Often in meetings, investors will ask a CEO or CFO about a competitive product. Doesn’t the other drug work faster? Aren’t there fewer side effects? Isn’t it cheaper? I hear those questions all the time during road show presentations and meetings. Usually management’s first response is to take a defensive position. While they may not totally “bash” another product, they seem to quickly start listing all of the negative attributes.
That’s not the right approach. Instead, when asked to compare your drug, product, or service to the competition, you should do two things: First, know why the question is being asked. Then turn a negative question into a positive response. Let me walk you through my thinking and how the positioning can actually be shifted in your favor.
Investors ask competitive questions for a lot of reasons. Sometimes they really want to know how your drug stacks up in the market; sometimes they just want to see how you handle the tough questions; and sometimes they actually own a stock with a similar product and are really doing their due diligence. I find that knowing what their ulterior motive is for asking should define how to frame the answer.
Know What Your Competition is Saying
This leads me to my second point. My 20+ years as a sell-side analyst has taught me that actually playing up the competition and then subtly pointing out the differences tends to be a better approach than attacking the competition directly. Why? Because many times an investor likes a particular therapeutic area. If he or she has a thesis around Alzheimer’s, for example, why not own several shots on goal and participate in several stocks with leading products in that area? If Hepatitis C is the hot button for a portfolio manager, the case can be made to own a basket of potential blockbusters in the category.
In some situations, two drugs have different mechanisms of action that allow them to be used concomitantly. In other instances, the second drug to reach the market may have the better hook. It’s always tough to call what drives an investor’s thought process. Some accounts are inclined to have concentrated positions while others prefer to diversify.
Whenever possible, it’s always a good idea to know what the competition is saying, both about the addressable market as well as your specific product. Listen to your competitor’s presentations — know what sources they use and what assumptions they make to build their market models. Oftentimes they can be a great source of data on the demographics of a disease. On occasion they can even make you aware of additional competition that you didn’t know existed.
Contrary to popular belief, it can often be advantageous to share a therapeutic market with a larger competitor. If there is agreement that there is a huge unmet medical need and a sizeable opportunity then the market probably will support several high profile drugs. For a small- to mid-cap company, the advantage lies in that the larger pharmaceutical or biotechnology company usually has deep pockets allowing for a large amount of marketing dollars to be spent at little cost to you. More importantly, as a smaller player you only need a fraction of the market share to be successful. It’s a message that typically resonates well with investors.
Keep it Positive
Although each case is different, I encourage you to keep the tone positive. Too many times I hear, “let me tell you what is wrong with their drug” or “let me tell you why ours is better.” Messaging is critical and how it is delivered is a reflection of you. So when appropriate, my suggestion would be to find the good in your competitor and benefit from it. If a portfolio manager loves the XYZ market, maybe he or she can own multiple names.
While I have chosen to focus on the buy-side, a similar scenario can also be made for attracting sell-side visibility. As an ex-analyst, it’s common to want to cover a bucket of multiple stocks in a single sector. You typically need to know how the field is divided anyway so it makes sense to cover three to five diabetes stocks vs. just one, for example. Many analysts have built a solid reputation by taking this approach. So if you are thinking of how to increase your prominence on the sell-side, then conduct a quick analysis of which banks cover your closest competitors and see where your name is missing from the list.
At Westwicke, we think strategically and provide insights as to how we think investors should see your company positioned amongst the peer universe. Please reach out to us if you want to make sure you are viewing your competitors in the right way and leveraging their efforts to your fullest advantage.
