Life Sciences Investors Concerned Over Corporate Readiness for MIFID II
New investor survey highlights need for companies to significantly step up their investor communications
21 March 2018, London, UK: Optimum Strategic Communications (Optimum), the international strategic healthcare communications firm, today announces results of its survey of investment fund managers on the impact of MiFID II on the Life Sciences Sector. The survey held in January 2018 included responses from a number of the largest and most influential fund managers investing in the global life sciences sector, representing asset management firms with US$3.7 trillion of funds under management, of which US$130 billion are invested in life sciences.
MiFID II, which took effect in January this year to improve the functioning of financial markets and to strengthen investor protection, has brought in a new regime. The survey findings clearly show that the market is still very uncertain how MiFID II will play out, despite considerable planning, and 2018 is likely to be a ‘watch and see’ period. As one fund manager stated bluntly:
“I don’t think anyone understands the impact MIFID II will have – companies, banks, asset managers.”
Another fund manager acknowledged that the market was feeling its way and that the situation was undoubtedly going to evolve as the year unfolds:
“There is no doubt that the end of 2018 is going to look completely different to the start.”
The buyside do not believe that companies are prepared for the changes and that they will be far more affected than they currently think. The pressure on companies, particularly life sciences companies where the equity story is complex, to be more proactive in managing their relationship with investors is only going to increase. Indeed, investors are expecting life sciences companies to significantly step up their communications efforts.
All companies will need to be more proactive in managing their relationships with the investor community – both existing and potential. Knowing who they are, where they are based and what they are looking for will be crucial in maintaining a deep pool of existing and potential investors to support and grow the share price.
Maintaining market awareness and visibility will be critical to avoid share price drift or negative momentum and this is particularly important for life sciences companies, which often have an extremely complicated and high risk investment case and where there can be long periods of little newsflow.
The buyside still expect full corporate access, but the onus for managing this will fall on companies, many of which have previously relied on banks and brokers. Companies will have to identify and target investors, and then arrange meetings / access, and this may also require support from specialist service providers. This will increase the demands on the IR team and significantly increase costs, which may not yet have been fully appreciated, particularly by mid and small cap companies.
While the buyside are prepared to pay for access to analysts and research, the amount they are prepared to pay and the number of houses which they will sign up to varies considerably. As the buyside will take the cost of MIFID II on their own P&L, they have a keen focus on controlling costs and therefore
limiting access to potential services offered by brokers. Consequently, there will be less research coverage and the sellside will shrink, potentially reducing market awareness and understanding, the risk is that this will disproportionately affect smaller, complex companies such as many life sciences companies.
There is likely to be an increase in volatility as the decrease in research and the commensurate diminishing of the value of consensus will mean that there will be fewer trigger points for trading, increasing volatility around those that remain. Explaining the underlying drivers of newsflow and / or performance and being ready to manage this volatility will be an additional burden for companies.
The decline in research coverage and the reduced number of broker conferences, will mean that there are fewer opportunities to communicate a company’s equity story to existing investors and meet new ones. Maximising the potential of these opportunities will be even more important than before. The potential role for paid for research will increase, albeit from a low base.
Commenting on the research, Mary Clark, Managing Director, Optimum Strategic Communications, said:
“This report clearly shows that the investment community is looking to companies to significantly step up their communications with existing and new investors to fill the gap left by banks and brokers. The pressure on life sciences firms, where the equity story can be complex for non-specialist investors, is even greater than for more mainstream stocks. With an expected decline in research coverage at the smaller end of the market, investor relations teams are going to have to work harder to build market awareness and relationships. More effort will also be needed to educate and inform the market to avoid suffering from a lack of market visibility and being at the mercy of greater volatility driven by irregular newsflow.”
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For further information:
Optimum Strategic Communications
Mary Clark, Managing Director
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About the Report
Participants included a range of specialist Life Sciences and generalist investors who invest in the Global Life Sciences sector, to understand how they thought implementation of MiFID II was going to affect them and their relationship with companies and brokers. The survey held in January 2018 included responses from a number of the largest and most influential fund managers investing in the global life sciences sector, representing asset management firms with US$3.7 trillion of funds under management, of which US$130 billion are invested in life sciences.
About Optimum Strategic Communications
Optimum is an international strategic healthcare communications firm, based in London and New York, which specialises in investor relations, corporate and financial communications. Our established US strategic partner is Burns McClellan which provides support for clients in the US market. Our senior team of healthcare specialists are experienced and trusted advisors to some of the world’s most exciting public and private companies, both large and small, across pharmaceuticals, medtech, biotech, digital health and healthcare services.
Over the last 20 years we have worked with over 200 healthcare companies, advising them on financial communications and investor relations, including major corporate activity such as fundraising, IPOs, and M&A, as well as corporate reputation and crisis scenarios.
We have an exceptional network of contacts across the international investment community in Europe and the US; contacts we have built and maintained over the last two decades. Our team includes ex-fund managers and analysts.
We specialise in developing clear outcome driven strategies with tailored communications programmes to help clients achieve their business goals. Our experience of analysing, investing and writing about healthcare companies uniquely enables us to help our clients build a compelling investment story. While our knowledge of the global healthcare industry, combined with in-depth research and analysis, enables us to provide our clients with informed and creative advice. For more information please visit www.optimumcomms.com