Genentech may not have totally cornered the market in deoxyribonucleic acid and genes, but as the pioneering biotech company, founded in 1976, it boasts www.gene.com as its domain and DNA for its ticker symbol on the NYSE. Genentech was a financial pioneer as well, with its 1980 IPO rocketing from $35 to $88 within an hour in what was, in those days, an unprecedented launch surge. Today Genentech is perhaps the world’s largest biotech, with a market cap of nearly $90 bn. That, combined with accolades such as being named number one in Fortune’s ‘Best places to work’, helps the company to attract the talent that constitutes the intellectual capital needed to keep it out in front. Meanwhile, its corporate brand advertising, which showcases the company’s work in fighting cancer in its multiple deadly forms, keeps everyone feeling good about it, including, of course, investors.
But there is a penalty for being out in front: there are a lot of people just behind waiting to race along in your wake and overtake you. Despite recent trends toward dividends, Genentech doesn’t pay them and continues to invest heavily in R&D. And there will be continued opportunities for that investment as long as cells turn cancerous or there are other severe unmet medical needs. Analysts like the 19 percent of research, since in the nicest possible way, great expectations are what biotechnology stocks are about.
Interesting times
When I spoke to IR director Kathee Littrell, a precedent-making case involving Genentech was landing on the docket of the Supreme Court and the company was in the midst of entering into a partnership with CGI. Just two of the day-to-day ups and downs of a major biotechnology company working to satisfy legislators, regulators, patent offices and patients, as well as shareholders.
But the alleged Confucian curse ‘May you live in interesting times’ would appear to fall on deaf ears with Littrell; she revels in them. She has made a career out of crisis even before entering the perilous profession of IR. A nurse and a PhD specializing in cardiovascular practice, she was director of the University of Miami’s emergency medical training program when Genentech took her on for its own educational programs in 1992.
Although IR professionals may like to think of themselves as the heart and soul of a company, it was still a bit of a leap when this heart care specialist became associate director of IR in 2002. Helped by her background in statistics studying patterns of heart disease, she took crash courses in accountancy to put herself in number-crunching mode and worked with Genentech’s in-house corporate counsel to hone her legal skills. In 2003 she took over as director of the IR department.
It seems almost an experimental choice of IRO. In fact, the whole company has the whiff of the test tube and the petri dish about it. Senior managers have hands-on experience in their field, whether it is research, development or commercial application, and Genentech’s scientists are listed in financial reports along with the executive committee and the board. For example, CEO Art Levinson started with the company as a senior scientist before taking on increasing managerial responsibilities and becoming CEO in 1995 and chairman of the board four years later.
F Hoffman-La Roche, the Swiss pharmaceuticals giant, owns 55.8 percent of Genentech’s stock but allays any of the potential fears of minority holders by only taking three seats on the seven-strong board. ‘The board is very independent and active,’ says Littrell, stressing that project collaborations with Roche are set up on the same commercially justified basis as with any other company. ‘We have a very good relationship with them,’ she says; a prophylactic attitude bearing in mind Roche’s majority holding.
On board
Although Levinson is both CEO and chairman, Genentech has managed to avert any corporate governance criticisms – perhaps because it has Charles Sanders, one of the independent board members, as ‘lead director’. He leads executive sessions of non-management directors and serves almost as an ombudsman – a point person for stockholders who want to communicate to the board other than through the chairman.
Of course, day-to-day communication with major holders falls to Littrell, who says she targets investors both quantitatively and qualitatively. She uses targeting software but also does a lot of her own research. Most of Genentech’s shareholders, she says, are US-based, long-term and growth-oriented. She also deals with over 30 analysts, who, like Genentech executives, tend to have strong scientific and medical credentials. In the biotech field, analysts are as likely to be perusing Cell or Nature magazine as checking what to sell or buy in the financial press, so IR works closely with corporate communications to ensure that appropriate and coordinated messages go out. ‘Wealways provide input so they have a shareholder perspective,’ Littrell says. Genentech’s IR team has seven other members: three deal with the analysts, one develops presentations and tracks analyst estimates, and another is part of the CFO program that rotates execs round the different departments. One handles the retail sector, and although Littrell estimates this only represents around 5 percent of investors, Genentech participates in BetterInvesting shows and similar events and indeed works with brokers. For example, the company hosts bus tours for analysts, who bring their clients to headquarters.
Plain speaking
Such events also provide an opportunity to make use of one of Littrell’s distinctive IR innovations: an intensive IR speaker training program. Genentech stages around a half-dozen US roadshows a year, and two or three a year to Europe. Add investor conferences and you have a high number of executives that need to take part regularly in this busy schedule of investor events. Bus tours to headquarters give new and aspirant speakers a chance to ‘get the feel of the presentations and how to appropriately respond to investor questions,’ Littrell explains.
Analysts and investors want to hear directly from the personnel involved in the clinical trial process, and without necessarily subscribing to the stereotype of the absent-minded scientist, it’s fair to say that someone who has spent a lifetime poking around in cells may not be in touch with the financial markets. The IR team carefully mediates between investors and a wide variety of scientific, managerial and commercial talent from different parts of the company.
There have been over 35 graduates of the Littrell crash course in IR, drawn from various departments. These individuals have learned about regulatory compliance and presentation skills focused on investors, which of course includes not only how to tell the story but also what not to tell. Several times a year, the head of finance and other top executives explain to all potential speakers the overall corporate position as well as the implications of SEC regulations.
One analyst who deals with the company comments: ‘We have several contact points with Genentech and rarely do we get exposed to someone who is unprepared. They are surprisingly on message, so the speaker training seems to be working.’
