A conversation with the new face of today’s socially-savvy individual investor

Posted by: in Communication Strategy, Corporate and Strategy, Healthcare Insights, Public Relations Practice, Social Media Insights & Trends on January 4, 2013

Written with Denise Powell of BrewLife

The web and social media have had a dramatic impact on the way many consumer brands interact with their customers, but as a discipline, corporate communicators have often lagged behind in their utilization of cutting-edge practices to reach their own constituents. For the investor relations professional in particular, one source of hesitation is the conflict between communicating in an open, transparent and responsive manner while avoiding selective disclosure that would run afoul of U.S. Securities and Exchange Commission laws.

As the biotech world descends upon the Bay Area for its annual investor bonanza at the JP Morgan Healthcare Conference (#JPM13) next week, we are pleased to share the first in a series of conversations with pioneers and leaders who are helping to shape the future of corporate communications. In our first installment, we talk with Brad Loncar (@bradloncar), an investor based in Kansas City, Kan. who – through the power of online activism and social media – has become a player in the investor conversation in biotech and other healthcare companies. In many ways, Brad represents the “new” face of the outspoken, socially-savvy individual investor, having built his influence apart from the auspices of a traditional investment or research firm.

Brad Loncar is an investor based in Kansas City, Kan.

 How did you become interested in investing in healthcare sector companies?

I’ve been investing most of my life – both professionally and personally – so I’ve always been exposed to healthcare to a certain degree, but it wasn’t until about five or six years ago that I really started to dive deep into the field.  In a developed economy like the U.S., it’s becoming much more difficult to find growth, and when one looks at the opportunities that are available to public investors, it would be difficult to find a sector where there is more innovation and value creation happening right now than in healthcare. As an investor, I have to try to take advantage of that. It’s something that our country leads the world in, and I think we should all be very proud of it. I’m still learning every day.

You’ve become quite active on social media, Twitter in particular. How has social media empowered individual investors like you? Do you feel that being active on social media provides a competitive advantage?

Twitter has done two important things for investors like me:

First, to a certain degree it has democratized the distribution of news – both in the amount received and the speed with which it is delivered. These days, I work mostly from my home in Kansas City. In the past, not living in New York (or at least not being part of the industry per se), would have put me at a huge disadvantage because I’d be getting less news and conversation, and I’d likely be the last person to find out about things. Though some of those inequalities still exist, in large part Twitter has helped to erase these inequalities. We live in a digital world now, and I’ve seen many instances where investors on Twitter are the first to uncover something important and, therefore, the first to be able to act on it. It has become a huge advantage.

Second, it has improved me as an investor (and as a person in general) because I think Twitter is the world’s greatest learning tool, and, like anything else, the more engaged an individual is with something, the more they will get out of it. What better way is there to learn about a topic, or in this case a company or drug, than to watch people who are experts on the matter talk about it?  It is also incredibly helpful to be able to talk through your own investing ideas and bounce them off people who are smart and experienced. A value can’t be placed on that type of interaction, and on Twitter, it’s readily available. I’m really thankful for all of the people I’ve met there because the way information is shared lifts all boats and I’ve really benefited from that.

Who are your “must-follow’s” on Twitter?

I follow and gain insight from many of the “usual suspects” who drive the discussion around healthcare and biotech, including @adamfeuerstein of TheStreet.com, @brettchase of Minyanville.com, @ldtimmerman of Xconomy.com, @matthewherper of Forbes.com and @maverickny of PharmaStrategyBlog.com. Of course there are many smart industry insiders and traders who are “must-follow’s” as well, but I don’t want to leave anyone out because they are too numerous to mention. I currently follow about 150 or so accounts – and that is just the tip of the iceberg of what is out there.

You frequently use your Twitter handle to offer positive comments about companies that you feel have done a good job of communicating with patients and the general public. Why do you think that’s important?

It never ceases to amaze me how companies with the most transparency and best communication skills usually end up being the best investments in the long run, so I’m always interested as an investor when I see a company who clearly gets it. Anyone who follows this sector will agree that it is not always the best drug that “wins,” unfortunately. A company might have a great product, but if it can’t tell its story effectively, they won’t get very far.

I’m also a big believer in direct-to-consumer communication. While I know it is sometimes a touchy subject in this industry, companies have to understand that we live in the information age, and patients are only going to have more input into their healthcare decisions as time goes on. Patients are the end users of every product, so companies need to make sure the public directly understands the value and availability of medicines, devices and diagnostic tests . I am certain this concept is only going to grow in importance over time.

What kinds of company IR/PR practices would you like to see more of? What companies do you feel have “best practices” in communications?

I think the biggest trend that everyone is watching is how companies will ultimately engage social media and expand their presence there. I’d love to see more companies have a much bigger presence on both the web and social media. So far it is only happening in baby steps, but that is bound to change as the medium grows in importance. It is also bringing about whole new issues, both good and bad, that must be considered now.

One such issue is the prevalence of blogs and the effect they are having on the markets. While there are many good blogs out there, some websites tend to practice little editorial restraint. This has big implications for companies, especially when a negative article is written because false rumors can travel fast. So what should companies do when that happens?

An interesting case study worth examining happened outside of the healthcare sector last year to a company called 3D Systems. It is a $3 billion industrial concern, proving that these unfortunate situations can affect companies of all sizes. After some very questionable blog posts caused their market cap to drop by nearly $500M, 3D Systems decided to schedule a public conference call with an entire slide deck to directly refute the negative allegations. Think about what a  big deal that is, perhaps representing a “new normal” in communication practices.  The management team there was understandably hesitant about whether to even respond to such an article, but was eventually lauded for doing so – and their stock fully recovered and then some.  

While individual cases will be different, perhaps the 3D Systems example goes to show that there is real value in responding in an open and transparent manner when these challenges arise.  Companies should start thinking about what to do in similar situations because they are becoming more common and require fast action.    

What most bothers you about the way healthcare companies communicate with investors and the public?

As technology becomes more ubiquitous, I think there is room for improvement in how investment conferences are shared with the outside world. For example, it is no secret that the most informative part of an investment conference is typically the breakout session, which usually happens in a separate room and is almost never broadcast over the web. While that is perfectly legal, I don’t think it is a fair way to share information.  Companies might want to reconsider their participation in these types of conferences if they aren’t being broadcast because (1) they might tarnish a company’s record in terms of transparency, (2) they cast a sense of unfairness on the system that is not healthy for our capital markets as a whole and (3) they create an information gap that is counter to the entire trend of our age, which is that news is made available to everyone at once.  As more companies embrace that concept of fairness, I believe the overall market will return its appreciation.  Investing should be about who has the most foresight, not who has the most access.

From an investor’s perspective, what are the three biggest trends/challenges facing innovative healthcare businesses?  Who is doing a particularly good job of “meeting the future”?

I have a lot of admiration for Roche, so I’ll use that company as an illustration of three trends that I’m focused on.

Obviously replacing medicines with patent expirations with new, innovative products from R&D is a big problem that everyone faces. In HER2-positive disease, Roche has done it in just about the most spectacular way possible. The Herceptin/Perjeta/T-DM1 succession is one of the more impressive things I have ever seen. Antibody drug conjugates are clearly going to have a huge future.

Diagnostics is also a big trend, and I think it is impressive that a company as large as Roche already earns roughly a quarter of all revenue from that sector. Good diagnostics will be key in unlocking personalized treatments, and hopefully will forge a path to cutting down overall costs by catching disease much earlier. There has already been significant consolidation in this area over the last year, and I expect that to continue.

A final trend that Roche, and many other companies, is trying hard to capitalize on right now is capturing the unprecedented growth that is happening around the world. Roche currently earns about 21% of revenues from those areas that they classify as international. I travel quite a bit, and it never fails to impress me how many places around the globe have legitimate middle classes sprouting up. This presents a huge opportunity, and it is why we are seeing such eye-popping takeout premiums in disease areas that represent big, global problems like hepatitis C and diabetes. 

Another company that clearly “gets it” is Regeneron – look  at the way they have managed the Eylea launch. One of the most fundamental things a company needs to do for a launch is manage expectations. In this case, Regeneron has increased their guidance every single quarter since the drug launched. While some might say that their initial guidance was way too low, I would much rather see a company be ultra-conservative than overshoot. If they issue aggressive guidance and don’t meet it, market sentiment will turn against them, and an otherwise respectable launch might be considered a total failure. Negatives like that have a tendency to snowball and some companies never recover.

I also am a huge fan of Regeneron’s CEO, Leonard Schleifer. He is everything I look for in a CEO: incredibly bright and dedicated, and yet also speaks in a very plainspoken, “tell-it-like-it-is” kind of way. Plus, I respect how he has a long history of participating in things that are geared towards the ordinary investor – like Jim Cramer’s “Mad Money.” In this business, public company CEOs understandably need to spend a lot of time meeting with big fund managers, but I hope they also manage their company with the realization that, at the end of the day, it is ordinary people whose money is entrusted to them. Watching the way he leads Regeneron – through both good times and bad – it is clear that he feels it. I’ve always admired him for that.

(Disclosure:  Roche and Regeneron are W2O Group clients.)

You have a strong opinion about the need for diversity in boards of directors. What led you to those beliefs?

The more companies I’ve seen fail – whether it be banks during the financial crisis or various healthcare companies at other times – I have become convinced that the board of directors is the Achilles’ heel of our system. In healthcare, there are two issues that need to be carefully examined about any board.

The first issue is independence. Most boards, especially for medium to large companies, are handpicked by the CEO or Chairman and, therefore, are more likely to be beholden to him or her than to the investors for whom they actually serve. This approach has the effect of putting management first, and shareholder value second – and all too often, that is exactly what happens. This is a problem that many companies face, however, and is not really industry-specific.

The second problem, as you mentioned, is diversity. I believe a lack of diversity is a big problem in healthcare specifically because many boards are stacked with purely scientific or healthcare industry colleagues. In my opinion, much more diversity is needed. For example, how about putting an accountant on the audit committee? Most companies don’t even think of something as simple as that! Diversity is especially important when a healthcare company reaches the commercial stage. The skillset required when a company makes that transition is often completely different than that of a research organization, but often the board doesn’t reflect this fundamental change in the nature of an organization. This can leave those companies completely unprepared for the realities of launching a product.

The only answer to both of these problems is much more shareholder representation on boards, because investors are ultimately the most accountable parties at the end of the day. Those who have both skin in the game (and true downside risk) can sometimes add a lot of value to the equation.

We at W2O group believe strongly in building an open and transparent communications culture for companies of all sizes, particularly as social media empowers new voices and grows in importance within the overall corporate communications mix. We thank Brad for his willingness to share his views with us and our readers.

Watch this space for future installments in our series on pioneers, leaders and practices shaping the future of corporate communications.

By: Mike Nelson

Mike is a Director in the Healthcare group at WCG, where he focuses on communications, public affairs and marketing strategy for life sciences companies, both large and small.

Find me on: Twitter
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