In most sectors, the value of a business depends on its’ forecast profit, which is calculated by deducting overheads from revenue. In contrast, investors expect biotechs to make a loss over the short term, and only become profitable over a longer timeframe. Moreover, this profitability is by no means guaranteed, because many risks are involved. For this reason, biotech investor relations, like from companies like Lifesci Advisors, are different to other forms of investment. To succeed in this field, a number of distinct rules have to be followed.
Biotech research is valuable, because it allows new drugs to be developed. Often, independent researchers produce better results than those who work for large Pharmaceutical companies, because they are less constrained in many ways. Notwithstanding, some modern biotech firms run the risk of destroying useful reference materials, due to manual and outdated temperature tracking procedures. This might have unexpected commercial consequences. If reference material is lost, market launches can be delayed, future research can be hindered, ROI can be impacted, and the value of a firm can plummet. Investors might regard these firms as reckless, if they fail to manage risks to stored materials that are temperature sensitive.
Stocks in biotech rank among the most volatile in the public market. Firstly, firms have to deal with development risks – including producing drugs that are effective – and implement responsible safety measures. As well as this, there are regulatory risks: Global regulators have to be persuaded to approve the drugs for sale. There are commercial risks too: Patients have to be persuaded to pay for the drugs, healthcare authorities have to agree to provide them, and insurance firms have to be willing to cover them.
Biotechnology is regulated more stringently than most other sectors. All steps of the regulatory procedure can present unexpected obstacles. Biotech firms need to draw up a clear and viable plan through research and approval, whilst simultaneously offering a credible business strategy for the end product.
Biotech firms do not always need a CFO to complete an IPO. Of course, firms have to satisfy financial reporting and disclosure rules demanded by the authorities. However, this can be accomplished by having a capable finance department, a good financial director, and a competent member of the board to serve as a finance expert. Over the long term though, it is important and expected of these firms to have a CFO. The individual in this role ought to be the main point of contact for investors, along with the CEO.
The majority of biotech firms have to keep going back to the capital markets, to raise funds for their next development stage. For this reason, it is important to plan a corporate strategy featuring milestones, which lay the foundation for periodic capital injections. These days, biotech investors expect firms to raise funds, after they have announced positive second phase or third phase clinical data. Also, they expect firms to file ATM (At the Market) financing facilities twelve months after their public listing. Overall, investors have well established expectations, so shrewd biotech firms will have the required paperwork available to comply with best industry practices.