This blog post was written by Aoife Brennan, CEO of Synlogic, as part of the From The Trenches feature of LifeSciVC.
My first job at a public company was when I joined Biogen or Biogen Idec as it was then called. One of the rituals of the team was to listen in to the quarterly earnings calls, usually on speaker in a conference room as we drank our morning cup of joe and caught up on emails. It was interesting to hear company leaders describe R&D progress and the quarterly performance figures but the best bit was the incisive analyst questions.
Of course, these calls made perfect sense for Biogen with several products on the market but should smaller, pre-commercial companies do quarterly investor calls? If so, what is the right time to start the quarterly ritual? As with most things biotech, there are strong opinions on both sides of the issue so I thought it would be helpful to review the Synlogic decision and our experience to date.
Synlogic became public through a reverse merger with Mirna Therapeutics in August 2017. Some of the analysts who covered Mirna continued coverage and we quickly picked up others. Our science is based on the application of synthetic biology to bacteria to provide a therapeutic function missing or impaired due to disease. Synthetic biology is early in its application to therapeutics and we do not really have a cohort of companies like us.
Many of these factors, as well as analyst feedback, brought the topic of whether to start quarterly calls to a head about six months into our life as a public company. We collected input from the Board and thought about the pros and cons. We gathered some data and looked at similar companies and found that the majority of biotech companies have started to hold quarterly calls by their first anniversary as a public company (more than 65%).
The biggest con was the potential management distraction factor, the concept being that meaningful data that would warrant a call should be the genesis for analyst interactions, not SEC filing deadlines. We are fortunate to have an internal head of investor relations (the wonderful Liz) on staff. For this reason, we felt that we could manage the added workload and based on our unique circumstances, made a decision to start calls beginning with the third quarter 2018.
We currently have nine covering analysts and find that the calls are a useful way to update both them and our investors about company progress and to set expectations for data and upcoming milestones. We caught up with a couple of them for feedback and overall, the calls are found to be helpful. Jordyn Fantuzzi at Piper Jaffray felt that initiating earnings calls make most sense when companies are close to the first clinical start and can be particularly helpful for analysts when nearing a key milestone or to provide transparency into a recent setback.
According to Jordyn ‘If there was a partnership announced in the quarter, a call can be helpful for analysts to update the valuation model. Having said this, companies can sometimes be over-ambitious in what can be achieved on a call, for example if the intention is to educate investors on something more technical like drug mechanism or disease, I think a separate KOL event, R&D Day or conference call dedicated to this topic are more appropriate settings’.
Based on our experience to date, the quarterly calls provide an opportunity to dive a little deeper into an aspect of our business that may require some explanation, to reinforce and fine tune messaging. We appreciate the opportunity to answer questions from analysts and to clarify any misperceptions that may arise on the Street. Last, but not least, as they did for me at Biogen, the questions raised on the call provide useful insight for our employees. They hear the key issues for investors and analysts and how those who know the story perceive the company. For small cap companies, buffeted by the broader markets, this may not be accurately reflected in the stock price.
Some other learnings from our first years’ experience include:
- Start with a detailed outline of content for the script at least 2-3 weeks ahead and only after there is agreement on the outline, put flesh on the bones
- Try to resist being over-ambitious in what can be covered
- Plan to review the script at least three times for content, technical details and flow
- Reading the script aloud while reviewing is key to identifying potential tongue twisting phrases and ensuring that the language is clear. Those long, run-on sentences may seem fine until you realize that speaking requires breath
- On the call itself, everyone knows that you are reading a script and Oscar-worthy performances are not required. However, pauses, changes of intonation and emphasis can make it just a bit more engaging. Its not good for the CFO to fall asleep before his part…
- Think of breaking up long periods of monologue with speaking roles for other members of the leadership team
- Keep the speaking parts to less than 30 minutes total so there is plenty of time for questions – longer than that is difficult for the listener and can make the call feel rushed
- Have the team co-located in one place, particularly helpful for the Q&A section
Recognizing that initiating quarterly calls as a small company does require resources and is something of a one-way door, it is important to be thoughtful about the decision. What works for one company may not be appropriate for another. I am happy to provide further insights if any other CEO is on the fence about the decision- you can email, DM me on twitter (@aoifemlbrennan) or…….call me, maybe.