If you follow the U.S. stock markets, then you will probably agree that they tend to be a bit over-reactionary. For example, in February, Under Armour, which had reported 26 straight quarters of 20 percent revenue growth, reported fourth quarter earnings of just 12 percent. As a result of the company’s earnings falling by one penny per share, the stock’s price plummeted by 26 percent. In April, it was announced that Express Scripts’ biggest customer, Anthem, which accounts for $17 billion of the PBM’s annual revenue, would not be renewing its contract. Despite the fact that the contract doesn’t expire until the end of 2019, Express Scripts recorded an 11 percent decline in its stock price for the day.
If leaders of biopharmaceutical companies, who deal with drug development timelines of 12 to 15 years, responded in a similar “the sky is falling” fashion to a bit of bad news, do you think we’d ever see another innovative drug developed? Express Scripts has a year and a half to address the current situation. And as you will see by reading this month’s cover feature on Zoetis, a lot can be accomplished in what the market might consider a rather short period of time. For example, in June 2012, Pfizer announced plans to spin off its animal health business. By the time Zoetis executed its IPO on January 31, 2013, Pfizer, considered by many to be a slow-moving behemoth, helped Zoetis train a CEO, build a governance board, establish a leadership team, secure a corporate headquarters, embark on the development of a corporate culture initiative … you get the point. Perhaps Express Scripts changes its business model acquires a retail pharmacy chain, or merges with a health insurance company. There are a number of options on the table, and maybe the loss of Anthem, which is probably not a completely done deal yet, ends up being the best thing that ever happened to Express Scripts. My point is this — the markets (a.k.a., investors, analysts, etc.) could learn a lot from the patience and persistence the biopharmaceutical industry has to have.
Not long ago, I interviewed six former biopharmaceutical industry CEOs for an article in our upcoming July issue. One of the things that struck me was their response when asked, “As a CEO, what was your least favorite thing to do?” One executive answered, “Over the years I must have been at hundreds and hundreds of investor presentations, and I could have probably done with a couple hundred fewer.” Another added, “Every buy-side investor believes they have unique insights into what your company could do to generate the best return for them.” All agreed that having a good handle on investor relations is a critical aspect of being a CEO, and something that “comes with the territory.” But for an industry measured on delivering more value to patients, the consensus among these industry icons was that the repetitive nature of investor’s meetings delivered little. One former CEO put it best when he said, “When you are in an industry with very long time horizons, and people on a quarterly earnings call are worried about whether you’ve exceeded or fallen short of somebody else’s quarterly forecast by a penny or two, that just struck me as not adding a whole lot of value.”