SO YOUR company’s stock is down – way down from where you think it ought to be and way below its 52-week high. You find yourself fielding calls from any one of the following: irate, disgruntled, or disappointed shareholders. What a distraction! What should you do?
Well for one, be patient, be polite and keep your cool. Remember, many of your shareholders have no experience in a down market and they are hurting.
Next, take the time to evaluate your business plan. Have you hit your milestones? What bumps-in-the-road have you encountered? Who are your customers? Partners? Now, don’t go crazy in the process – this may be the right time for a course correction but not necessarily a change in course.
I am certain some of you may be thinking that you have a lot of great drug targets that may (and may I politely remind you, may not) be of therapeutic value. You may also be thinking that your technology has facilitated the discovery of many new targets or elucidated the value of these targets. Perhaps these thoughts have led you to the conclusion that if you hire a few additional people you could expand your business and become a therapeutics company.
Before you head down that path, remind yourself why your investors invested in your company. Then ask yourself whether your business plan is on course. The answer to the first question should be simple. They invested because they believed that your plan – the original one – was sound and that you were going to build a viable business. Nevertheless, if you decide that you are now off course, you must start thinking about why you did not stick to your plan. Did your technology fail? Is your business development strategy (or lack thereof?) not getting you where you want to be? Did your competition out maneuver you? Is management not executing the plan effectively? Without a thorough self-examination, spending more money to redirect the company may be a waste.
Let’s say you and your team analyze every program and department and find that everything is grand or can easily be fixed. If you are lucky enough to have this happen, you may be even more tantalized by the pot-of-gold at the end of the drug development rainbow. So, you sell your board on the idea that becoming a fully integrated pharmaceutical company is the right course. Then it is time to ask yourself one last question, how are you going to finance the revised plan?
Drug development is an expensive business and you are an unproven player in the space. Do you really think it is wise to spend your cash on this new plan? Perhaps you should husband your cash in this market environment. Oh, you plan to raise additional cash to support this new endeavor? Do you really want to sell equity at your current share price? Is that wise?
Before you jump into something as difficult as making drugs, you might want to remember that the private placement market is heating up (it always does when the public market cools off – it’s one of the laws of Wall Street). Now, might be the right time to top off your tanks and continue building the business you originally set out to create. Will people want to buy your stock with your change in direction? You probably won’t know until you have tried, but that is an expensive answer (in both money and management time).
If you have enough cash to get through the next 12 months and your plan is progressing, start planning on raising additional funds now! As I stated earlier the private market is starting to heat-up, and this means a lot of companies, both private and public, are vying for funds. This further equates to a harder time gaining the attention of fund managers and stiffer terms. But when you finally negotiate terms that you can live with – take the money and start building your business as originally defined.
And, even if you are flush with cash and your business plan remains sound (it always takes longer to develop your business then originally planned), don’t squander your money by expanding into a difficult new area. The tricky shift from toolmaker to drug developer could cost you dearly in missed opportunities in your original area of expertise while you focus on transforming your company into a drug maker – a transformation that is difficult at best, impossible at worst. And, when you finally realize that becoming a drug developer was an overwhelming task, your cash will likely be long gone.
Always remember that cash is your second greatest asset after your employees!
Ira Leiderman is managing director of the Palladin Group, a New Jersey-based investment management firm. He was previously a senior healthcare banker at Gerard Klauer Mattison. You can e-mail Ira at [email protected] .
TrendSpotter is a weekly column that focuses on how trends in politics, patent law, and the US and European markets affects the genomics industry. The column appears every Friday. Next week Robert Goldberg, a senior fellow at the National Center for Policy Analysis, will offer his thoughts about how the political battle in support of genomics is likely to shape up.
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