Keep it simple, and your message has a greater chance of resonating with your targeted investor audience.
Providing poor access to your current research analysts and their clients is a big mistake with negative consequences.
Sometimes management teams can get so caught up in trying to expand the number of analysts that cover their stock, they lose sight of how valuable their current research coverage can be. It surprises us whenever we hear the all too common anecdote of an analyst who hasn’t had a face-to-face meeting with a CEO in over a year, or of the executive who doesn’t reliably return analyst calls. Don’t make the mistake of being the inaccessible executive.
Analysts want to provide value to their investor clients. And more often than not, that value is linked to analysts’ abilities to access management — even more than to their ratings or price targets. Your positive analysts don’t want to be taken for granted. Your negative ones will never respond well to the cold shoulder. Being accessible — especially to your current analysts — is essential to any successful IR plan.
One of the biggest mistakes a company can make with investor relations is not tailoring its message to the audience. This is particularly a problem with private companies that are on the path to an IPO.
Some companies have presentations that are great for marketing or medical conferences but not for communicating with Wall Street. To be most effective, management teams should adapt its communications to meet the needs of its audience. How can that happen?
The first and most important step, of course, is to really know your audience. Is your audience a group of bankers at a pre-IPO meeting, or are they sell-side analysts or buy-side investors? Each of these has a different reason for listening to your company’s message and a different set of expectations and needs.
After you identify your audience, spend time arranging your presentations so you focus on and present clearly the most salient points for each audience. Lay out your story and connect what you present with your investment thesis.
Positioning the investment story properly within the investment community is a key step towards building a quality, long-term shareholder base and enhancing equity market value.
A common mistake I see are management teams saying ‘yes’ to too many healthcare conferences and being too active in non-deal road shows with institutional investors.
Strive for a balanced approach that is part of a 12-month strategic plan. Participate in some conferences, meetings, and non-deal road shows, all with a purpose that connects to your strategic IR plan.
As you build and implement your investor relations plan, don’t make these all too common mistakes. Download our Investor Relations Guide for help and to learn more about Westwicke’s unique approach to IR.