As the world watches and waits for a vaccine, Garnet Roach asks what IR is like under the Covid-19 spotlight
‘The scrutiny is extraordinarily high,’ says Nick Mazing, director of research at Sentieo, talking about the media and market focus on pharmaceuticals and biotech firms involved in the fight against Covid-19. ‘And it’s not just scrutiny. It is interference.’
As the world waits with hope for big pharma and its smaller, more dynamic biotech cousins to free us from the confines of the coronavirus, the companies involved in producing vaccines or therapeutics have seen demanding new stakeholders – governments – enter the scene like never before. At the same time, the media and market focus is intense. Turn on the news anywhere in the world on any given day and Covid-19 is most likely the lead story.
Mazing – talking in mid-October, just weeks before the US presidential election – says there is a ‘dangerous confluence of factors’ for pharma companies. ‘General business disruptions due to Covid-19, scrutiny, interference in the vaccine development process globally, and the US presidential election right in the middle of earnings season,’ he notes.
Thomas Kudsk Larsen, AstraZeneca
The challenge for the sector, he says, lies in exactly how transparent companies can be – and some have been doing a good job. ‘Pfizer recently did its first investor day since 2008. That’s a good example of transparency,’ Mazing says. ‘Bayer introduced 2021 guidance. Gilead has been extremely straightforward with Remdesivir, including saying, Hey, we don’t know whether this works.’
Others have not fared so well. Moderna, the US biotech that develops drugs and vaccines based exclusively on messenger RNA (mRNA) – which, while promising, is at time of writing yet to deliver any approved drug – found itself in the news for the wrong reasons. Its coronavirus vaccine trial was slowed because the company had failed to recruit sufficient minorities, while its executives were widely criticized for stock sales under prearranged plans. Regeneron also saw its prearranged stock sales in the news after US President Donald Trump spoke about his Covid-19 treatment with the company’s drug cocktail.
‘Typically, these 10b5-1 sales never attract much attention, even if modified,’ notes Mazing. ‘Executives at pretty much every company of size get equity compensation, and they then sell out of it. But now, all of a sudden, it is national news.
‘This is a highly abnormal situation. These examples really point to the crazy level of scrutiny. It’s not just vaccine timelines, it's not just emergency-use authorizations, it's not just vaccine pricing. You have the entire Covid-19 disruption in terms of the regular flow of business. And on top of that you have things that would never have been headlines at all becoming national headlines.’ In an attempt to counter this, firms need to take a ‘more communication than usual’ approach, says Mazing. ‘Be as objective as possible without raising any hopes – and don’t be promotional,’ he recommends. ‘Be as factual as you can be. In this case, it is dramatically better to under-promise and over-deliver, than to do the opposite – because of that level of scrutiny.’
It’s in our DNA This philosophy of under-promise and over-deliver is something Thomas Kudsk Larsen, head of investor relations at UK pharma giant AstraZeneca – which is licensing one of the most promising vaccines, at time of writing, with Oxford University in the UK – says is ‘in our DNA as an IR team’.
‘I’m from Denmark and half the company is from Sweden and we bring with us this sort of approach to life: don’t be too flashy, don’t promise too much,’ he says. As such, the discipline in communications since joining the Oxford vaccine development has really been a ‘good example of being true to your fundamental habits.’
AstraZeneca’s day job is in cancer, heart disease, renal disease and respiratory disease. But it saw potential in some of its existing medicines and some in its pipeline to work against acute respiratory distress syndrome. ‘This is what people die from: people are not dying from a virus – they die because they cannot breathe and develop organ failure,’ says Kudsk Larsen. Then AstraZeneca saw that it could also potentially help with the Oxford trial. ‘We chose to license that vaccine from Oxford University,’ Kudsk Larsen continues. ‘That was our decision, so we asked for more attention and we got it.’
But the company has been clear from the start that not only was there the possibility that the vaccine might not work, but that even if it did, AstraZeneca would not be making any money from it – or incurring any costs, as the company is being reimbursed by various governments.
‘Any vaccine is for the people, and analysts should not add any numbers to the spreadsheet,’ says Kudsk Larsen. ‘We even got our CEO to say this at our half-year results: Do not put any numbers in your spreadsheet. We are doing this for mankind, not to make a profit. It’s our obligation as a company.’
Despite this, the inevitable side effect of AstraZeneca’s decision to license the vaccine was an exponential increase in interest in the company.
While the AstraZeneca IR team doesn’t deal directly with the media, Kudsk Larsen says that now more than ever you cannot talk about one without the other. This is something that was really driven home in July when the company discovered that trial data had been leaked.
‘About one week before releasing our half-year results, Oxford University and AstraZeneca released the first data from the combined Phase I and II trial (we have combined Phase I and Phase II to speed it up), which was set to be published in The Lancet.
'That data leaked, and we had something like 10 percent volatility, with the share price going over £100 ($132) for the first time, because people were trading vaccine companies.’
Nick Mazing, Sentieo
Extraordinary environment But the fact that AstraZeneca didn’t actually have the data made the leak less complicated to deal with. ‘The leak in July was easy to handle as the data had not been shared with us in advance,’ explains Kudsk Larsen.
‘The publication was written by Oxford University. Therefore, we were not sitting on more or better knowledge than the market and people understood that we all had to wait for the publication to go live before we could make any comment on it.’
He adds that for a firm not to have this data ahead of publication is ‘very unusual’, and just one of the ways things have changed as a result of the pandemic. ‘The Covid-19 issue is really challenging how things are done: the speed and urgency is unprecedented in our industry,’ he says.
More than company specifics, though, Kudsk Larsen says the vaccine effort is a kind of proxy for when things will pick up again, for when the market believes things will normalize. ‘Managing the market has been a challenge in itself,’ he says.
But the fact that the company is not really a vaccine maker – AstraZeneca has one legacy flu vaccine that it produces each year, but it is not big business – meant there was also a steep learning curve for the team.
‘As an IR person, you focus where the market focuses, which means we have really spent no time on vaccines in the past – because we are not a vaccine company,’ Kudsk Larsen explains. ‘And then suddenly, you have to learn all this stuff very, very quickly. So that’s another challenge as an investor relations team: simply to build up knowledge and background on this.’
IR as government relations The unprecedented involvement of governments in the vaccine and therapeutics process – not only in terms of funding but also in terms of future distribution as well as speculation and public comment – has thrown up a whole new level of complexity for IROs in the industry.
Dr Sarah Fakih, vice president of investor relations at German mRNA researcher CureVac, joined the company just three months ahead of its August IPO on Nasdaq, which she describes as a ‘baptism by fire’. The firm raised $213.3 mn and saw a 249 percent surge on its first day of trading.
Another jump a day later saw its market cap balloon almost five-fold from $2.8 bn before listing to $13.6 bn just two days later.
Dr Sarah Fakih, CureVac
As well as money raised in CureVac’s listing, the German government made a €300 mn ($356 mn) equity investment and in September the firm announced that it was expecting grant funding of up to €252 mn from the German Federal Ministry of Education and Research over the coming year or so.
Fakih says ‘investors see this as a very important validation. It strengthens how we are perceived from the outside, it definitely strengthens our cash position, and it reassures investors that we have a solid runway for the next couple of years’. But government involvement also adds to the complexity of investor relations at a company she says often involves ‘selling on the hope of tomorrow’.
‘The mRNA vaccine, or mRNA technology, is only half-proven: there is no approved drug on the market based on this technology yet,’ Fakih says, though she adds that this is not unique to the Covid-19 situation but is at the core of biotech, an industry that regularly deals with technologies that are very often unproven.
‘When I consider what the one thing is that has changed most dramatically, it is the impact governments are having at present on communications and the overall development [of a vaccine],’ Fakih says. ‘It adds an additional layer of complexity, because they have become so involved – because of the responsibility for public health and their respective economies.
‘Governments have taken on such an unusual, central role in funding and especially in the upcoming commercialization and distribution of the Covid-19 vaccine. But different governments also have different priorities: they need different kinds of negotiations. And this all has to be taken into account by IR as well.’
Another stakeholder group that requires an outsized amount of attention is retail, she adds. ‘The risk you have in biotech – this idea of future-oriented value – is something that needs to be managed, especially with retail investors who want to urgently believe in the potential of a vaccine,’ she explains.
Fakih, who at present is CureVac’s entire IR team (though she says CFO Pierre Kemula is also heavily involved in investor relations), says much of it is about balance.
‘What I need to balance is what information people need and what information they want in order to form an opinion on us,' she explains. 'Especially when it comes to everyone having a stake [because] everyone is impacted in some way by Covid-19.’
Another challenge is the fact that, at present, much of the conversation surrounding the work CureVac is doing is very technical – ‘almost academic,’ Fakih points out.
‘I’m a chemist by training and I need to make sure I can have these discussions on a scientific level and make sure I provide all the information on the value proposition of our technology,' she says.
'But on the other hand, as an investor relations practitioner and representative of the company, I also need to make sure my non-scientist investors can appropriately value the story, because they need to understand what differentiates us, and what our future potential is.’
Shifting perceptions Kudsk Larsen talks of an obligation to humanity in AstraZeneca’s decision to get involved in the vaccine race. But has that translated into a shift in the perception of big pharma?
‘Absolutely,’ he says. ‘Our access to politicians and [those] who have been historically skeptical of this industry has changed completely. People really see that we need a thriving pharmaceutical industry globally in order to be ready for the next pandemic – because this won't be the last one.’
To have the thriving industry Kudsk Larsen talks about, ‘politicians and people [must] realize that it is okay to pay a price for medicine because it keeps the industry alive,’ he says.
‘It gives the industry the ability to think ahead, to research, to make sure there is excess capacity.’ This excess capacity is key. As Kudsk Larsen points out, companies cannot just stop what they are doing – producing cancer medicines, for example – in order to work on a vaccine.
But there is a big difference between what Kudsk Larsen is seeing in Europe and the narrative in the US, particularly in the run-up to the presidential election, and particularly the narrative from Joe Biden. Reading from the elections platform, Mazing quotes Biden’s promise to ‘Stand up to the abuse of power by prescription drug corporations’.
‘Campaign platforms can change quite a bit as Congress works on different proposals,’ Mazing says, but ‘given that the election is right in the middle of earnings season, we might have normal calls one week and then, the following week, pharma companies might be justifying their existence because the president-elect promised dramatically lower drug prices during his acceptance speech. It sounds crazy – but it is 2020, after all.’
The US spends more of its GDP on healthcare than other OECD countries, according to Mazing, which means the healthcare sector overall is over-earning. ‘And one of the ways the healthcare sector is over-earning is that it is charging too much for everything,’ he points out. ‘And that includes drugs.’
Although prescription drugs represented just 9.2 percent of healthcare spending in 2018, according to the Centers for Medicare & Medicaid Services, ‘pharmaceuticals are identifiable and remote,’ says Mazing – and something of an easy shot in US political discourse.
‘A politician can say, Oh, I hate insurance companies, ‘and people will applaud’. The same goes for banks and drug companies, he notes: ‘Nobody says, I love my Pfizer like they say, I love my Crocs, right? It’s a very different consumer relationship.
‘Is a Covid-19 vaccine a lifeline for big pharma’s standing in society? I don’t know. Most people on the street probably haven’t even heard of Regeneron, for example – they just hear vaccine, vaccine, vaccine.’
Even with a boost to public perception, Mark Purcell, European sector analyst at Morgan Stanley, says price cuts are likely. ‘Clearly the Covid-19 vaccine and therapeutic response has been unprecedented and that’s likely to boost the public perception of the sector,’ he explains.
‘Diagnostics and high-reliability testing is worth its weight in gold in terms of positive perception. If you listen to healthcare CEOs and look at the transcripts [from earnings calls], they talk to a more positive change in perception, with pharma being part of the solution rather than a central part of the problem. But when it comes down to it there are likely going to have to be some savings generated from drug price cuts.’
Mark Purcell, Morgan Stanley
In Europe, at least, Purcell says companies have been focusing too much on the US election. ‘If you go back to the financial crisis, there was a significant impact on European drug pricing in 2009,’ he recalls. In a bid to save money, European governments cut drug prices by an average of 7 percent-9 percent that year and Purcell says it’s not unlikely that cuts are on the way again.
‘I think European governments might have to do something similar to rebuild their balance sheets in 2021-2022,’ he says. ‘So arguably there has been an over-focus on the US and the presidential election when it comes to drug-pricing reforms and an under-focus on other regions where governments will be trying to recover from these recessions – and likely making decisions that will have an impact on the sector.’
Selling hope in the future How a company fares is going to depend heavily on how innovative it is.
‘I think if a company is delivering true innovation and value for money, it is in a good spot,’ says Purcell. ‘Healthcare as a percentage of GDP has been fairly stable but it tends to increase a bit after economic recessions such as the financial crisis and what is happening today. So healthcare savings will likely be sought – and it’s much easier for governments to save money by mandating price cuts on legacy medicines.’
Essentially, Purcell says that ‘if a company has strong innovation, it is likely to have better pricing power. If a company has more of a legacy business, it is going to be more prone to mandated price cuts and other processes that governments are going to try using to save money.’
Interestingly, it is companies like CureVac – an innovative biotech selling hope for the future – that are not only likely to be less affected by these price cuts but that also have not been tarred with the big pharma brush. Fakih says her sector simply isn’t viewed in the same way as big pharma.
When AstraZeneca switched its US listing (the company has its main listings in London and Stockholm) from the NYSE to Nasdaq in September, one of the reasons for choosing Nasdaq was that AstraZeneca was looking for more of a biotech vibe.
‘We want to change the perception of AstraZeneca a little bit,’ Kudsk Larsen told IR Magazine at the time. ‘We want to be more about science and biotech, to have more of that biotech culture: not to be in suits and shirts but more T-shirts and jeans.’
But the hunt for a viable vaccine – or something as close to a magic-bullet treatment as possible – isn’t about changing perceptions or making money. ‘It might sound a bit holier-than-thou but it really is true that many of us work in this industry because we want to make a positive difference,’ says Kudsk Larsen. ’Now we get a chance to do that.’
As IR Magazine was going to press, it was announced that the mRNA-based vaccine being developed by Pfizer and BioNTech was more than 90 percent effective in stage-three trials – making it the first proven and likely approved vaccine based on the technology.
A joint statement was issued by the two companies on November 9, stating that the firms would be applying to the US Food and Drug Administration for Emergency Use Authorization, most likely in the third week of November. The companies issued a further two joint press releases focused on the vaccine that week, as well as their own financial results, while Pfizer also invited investors and the general public to listen in to a webcast of the Wolfe Research Healthcare Conference on November 18. While the specific invitation to the public might seem unusual, it is in fact something Pfizer does for all conferences and conference calls with analysts.
The tone from Pfizer and BioNTech was one of cautious optimism: spreads for financial results began with the vaccine but swiftly moved on to other areas of focus. Some aspects of the initial announcement also point to an increased level of caution. The companies point out that the widely lauded 90 percent figure could change as the trial continues, while the third of five lead bullet points in the initial results statement highlights how many trial participants were from diverse backgrounds. No doubt the firms had learned from Moderna’s negative coverage after poor minority recruitment.
Despite the caution, Pfizer still found itself in the headlines for the wrong reasons, when Dr Albert Bourla, Pfizer chairman and CEO, cashed out of shares the day the trial results were announced. As was the case at Moderna and Regeneron, this was the result of a pre-arranged stock sale agreed in August. But that didn’t stop Bourla’s windfall making front pages around the world. All this points to what Nick Mazing, director of research at Sentieo, calls a ‘crazy level of scrutiny’ – even for those companies first to deliver the hoped-for vaccine.
