From its 10-year peak in February 2021, the market contracted every month through June of this year, a decline of 60% in the S&P Biotechnology Select Industry Index. Since mid-June, the index has mounted a halting and modest recovery but is still roughly 50% off its highpoint and remains below where it was at the beginning of the year.
In down markets, liquid assets, or cash-on-hand, is a biotech’s single most important financial metric – more than market capitalization, share price or total assets. With less money in the market, the cash companies do have is more valuable, and the cash they need to acquire is more expensive. While commercial companies generate cash from product sales, pre-commercial companies without significant partnership milestone payment opportunities face grim options for raising capital. Borrowing costs are high, and any assets a company sells (including its own shares) is at its lowest value in years.
In a bear market like this one, many companies will make tough decisions to preserve cash – options can include layoffs, canceling programs, delaying important initiatives and even getting rid of office space. But amid cuts and delays, biotech leaders can position their companies for success if they focus on these five areas:
- Sharpen your financial story. A compelling and clear value proposition and financial story are among your most effective resiliency tools in a down market where selectiveness and prioritization drive investment decisions. Now is not the time to send mixed or muddled messages to the market. Review your financial story – and the vehicles you use to tell it, like the corporate presentation and website – to ensure it is grounded in patient need, reflects value to the healthcare system as well as to shareholders, and aligns with the current company strategy.
- Clarify your purpose, vision, and values. Clear company purpose and values are a framework for making important decisions about the company, and for understanding why decisions have been made. Does it further the company’s purpose, and is it being executed in a way that is consistent with our values? If the answer to these questions is anything but “yes,” it could signal that the decision is out of step with your purpose and values, your strategic direction is shifting away from your stated purpose, or your purpose and values are not clearly defined or well-understood.
- Be visible. Make the most of every opportunity to elevate your visibility when communicating compelling accomplishments (such as positive data), and through proactive media outreach and thought leadership. Public relations is an effective way to establish the brand as a “company to watch,” establish your leaders as visionaries, and attract a wide swath of potential investors and partners through a multitude of channels.
- Get serious about your ESG strategy. While it may sound counterintuitive, cash-crunched companies should invest in developing clear environmental, social and governance (ESG) strategies and objectives. It is also beneficial to report measurable progress transparently and consistently. Comprehensive ESG strategies are a prerequisite for investment by many institutional investors and increasingly a point of due diligence in mergers and acquisitions. Fearing the impact on their own ESG ratings, acquiring companies may choose to discount the offer price for companies with inadequate ESG practices, or even forego an offer altogether.
- Sustain your commitment to diversity. We believe one of the strongest indicators of a biotech company’s resilience in this bear market is its approach to diversity, equity, and inclusion (DE&I). Many companies view DE&I as important, but when push comes to shove, non-essential, as evidenced by DE&I job eliminations and decline in postings as the market started to dip. Successful companies will sustain or even increase their efforts to diversify through down markets because they perceive DE&I initiatives as critical to their ability to compete in the labor market and ensure their therapies address the changing epidemiology of disease. They also understand the data: Companies in the top quartile of diversity are 36% more likely to outperform the market than companies in the bottom diversity quartile, according to McKinsey.
Is your team interested in exploring ways to strengthen your unique proposition value amid cuts and cancelations in 2022? Our Corporate Communications, Social Impact and DE&I experts in Syneos Health Communications are available to talk to you about putting these steps into practice.