Passage to prosperity
- Article 2 of 7
- iSight, July 2003
Successful clinical trials are the key to creating biotechnology companies with lasting value, but the clinical trials process is fraught with danger. Companies that do not communicate their results effectively could fall into the chasm.
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One trap, in particular, for young biotechnology companies to avoid is the local press, says Pollare of 3i. “They need to be wary of how they position themselves right from the start as they are likely to get a lot of interest, particularly if they are not located in a cluster. If in doubt, they should shy away rather than be too open, even if the founders’ ego would like to see it otherwise,” he says.
OUTSIDE INTERFERENCE
There is also a large amount of ‘uncontrollable’ outside communication going on that can have a direct impact on a company. Investment banks and analysts that cover biotechnology tend to have sophisticated valuation models in place that discount the expected future revenue streams of products to derive a current value for the company.
What is crucial is the discount rate. This usually depends on the stage and type of the product, as well as the validity of the target. Approval for the drug Erbitux, for instance should lead to a higher probability of success for other products in development against the EGFR, and could thus improve the respective companies’ valuations.
There is also the effect on the whole sector of high-impact scientific events, such as ASCO, the annual meeting of the American Society of Clinical Oncologists.
According to a review by DZ bank, the news in 2001 was predominantly positive, with good news coming from companies such as Novartis, Roche and Idec. This led to positive share price reactions overall.
But after ASCO 2002, the whole sector nose-dived following negative company news from companies such as Imclone.
This year, the reverse was true. Encouraging news from companies such as Genentech and Imclone turned the sentiment around, leading to speculation about whether the advances in cancer could even fuel the next biotech rally.
The conclusion that companies have drawn from recent examples is to try to avoid unnecessary hype prior to an upcoming regulatory body’s decision, as well as unnecessary disappointments.
“However, deciding simply not to communicate steps on the way is not the right approach either,” says Loibner. “Investors and the scientific community have the right to be adequately informed about the progress of a company’s development programme. To balance this justified need for information with the scientific community’s reservations against non-peer reviewed results is one of the challenges that must be met,” he adds.
Indeed, today’s companies need to learn that communication is as much a requirement for a biotechnology company as funding and technical skills.
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