Recap of Webinar: “How to Engage with Sell Side Analysts”

Insights from a Candid Conversation with One of Wall Street’s Leading Biotech Analysts

The Gilmartin biotech team recently held a webinar with Evercore biotech analyst Josh Schimmer on how to engage with sell side analysts for private and public companies. For those who were unable to attend, a replay of the conversation can be accessed at vimeo.com/561512437. Throughout the discussion, Josh covered a wide range of topics including how he became an analyst, his preferred methods of receiving information, timing of engagement with private companies, best practices for analyst due diligence and quarterly financial calls, and many other relevant topics. We recommend watching the full webinar to capture all the insights Josh shared, but here are a few key topics we wanted to highlight.

“Where do you receive information on the companies you cover or are interested in?”

While all analysts utilize news services to receive breaking news in real-time, we asked Josh where else he looks to find more information on a particular company. Where he goes first and foremost to learn more about a company is their website, particularly their corporate deck. As a company, your deck should be kept current and easy to find in the investors section of your website. The deck should be clear and concise, yet comprehensive with your catalysts and milestones clearly articulated. An analyst or investor only has a certain number of hours in a day, and they traffic in information. To that end, make sure your corporate materials are easy to access, comprehensive, and highlight the value creating proposition of your story.

“How early do you like to engage with private companies ahead of an IPO?”

Josh tracks every private financing starting with Series A and is happy to meet companies at an early stage. In fact, he says there is no such thing as too early to meet a private company, but the cadence of interaction may vary. Be careful not to overdo the touch points. Analysts are busy– if they cover one stock, it often requires knowledge of 15 or more other stocks in the space, so keep this in mind as you think about reconnecting with updates you want to share. Private companies and public companies have different scopes of value creation. New animal model data that may move the needle as a private company does not necessarily carry the same weight as a public company. The same can be said about the initiation of a clinical trial. As a private company, engagement with analysts is an important step in building Wall Street relationships and evaluating potential banking syndicates, but consider timing your communication around significant news and updates pertaining to your company’s story.

“What makes a good or bad analyst teach-in prior to an IPO?”

Analyst teach-ins prior to an IPO are a critical event in the education of Wall Street before entering the public markets; according to Josh, there are many factors that can make or break an event. Josh’s advice was to avoid making assumptions about your prospective analysts’ base knowledge around your science or therapeutic area. Start with the underlying concept behind the story, where this technology came from or how it was invented, and take your analysts all the way through commercialization. Analysts need every detail in order to build their models, valuations, and DCF analysis. Many companies come into these meetings very shortsighted because their private investors allow them to be. They are very focused on the next step in development, but what about the step after that and the step after that? Additionally, don’t forget to illustrate your company’s competitive landscape, which according to Josh is often lost during these sessions. A company does not need to explicitly prove your technology or programs are superior to competitors, but rather explain your differentiators and let your analyst come to their own conclusions. These are the questions analysts receive on a daily basis from investors and it allows them to make important projections, like potential market share. These sessions are the unofficial kick-off to hopefully a long-term relationship with your sell side analysts and a great way to begin building trust through education and effective communication.

“Do early-stage biotech companies need to host an earnings call every quarter?”

Josh, like many analysts, has a love/hate relationship with earnings season and quarterly financial calls. Oftentimes, they can be dry and time consuming, with a scarce amount of any value-add. Among biotech companies, three months is a very short amount of time in the grand scope of drug development and there will often be little to no new updates to report. However, calls can be valuable and give analysts an opportunity to check in with companies they cover and ask questions to gather greater visibility into clinical programs. If you do hold quarterly calls, one suggestion Josh offers is to cut out sections that can be read straight from the company’s press release, particularly the line item overviews in the financial section. Some of his favorite calls are ones that give a brief overview of clinical updates, explain the timing of next milestones, and proceed straight to questions. If your earnings call is 10 minutes, that’s a success. Do not feel pressured to fill airtime or conform to the traditional call structure.

“If a company finds an inaccuracy in a research report, how would you prefer they approach the situation?”

Analysts are sensitive to their product. They put a lot of time and effort into the reports they publish, so take that into consideration before you approach them with a mistake or inaccuracy. Be gentle and try to avoid nitpicking. Consider whether or not the inaccuracy is substantial enough to address before you do so. If it is material, your analyst should be happy to have a quick call to discuss the misunderstanding and how it can be avoided going forward. Always keep in mind however, the companies that send laundry lists of comments on each report can damage the relationship they have with their analyst.

A common theme from our discussion centered around trust. An analyst’s relationship with a company is built and maintained on trust. There is no shortage of companies in the public markets, and the second a company loses their trust, an analyst can and likely will move on to the next one. Be forthcoming with information, both positive and negative. Keep a steady cadence of communication with your analysts, but be respectful of their time. Quick email notes or 20-minute update calls can be greatly valuable and efficient for both parties. Building and maintaining these relationships is a critical part of a company’s life on Wall Street, and Gilmartin is here to help you throughout the process.

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Stephen Jasper, Principal

 

 

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Maintaining Investor Trust and Shareholder Value Through a CEO Transition

When evaluating any company, investors look to the CEO for guidance, as CEOs are the bridge to the Street. As the face of the company, the CEO has to earn the trust of investors, customers, and employees. Therefore, the CEO’s role is heavily weighted when considering a potential investment.

Inevitably, every company reaches an inflection point and is faced with a CEO transition. At this point, the CEO role is thrust into an even greater spotlight. A CEO transition is one of the most important events for a company. It can affect its corporate strategy and initiatives, its shareholders and other stakeholders, and, eventually, its success.

This transition can be unnerving for company shareholders who may believe that a new CEO could result in a shift in culture and strategy, sometimes for the worst. With the significant role that the CEO plays in the financial community’s decision to buy, sell, or hold a company’s shares, the transition must be managed appropriately. The CEO must communicate in a way that will dissipate any uncertainty and disbelief among the investors that could make the company’s stock price volatile in the short term.

Typically, in the eyes of the investors, a honeymoon period of six months is given after the announcement. However, there is a lot on the plate of the incoming CEO during this time. First, they must align their organization to respond to change by setting the vision and strategy, while also establishing the appropriate expectations across stakeholder groups and engaging with stakeholders through new and diverse communication channels.

IR firms must find a healthy balance for the CEO, leaving them enough time to focus on the business and connecting with investors. The CEO will spend a large portion of their time building relationships with critical stakeholders on the Street. In addition, everyone wants to meet with the new CEO during a transition period, so the CEO will need to prioritize meeting with investors.

Here are three things to consider to maximize the CEO’s time and prioritize selecting investor calls.

  1. Investors who are currently highly invested – This group of investors has already bought stock and sees upside potential in the company’s vision. This is an essential group of people to connect with sooner into the transition to avoid high stock volatility and devaluation. During a positive transition, they will need to be reassured that the new CEO is ready and able to continue the company’s success. In a time of company turmoil, they will want to hear that change is imminent and the new CEO is going to drive value back to the stock. Making time for these investors will aid in stock stabilization during the transition period, and these meetings should be prioritized.
  2. Investors who currently have a medium level of investment but sufficient capital to increase their holding – This group of investors tend to be interested in the stock but have not gone all in. In essence, they are intrigued but waiting for more. A CEO transition is a great time to meet with these investors, communicate the strategy going forward, and entice them to participate in future growth. The goal here is to assure investors that the transition will be positive, in order to avoid stock volatility while selling them on the future, This can entice a more significant buy-in. Since they have a smaller stake, these investors don’t have to be the main focus initially, but they are still valued shareholders and should be prioritized during the transition period.
  3. Investors who have capital but have not yet purchased stock – This group of investors can be those who have been following the story but have not invested yet or those who are new to the story. Either way, this is an opportunity to communicate your strategic plans for the company and begin to drive value through new investors. While this group is important, they should take a lower priority than the above investors during the initial period following the transition. These investors do not have as much capability to cause stock volatility in the initial period following a transition, but they do have a significant opportunity to grow future value.

The six-month period following the transition sets the tone for the CEO moving forward. If managed well, investor meetings during this time can be pivotal to driving value to the stock. While every company is different and situations are dynamic, this guideline can be helpful to follow during this time. If you want to know more, contact the Gilmartin team today.

Hannah Jeffrey, Analyst 

Gilmartin Pizza Review

Earlier this year, we published our first ever Gilmartin Book Review to kick off 2021 on a lighter note. It was so well received that we decided to start our summer off on the right foot with a “Gilmartin Pizza Review.”

Originally, this conversation was sparked in an internal weekly meeting between two NYC pizza snobs, who shall remain nameless. Eventually things were hashed out, but no one could come to a conclusion on which was best. Naturally, everyone else decided to give their opinions. So, we asked our colleagues to share their favorites, and here is what they had to say. (We even allowed the West Coast voices to be heard.)

EAST COAST PIZZA (THE BEST)

Roberta’s –  Brooklyn, NY

From its original location in Brooklyn, Roberta’s has come a long way, now having multiple locations across Manhattan and even nationwide shipping. The location in Bushwick is quintessential Brooklyn, with an atmosphere of a laid back hipster vibe, warm, inviting, and colorful. But what about the pizza? Well, if ever a pizza has been hyped, this one delivers on the hype. The pizza styles are original, with a variety of unconventional toppings, the mozzarella cheese is on point and the crust is just perfectly burnt and delivers a crunchiness and softness simultaneously. Various popular pies are available that will cater to your cravings, but I personally always order the Lil’ Stinker, which has pepperoncini peppers, onions, tomato, hint of garlic and offers a very nice tangy crunch that really complements the savory flavors of the pizza sauce, the mozzarella and the parmesan cheese. It is absolutely delicious pizza, but maybe not suitable during a date.

Review by Priyam Shah, Principal

Sally’s Apizza – New Haven, CT

While technically not a pizza from New York City, New Haven is home to the classic coal-fired, Neapolitan style pie. Because New Haven-style pizzas are cooked in super-hot brick ovens, the pizzas come out with a “charred” crust. If you are a fan of Pizza Hut, Dominos, or Papa Johns, you will consider a New-Haven-style pizza burnt.

The big three pizzerias in New Haven are Pepe’s Pizzeria Napoletana (1925), Modern Apizza (1934) and Sally’s Apizza (1938). All three make excellent pizza, but if I had to pick one, Sally’s Apizza would be on the top of my list.

 

Sally’s Apizza, founded by Frank Pepe’s nephew, Salvatore Consiglio, is the quintessential northeast pizzeria. If it were not for the lighted Sally’s Apizza sign and the long line to get in, you would not know it was even there. The inside is not fancy, with old paneling on the wall and approximately ten small booths for seating. That being said, the apizza (ah-beetz) is second to none. The combination of the perfectly baked crust, tangy tomato sauce and mozzarella cheese (mootz) is always worth the wait.

So, the next time you are on I-95 in Connecticut, do yourself a favor and stop by Sally’s for some apizza. I promise you will not be disappointed.

Review by Greg Chodaczek, Managing Director

Lee’s Tavern – Staten Island, NY

There may not be a sign on the outside of this bar, but everyone knows its name and they know yours as well. Lee’s Tavern is the local historic pizza joint you dream about. Opened in the 1940s and taken over by the Palemine family in the 1960s, not much has changed, and not much ever will.

A classic take on the bar pie, after one bite of this slice you will know why you made the trip. Each pie has a crunch that can be heard throughout the restaurant. Classic cheese pizza is a staple due its tangy sauce, but you would be mistaken not to order the white clam pie with all its garlicky goodness. You also must start off the table with an order of their famous buffalo calamari, or how most say it on Staten Island, “Galamad.”

Bellucci Pizza – Astoria, NY

Bellucci Pizza in Astoria, Queens opened less than one year ago and has already made waves in the pizza community. Owner Anthony Bellucci first helped to reopen Lomabrdi’s Pizza on Spring St in the early 1990s. Later he was the executive chef at another New York favorite, Rubirosa. A unique twist on a slice in New York, Belluccis uses electric ovens as opposed to gas, coal or wood.

I wouldn’t usually recommend traveling to Queens for Pizza; however, the Vodka Roni Pie creates a strong argument as to why one should. Fresh mozzarella, pepperoni and vodka sauce may not sound like a novel invention, but this combination is groundbreaking. The slice will not leave you disappointed; it has fallen into my personal top 5.

Since I am a native New Yorker, of Italian descent and the author of this blog, I felt I was allowed to have two submissions!

Review by Matthew Picciano, Managing Director

Joe’s Pizza – New York, NY

Joe’s Pizza in East Village is my go-to spot for an authentic New York slice. Pino “Joe” Pozzuoli immigrated to the U.S. from Naples, Italy (the birthplace of pizza) in the mid-1950s and has been a pizza man his entire life. He still owns and operates the restaurant.

Joe’s isn’t fancy and neither is the pizza, but that’s the beauty of it. Joe’s serves simple, large slices made with quality ingredients using the same recipe since the 1970s. The result is a consistently good slice that is almost always fresh out of the oven since they sell quickly.

Folding up a slice of Joe’s Pizza is a classic NY experience. The last time I visited, I grabbed a slice of pepperoni and cheese to take to Washington Square Park and eat while people watching. I finished my slice before I even made it to the park and had to walk back for another. Lesson learned. I’ll never get just one slice of Joe’s Pizza again.

Review by Matt Berner, Managing Director

Prince St. Pizza – New York, NY

in Manhattan’s Nolita neighborhood. Just south of Houston sits this small but world-famous pizza shop. While Prince St doesn’t offer much in the way of sitting, it more than makes up for it with great tasting pizza. Prince St isn’t known for their Neapolitan pizzas or NY slices; they are known for their SoHo Squares, specifically the Spicy Spring Pie.

The Spicy Spring Pie

This rectangle shaped doughy pizza, sometimes referred to as “Detroit style,” is the most delicious, filling and savory pizza you will ever have. The Spicy Spring Pie has thick crunchy dough, a perfect sauce-to-cheese ratio, and so many spicy pepperonis that you will never run into a bad slice. As for the calorie count and nutritional value, you can burn it off on the walk home (assuming you take the long way).

Pro Tip: Any New York pizza shop worth checking out has a 40+ minute line and Prince St is no exception. However, some hungry natives have figured out a trick: order online and skip the line. By selecting “pick up” and waiting 30 minutes, you can bypass the line and check out some of the boutique stores in SoHo.

Review by Carsten Beckwith, Analyst

Pino’s – Brooklyn, NY

It may only have 3.5 stars on Yelp, but Pino’s on 7th Ave. at 1st Street in Brooklyn remains a favorite. While I haven’t had a slice from Pino’s in over 15 years, it is certainly the memory of grabbing slices as a kid that made it special. You know a pizza is good when you take a napkin to it first to sop up the extra oil. And who knows, maybe Smiling Pizza on 9th St. was better, but it wasn’t across the street from my elementary school and not as convenient unless there was a reason to walk to the D Train.

Review by Tom Brennan, Chief Financial Officer

WEST COAST PIZZA (THE REST)

Gioia Pizzeria (Berkeley + SF)

I don’t always go out for pizza, but when I do – there is none other in the Bay Area I head toward more than Gioia Pizza. Crust is great; sauce is earthy and delicious; ingredients are all locally sourced. They make their own Calabrese sausage. Last but certainly not least, I can pick up a cannoli for dessert!!

Review by Ji-Yon Yi, Vice President

Little Star Pizza – San Francisco, CA

I know this reads like a Yelp review, but I am excited and NEED to stress what to get at Little Star.

1) This is a must-visit for pizza lovers. Little Star has both thin crust and deep dish pizzas – both are amazing, so whether you love Chicago style or New York, you are in luck.

2) In addition, they have an amazing salad (BelGioioso burrata w/campari tomato & basil), and appetizers (spicy chicken wings or roasted kale with feta, parmesan & lemon) as well as a limited (three-item) dessert menu, which includes a warm brownie w/ a scoop of gelato.

3) Toppings include the staples but also a vegan mozzarella, brie, or gorgonzola.

Favorites:

a) Little Star (spinach blended w/ricotta & feta, mushroom, onion, fresh garlic)
b) Meteor 2.0 (pepperoni, sausage, caramelized red onion, mushroom, chili flake)

Review by Lynn Lewis, Founder

Gusto Pinsa Romana – San Francisco, CA

When I arrived in the Bay Area after a decade in New York City, I had two cuisine quests: to find a good NY-style bagel and NY-style slice of pizza here. There were some mixed results… I never found a comparable NY-style bagel after many conversations that went a bit like: “Have you tried the new Daily Driver location for a bagel?” “Yes, their bagels are oven-baked and dried out.” However, I did manage to find pizza that I feel is comparable to a NY slice at Tony’s Pizza Napoletana. That said, is Tony’s my favorite slice here? No, something was missing.

When I abandoned the desire to seek out all things New York on the West Coast, I ultimately found something entirely different from what I had been expecting, which was an entirely new style of pizza. I tried Gusto Pinsa Romana based on the recommendation of our friend. Gusto is #1 here for me now because of its light sourdough crust in square slices that resemble focaccia. I appreciate their classic margarita with the balsamic vinegar they include on the side, and even some of their weirder concepts like a pesto pizza with cherry tomatoes and potatoes with a side of chili oil. Gusto claims, “The dried sourdough is an old recipe from di Marco’s family that they have been using in their bakery business for over 100 years that’s been passed down from generation to generation.” Whether or not you buy into the hype, if you order from Gusto, their pies should be shared, as they are much more filling than they appear!

Review by Caroline Paul, Principal

As always, If you have any questions about Investor Relations or just want to say hi, please feel free to contact the Gilmartin team today.

Tips & Tricks for a Smoother Earnings Report

Management teams are constantly juggling numerous tasks, and they often look for ways to improve and expedite processes. For public company management teams, reporting quarterly earnings is of critical strategic importance, requiring meticulous thought and consideration. If not planned properly, earnings calls can cause unnecessary stress. This blog post will cover some of the tips and tricks that Gilmartin recommends to management teams for a smoother earnings report.

Reporting earnings may be one of the only times in business where it is recommended to be a follower instead of a leader, as management teams do not want to be an outlier when compared to peers. Considering this, most management teams follow a similar cadence when reporting earnings. Management and their investor relations team should plan ahead and agree on a gameplan to execute.

The first step management teams and their IR partners should consider is the target reporting date. Most public companies follow a historical pattern, i.e., the first Tuesday of the given earnings season. When reporting for the first time, newly public companies should carefully consider the date and time they choose (pre-market or post market reporting). This establishes a precedent for future reporting periods. With this in mind, management and IR teams should begin planning for earnings roughly six weeks out from the target date.

Six Weeks Out from Target Date
The IR team should provide management with an earnings prep calendar. This calendar should include an outline for the initial kick-off call, due dates for drafts of the press releases, call script, and scheduled times for mock Q&A sessions. The IR team should also schedule weekly prep calls with management, as it is critical the process remains on track. At the same time, the IR team should plan to confirm conference call/webcast logistics with the service provider early, given the recent traffic that platforms have been experiencing due to the increase in virtual events compared to pre-COVID times. Furthermore, we suggest preparing the advisory release with a target date of two weeks prior to the earnings call. Even more, the IR team should update the earnings release and call scripts from the previous period. It is essential to start the reporting process early to minimize any scrambling at the eleventh hour.

Four to Six Weeks Out
The IR team will create an outline for the earnings call script, which should consider larger themes and trends from the quarter, as well as a first attempt at guidance. Additionally, the IR team will begin tracking peer and sector earnings dates to stay up to date on market dynamics and sentiment.

Three to Four Weeks Out
At this point in time, teams should create the first iteration of the press releases and the script. Hash out ideas, suggestions, and edits during weekly prep meetings. It is important to remember that not everyone will agree on specific communication and language at this point.

Two Weeks Out
The IR team will review and make any changes to the company’s distribution list which includes covering analysts, shareholders, and anyone management chooses to include.  Once the list is in place, the IR team will issue an advisory press release to update the public when the company will host its earnings call. The IR team at this point should schedule follow-up calls with covering analysts, ideally on the day of reporting when the topic is still fresh on minds of the involved parties. Together, management and the IR team will make another turn on the earnings press release and the script. Additionally, management should begin to consider responses to the question list provided by the IR team. It is important that management is prepared to answer questions confidently and consistently across the board.

One Week Out
The IR team should continue to track sector and peer earnings trends and provide updates to their clients. This helps management make informed decisions regarding guidance, as the company does not want to be an outlier with what they choose to disclose. At this point, the IR team should request financial tables from the CFO to include in the earnings press release. With quarterly trends becoming clearer, management and the IR team should make another turn on the press release and script and confirm the final versions. Additionally, the IR team should touch base with management during weekly prep calls and perform practice Q&A.

An emerging trend among management teams is pre-recording the earnings call instead of reading the prepared remarks live on the day of the call. Pre-recording the script eliminates the stress of performing live and fumbling over words, and it also allows management teams to focus solely on the analysts’ questions the day of the call. We highly recommend this approach. The pre-recording can be done whenever management is comfortable with the script; ideally, it should be completed a few days to a week before the reporting date.

Day of Earnings
The IR team should confirm the final version of the press release and issue it to the exchange the company trades on. The IR team will then host and lead the earnings call, making sure to take notes during both the call and follow up meetings. The team should pay special attention to new investors and analysts and write down any questions they might have.

Following the call, the IR team should provide management with the call transcript, analyst notes and snapshots. In the days to follow, the IR team should provide management with an updated consensus model and IR deck, both of which will be posted to the company’s IR website.

Like anything in business, reporting earnings should be taken seriously and given a great amount of thought and collaboration. With the proper guidance from the IR team, reporting earnings can be a smooth and stress-free process. It’s all about starting early, being organized and executing each step with collective thoughtfulness. Contact our team today for guidance on your next earnings call.

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Oliver Eberth, Analyst

 

 

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Material Non-Public Information (MNPI) & Insider Trading – The Basics

Disseminating information to employees on the IPO is an important step in becoming a public company. As we have discussed before, there are certain topics that are critical to discuss with employees, including Regulation FD (Reg FD), insider trading, material non-public information (MNPI), and employee stock plans. Today, let’s go through the basics of insider trading and material non-public information.

When it comes to MNPI, the two definitions that matter are in the name: material and non-public. Information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding whether to buy, hold, or sell a security. More simply, any information that could reasonably be expected to affect the stock price is material, including  positive and negative information. Information is non-public if it is not generally known or available to the public. To be considered available to the public, information must be broadly released to the marketplace (such as by a press release or an SEC filing), and the investing public has had time to absorb the information fully. Both criteria must be met before information can be considered public knowledge.

Examples of potential MNPI are varying and can include things that may be surprising. To name a few:

  • Number of customers, customer contracts, customer wins and/or launches
  • Quarterly financial performance (prior to quarterly reporting)
  • Sales quotas/expectations for future sales performance
  • Key clinical and regulatory pathway progress
  • Sales force headcount/hiring plans
  • R&D pipeline initiatives
  • Upcoming corporate actions (financing rounds, M&A, etc.)
  • Legal disputes

It’s also important to consider whether the MNPI disclosures are intentional vs. unintentional. An intentional disclosure of MNPI occurs when the person making the disclosure either knows, or is reckless in not knowing, that the information he/she is communicating is both material and non-public. Unintentional disclosure occurs if a covered person makes an inadvertent disclosure. When this happens, public disclosure of the information is required promptly after a senior official learns of the disclosure.

A good rule of thumb is this: when in doubt, just keep company information to yourself. This includes sharing information among other company employees; this type of information should be shared only on an as-needed basis to do your job.

Now let’s discuss insider trading. This refers to transactions in a security when the person buying or selling is in possession of material non-public information about that security. It is important to remember that insider trading can be done by anyone, including company executives and employees, their friends and relatives, or just a regular person on the street, as long as the information is not publicly known. Insider trading violations also include “tipping” of such MNPI to other individuals. In fact, roughly half of the insider trading cases brought to the government involve tipping, rather than direct trading from the insider. Insider trading is highly scrutinized by the SEC, and penalties for violation can include fines and imprisonment for the individual and significant civil and/or criminal fines for the company. It’s important to remember the responsibility for avoiding improper trading and violating insider trading laws rests with you. Here are a few key considerations for insider trading:

  • The law applies to anyone who knows MNPI at the time of the trade or tip
  • Even if the “tipper” doesn’t trade, it is still illegal to pass along information or tips
  • Most cases are based on circumstantial evidence

To wrap it up, here are some  Dos and Don’ts  regarding external communication that employees should consider:

  • Do pass requests for information off to a designated individual (a CFO, general counsel, etc.) in the company
  • Do contact this designated individual if you think you may have accidentally made a company-related statement
  • Don’t speak on behalf of the company
  • Don’t respond to rumors
  • Don’t give anyone (including clinicians or customers) information that is not publicly available (e.g., disclosed via press release or earnings call)
  • Don’t use personal or corporate social media accounts to post or interact with anything related to the company, unless you are interacting on a site used for professional development (e.g., LinkedIn) and/or in the normal course of business
  • Don’t like, retweet, or favorite any use of the company’s product that is an unauthorized use of the product or in a market where the product is not approved

Gilmartin has partnered with many clients to achieve public company readiness. For additional information, contact our team today.

Sam Bentzinger, Analys

Gene Editing – The 21st Century Miracle

Gene editing? CRISPR? Everyone has heard the term CRISPR from mainstream media. But few can explain what it is or its significance for the future of human medicine. Hailed as a 21st century miracle, Jennifer Doudna and Emmanuelle Charpentier were recently awarded the Nobel Prize for their breakthrough research on CRISPR technology in December 2020. But the discovery of CRISPR actually dates as far back as the 1980’s. Scientists just had no idea what they were looking at except that some bacteria carried strange repeating bits of DNA which was eventually given an acronym CRISPR (clustered regularly interspaced short palindromic repeats).

What is the significance of these repeating patterns of DNA in bacteria? Just like humans, bacteria are also attacked by viruses. To fight against future viral infections these bacteria have evolved their own immune system through a CRISPR region in their DNA, which encodes molecules that can recognize viral genes and cut them before they invade the bacterial host. Scientists have figured out how to harness this natural genetic engineering to artificially create CRISPR molecules that can snip out pieces of genes, swap in a new piece of DNA, which can then stitch itself back together. The fact that CRISPR exists in nature, is cheap to make, is so accurate due to years of natural genetic evolution and requires little effort on the part of the researchers is what gives it a potential advantage over previous gene editing technologies conceived in labs such as TALEN (transcription activator-like effector nucleases) and ZFN (zinc finger nucleases). There are also new gene editing approaches emerging such as base editing, prime editing, and even gene writing. Certain companies are also developing proprietary editing technologies that do not necessarily belong to any of the above groups. It is still unclear which is the superior gene editing technology and there are proponents for each but given the number of companies using CRISPR and how it has changed the field, it appears to be the most popular.

Humans are burdened by thousands of different genetic diseases, which are due to inherited mutations. Most small molecule drugs target proteins that result in disease symptoms due to the faulty gene but do not address the actual underlying inherited mutation in the gene. Gene editing offers the possibility to potentially edit such inherited mutations so that patients no longer have to keep taking life-long medications. Sickle cell anemia is an example of a disease currently being studied in the clinic using CRISPR. People with sickle cell anemia inherit two faulty genes for hemoglobin, the oxygen carrying molecule in red blood cells, which results in red blood cells that are shaped like sickles or crescent moons instead of the usual flexible and round shape. These sickled cells can block blood flow and cause pain, organ damage, fatigue, and infection. Sickled cells also tend to die earlier than healthy red blood cells and thus compromise oxygen delivery. Ironically sickle cell anemia is an evolutionary genetic condition that protects against malaria, which ravages sub-Saharan Africa, but results in the very symptoms listed above and reduced life expectancy. Current medications only address symptoms. Stem cell or bone marrow transplants can induce cure but have significant risks associated with the procedure and are rarely done. CRISPR and other gene editing approaches offer a new possibility, whereby the mutation can be erased that causes sickle cell anemia.

Gene editing has so many potential applications beyond just genetic medicine and can be used to make tweaks to DNA of other animals and plants in order to create new breeds of livestock or plants to address potential future food shortages. There is still tremendous regulation when it comes to gene editing. In 2018 a rogue scientist in China (who is currently in prison) used CRISPR on the DNA of human embryos to edit out the gene that codes for a protein that HIV uses to enter cells. Does this forecast an ominous future of designer babies or DNA tinkering to gain an unfair advantage? Only time will tell but a precedent has now been set to reflect on.

CRISPR and other gene editing technologies still require more experiments, research grant applications, investment pitches, regulatory approval, manufacturing agreements, supply chain configurations and so much more, which will take years to navigate, but the future of gene editing as a functional therapy as well as for diagnostics and biomarker discovery is near.

Current leading publicly traded gene editing therapeutics companies:

Majority of gene editing companies are still private but have tremendous venture capital investments and will likely IPO in the coming years. Some of the well-known names that are using gene editing for therapeutic or diagnostic purposes are:

Gilmartin has direct expertise within the space and has partnered with many clients to start building an Investor Relations program when private. For additional information, please contact our team today.

Priyam Shah, Principal

 

 

Addressing Unfavorable or Undesired Analyst Coverage

Addressing Sell-Side Research Challenges: What to do When Your Company is Faced with Unfavorable or Inaccurate Analyst Coverage

At the top of almost any IR to do list, and certainly one of the more important metrics used to evaluate a successful program, is sell-side analyst research coverage – particularly as it relates to quality banks, favorable rating, and accurate consensus estimates. There is no shortage of reference material on ways to encourage and attract coverage, approaches for analyst targeting, and commentary on what is the right “mix” of profiles and what is the right number for your company’s size/market cap. But what if the unexpected occurs and you actually want to eliminate some coverage?

What?!

Yes, this happens. There are a few reasons why your team may want to address this: a rogue analyst whose estimates meaningfully skew your consensus numbers; an analyst that misinterprets or mis-states the fundamentals of your business despite repeated attempts to make a correction; an analyst that has become disengaged; and of course, the disappointing negative rating. There is a lot that goes on behind the scenes within any sell-side bank before coverage is launched, so getting an analyst (or the bank they represent) to discontinue coverage outside of an acquisition or exit from a certain sector is actually quite rare.

Let’s put this into perspective. In the absence of a transaction and at the outset of coverage, an analyst needs to support his or her rationale for covering a specific issuer, including a bull/bear case that will lead to sales and trading dollars, changes in the macro environment that present a new opportunity, and the overall fit within the coverage universe. On top of that, analysts do significant due diligence prior to launching coverage, both quantitative and qualitative. Building a model and becoming entrenched in a company’s business model is a big commitment, and it takes a lot of time and resources. Once launched, it is considered a long-term commitment. This is why analyst coverage is most often at the top of the priority food chain.

However, this is also what makes it very hard to get coverage dropped, particularly by banks that are making a market in your stock. Pursuing dropped coverage should be a last resort, only considered when it’s been deemed truly necessary for the best interest of your shareholders – not because you don’t like the analyst’s opinion, rating, financial model, or personality. Furthermore, it should not be based on a lack of time or interest to engage with another covering analyst. In our opinion, that reason should be a non-starter.

We would first encourage your team to evaluate whether you are offering that analyst the same access that you give all the other covering analysts. At a minimum, after every quarterly earnings release/conference call, offer to schedule a 1×1 call to connect on key messages, strategy, themes, and expectations. Like most relationships in life, an open dialogue with the analyst can go a long way towards clarifying misunderstandings and realigning messaging. Similar to how you would handle any discussion that has taken a left turn, engage in a conversation about the underlying assumptions and information that led to the analysis or financial estimates. We aren’t suggesting that you provide any information that isn’t in the public domain, but challenging model assumptions that seem out of line from publicly stated guidance is certainly recommended.

If the problem is lack of engagement, make a concerted effort to get as much public material in front of the analyst. For example, send an email and say, “We just wanted to be sure you were aware of XXX. This is a meaningful new component of our business that, as we stated on our call, we expect will boost growth by XX%. I’d love to discuss this with you in more detail, as it wasn’t noted in your latest report or model.” Be sure to copy the analyst’s whole team.

If you’ve reached a point where additional measures are deemed prudent, here are a few approaches that might move the needle:

  • Talk to the bankers at the firm about the relationship, future opportunity to work together, your company’s goals (e.g., financing, M&A, ATMs, etc.), and the importance of an improved relationship with the covering analyst.
  • Reach out to the Director of Research. There may be an opportunity to have coverage reassigned or re-directed if the relationship is hurting both parties. In this conversation, point out things like your public messaging that isn’t reflected in current notes, responsiveness to your outreach, the financial model relative to consensus, or in some cases, the lack of routine updates following earnings or other significant news.
  • Decline requests for Non-Deal Roadshows (NDRs) or participation in bank-sponsored conferences and events.
  • Decline to take questions from the analyst on public calls.
  • Eliminate the bank from participating in any potential offering or M&A transaction.

While these may or may not have any impact, maintaining long-term relationships should always be a top priority of investor relations. It is extremely important to try keeping these relationships positive and on track – even if you and your management team don’t agree with the message or model. Our goal as IR professionals is first and foremost to ensure that any material information that an investor needs to know to make an informed buy/sell/hold decision is consistently publicly available and readily accessible in one of the many formats that the SEC has deemed appropriate under Reg FD (e.g., press releases, websites, or conference call webcasts with open access).

It’s in the fine print.

At the end of any published research note, there is a section called “Analyst Certification.” In this section, the author certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subject securities or issuers, and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report.

So, it is important to keep in mind that there should always be room to discuss that view. That should be the ultimate goal. Contact Gilmartin today for guidance on any sell-side analyst challenges you may be facing.

Leigh Salvo, Managing Director

 

The Telehealth Upward Trend

The pandemic continues to accelerate the adoption of technology throughout the healthcare sector and investors are taking notice. Pre-COVID, many established companies and start-ups entered the digital health market by solving issues related to the delivery and management of healthcare through technology. The subsequent regulatory changes and increased awareness have helped accelerate adoption, particularly in telehealth services, as many patients tried virtual visits for the first time. In 2020, both public and private funding reached record levels and the momentum is expected to continue into 2021.

Key Considerations:

  • Telehealth services revenue growth highly correlates with the level of private investment in computers and software. For instance, interactions between patients and healthcare providers have significantly benefited from technological expansions in communications tools, such as mobile devices and platforms, with improved audio and video transmission.
  • Industry revenue growth is supported by advancements in medical technology. As new medical devices, such as self-monitoring tools, are introduced to the market, demand for telehealth services also increases.
  • An aging population vulnerable to chronic disease has aided industry revenue growth. As the number of people aged 65 and older rises, demand for telehealth services will likely increase.
  • Furthermore, with an increase in chronic diseases, federal funding for Medicare and Medicaid are expected to rise. As more healthcare providers utilize telehealth services to treat and manage these conditions, industry profitability will grow.

2020, however, was a pivotal year for the Telehealth Services industry. Due to the contagious nature of the COVID-19 virus, in-person healthcare visits and services were disrupted. As a result, many healthcare providers opted to use telehealth as a safer alternative to treat patients and avoid spreading the virus. The stress and fear instilled from the pandemic created further opportunities to utilize these solutions to manage the increasing demand for mental health services. According to a study conducted by McKinsey, “consumer adoption has skyrocketed, from 11 percent of US consumers using telehealth in 2019 to 46 percent of consumers now using telehealth to replace cancelled healthcare visits. Providers have rapidly scaled offerings and are seeing 50 to 175 times the number of patients via telehealth than they did before.” The acceleration in telehealth adoption from both consumers and healthcare providers have created a massive opportunity for the industry moving forward. The report forecasts that, “up to $250 billion of current US healthcare spend could potentially be virtualized.”

How to capitalize on the telehealth opportunity?

  1. Develop a model that captures utilization trends and metrics of telehealth services. Stay informed on evolving consumer preferences, reimbursement, technology, and regulations.
  2. Analyze the opportunity that telehealth services can provide for each individual solution.
  3. Create a business model that clearly defines your value proposition, then develop a set of inputs and expected outcomes.
  4. Determine strategies that deliver attractive returns and sustainable value for investors.

As the broader healthcare sector continues to evolve through demographic and structural changes, the Telehealth Services industry will likely emerge as an alternative solution that addresses the medical needs of consumers.

Gilmartin has partnered with many clients to implement best practices and achieve public company readiness. For additional information, please contact our team today.

Sources:

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Michai Zlatopolsky, Analyst

 

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How COVID-19 Continues to Affect Earnings

Twelve months ago, society as we knew it changed forever at the hands of the COVID-19 pandemic. As a result of this increased volatility and certain negative impact on health care systems and the global economy, public company executives had no choice but to withdraw 2020 financial guidance. This led investors to ask tough questions around underlying business trends on what felt like shorter and shorter time horizons. Under “normal” circumstances, management teams would never dream of providing this level of detail and transparency, as it ultimately introduced risk that could be avoided by focusing on the intermediate to long-term trends. Interestingly, management teams who skillfully updated investors on monthly (and sometimes weekly) business trends were able to enhance their credibility by delivering on what they said. Given this backdrop and declining COVID-19 infection rates, one of the biggest questions heading into Q4 ’20 earnings season was whether or not small/mid-cap med-tech companies would issue full year 2021 guidance. At the start of earnings, everyone had an opinion on what companies should or should not do, but with Q4’20 earnings behind us, some interesting themes have emerged.

As detailed in Exhibit 1 (see below), 25 of the high-growth med-tech companies have reported Q4 ’20 results, with 16 issuing full year 2021 revenue guidance. Within this group, 4 issued guidance above consensus, 6 were roughly in-line with expectations, and 6 were below. Not surprisingly, companies who guided above consensus estimates saw their shares rise roughly 4% (excluding Inari), while those who came in below saw shares decline roughly mid-single digits as a percent. What is more interesting, but also not surprising, is the variability in stock prices of companies who did not issue guidance (ranging from down 7% to up 9%). Realizing this is a simple analysis and that each company is uniquely impacted by the COVID-19 pandemic, the results are still noteworthy.

More specifically, if you combine all 25 companies, those who did not issue guidance are scattered evenly throughout the broader group – Exhibit 2 (see below). The point being that companies who issued guidance are not necessarily being rewarded for it at this point. While guidance allows management teams to put a stake in the ground for the year, investors know they cannot rely solely on management’s guidance at this stage in the recovery, given macro uncertainty and idiosyncratic risk at the company level.

So, what is right and what is wrong? While we like to believe there are heuristic shortcuts when presented with two options, as is the case in all facets of life, decisions are not made in a vacuum. When presented with the option of issuing guidance, it is not IF you do it but HOW you do it. Specifically, the logic and confidence at which you deliver a message is sometimes more important than the message itself.

What’s next? Since Q1’21 negative trends are likely fully priced in, investors will be keenly focused on: 1) what the COVID recover looks like in Q2’21 and if the backlog recapture is as robust as it was in Q3’20 and 2) what the back half of 2021 looks like with limited COVID headwinds. In less than 50 days, this is the communication challenge that management teams will need to grapple with to properly maintain expectations.

The team at Gilmartin is experienced in helping companies deliver compelling messages. Contact us today for help crafting your next public message.

Exhibit 1

 

Exhibit 2

Matt Bacso, Principal

 

Reinstating Guidance for 2021

Is it Time to Bring Back Guidance for 2021?

When the COVID-19 pandemic started to affect the world in early 2020, nearly every business saw an immediate and meaningful impact on revenue. Public companies began withdrawing financial guidance that was previously provided for the fiscal year 2020 as well as any outlook leading into 2021 due to lockdown restrictions, social distancing mandates and growing uncertainty.

As the year progressed, resurgences in COVID-19 cases were occurring all over the country, and even into 2021, we continue to see the impact. With fourth quarter earnings reporting wrapping up, as we close in on the end of the first quarter for 2021, there are notable trends that public companies must consider when deciding whether or not to reintroduce formal guidance for 2021.

Keep it Conservative
Looking toward healthcare, hospitals are remaining open to elective surgeries and the singular focus on COVID-19 has slowly started to shift back towards normalcy. Concurrently, we have noticed the reintroduction of guidance by a large portion of medical technology and diagnostics companies for fiscal year 2021. While sentiment in returning to pre-COVID growth is high, reporting companies are taking a conservative approach.

Through February, more than 75% of these reporting companies have reinstated some form of formal guidance for the year. On average, those providing guidance have given a range of approximately 3.5% and have kept their estimates conservative. The large range stems from concerns looming around new potential shutdowns, vaccine efficacy and the development of new strains which may lead to further drawbacks on revenues.

If you are reinstating guidance, consider providing a larger than normal range with a focus towards the lower end to maintain a conservative outlook. Additionally, develop messaging around the guidance that will help the investment community understand the ongoing constraints that may impact the business. While quarter-over-quarter growth through the pandemic has been promising, the comparison to recovery to pre-COVID numbers should be front of mind.

If you have not yet reinstated guidance for 2021 and your business is trending back towards predictability, it is time to consider doing so.

If Unsure, Wait
While many large and mid-cap companies have started to provide guidance as they report fourth quarter financials, there are still small-cap and sector specific companies that remain impacted by COVID-19.

Ongoing pandemic impacts only fuel uncertainty when taking COVID-19 resurgence, potential low vaccine efficacy, and new strains into consideration. If your business continues to see a substantial impact through the first quarter of 2021, it is best to hold off providing guidance until predictability is reached.

Keep in mind that a conservative approach is best. If management remains committed to providing guidance, consider a larger range with a focus towards the lower end, coupled with transparency.

Final Thoughts
Wall Street is understanding of the ongoing headwinds companies are facing due to COVID-19. It is no surprise that industry leading giants with stable businesses have been able to provide guidance earlier than most. As recovery continues among all companies, the thought of providing financial guidance should be front of mind.

If your company has found predictable growth over the last few months and financial guidance has not been implemented, it should be. With a majority of companies seeing growth trends into the first quarter of 2021, guidance is to be expected. If your company continues to face obstacles due to COVID-19, maintain the position of no guidance.

It is better to under promise and over deliver than to over promise and under deliver. No matter your decision, remain conservative in your estimates and be transparent with the investment community. Increased transparency and a conservative approach in discussions can provide Wall Street with color on the current state of the company in lieu of formal guidance for the year.

The team at Gilmartin is experienced in helping companies prepare meaningful financial guidance. Contact us today for help with preparing guidance for your company.

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Collin Beloin, Associate

 

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