February 12, 2025

Should Biotechs Hire an (Internal) Investor Relations Officer or an (External) Investor Relations Agency?

As the Founder of an investor relations agency, you would be right in assuming that I have strong (and potentially biased) views to the question posed. Nevertheless, let’s talk seriously about the options available to biotechs and the choices they make.

When a biotech is private, the CEO and CFO (if there is one) typically handle the investor relations function themselves. This is because, with just a handful of venture capitalists (VCs) and private investors in their cap table (and a limited number of potential healthcare-focused VCs out there for the next prospective financing), it’s manageable. Importantly, direct contact between a VC and the leadership of a portfolio company is incredibly important to investors.

In my experience, investor relations agencies tend to be brought on roughly 12-18 months before an initial public offering (IPO). Why? Because that’s when the workload starts to demand it. While private, a small biotech can make do with a corporate presentation that’s a little rough around the edges. While private, a small biotech’s news flow needs less managing than when their company is gearing up for an IPO. As a biotech thinks about going public however, its journey has a much better chance of success (and some sanity) if it is project-managed by a specialist. After all, the majority of leadership’s time should be directed to actually running the company.

An appropriately-mandated IR agency will manage the pre-IPO and IPO process, so that you methodically pick the right bankers (and analysts) for your IPO syndicate, pick the most appropriate stock market (usually NASDAQ or the NYSE), reserve your ticker, build your IR infrastructure (website, whistleblower hotline, internal policies, anti-insider trading policy training, spokespeople training etc.,), perfect your message and guidance (corporate deck, test-the-waters (TTW) deck, IPO deck, analyst day deck), pick the right crossover investors, and have an investor relations plan ready for when you’re public, so that you hit the ground running.

Why do most biotechs choose to do all of the above with an agency rather than an internal investor relations officer (IRO)?

Part of the issue is cost. Bringing-on an experienced IRO in advance of an IPO burns proportionately more cash (when a successful IPO isn’t always guaranteed) and necessitates the issuing of dilutive stock grants/options. (Note: some biotechs will also wait until they are public before hiring a full-time CFO for the same reasons.) Agencies tend to be more cost-effective – especially when you take into consideration that you are often getting a full staff rather than one person – and more easily let go if plans change or the markets sour.

Part of the issue is experience. Because of their cost and the above issue of timing, most IROs have never been through an actual IPO. Instead, they are typically brought on board later, once the biotech has more cash in the bank (think IPO or follow-on proceeds) and the CFO’s workload has increased to the point where he or she is willing to delegate some of the function.

Note that for the vast majority of biotechs, an IRO or IR agency can never replace the presence of a CEO or CFO in investor meetings or at healthcare investor conferences, because investors want to talk to the people they perceive as being the company’s decision makers. Instead, an internal IRO will often take on the administrative functions of investor relations, while also providing guidance to the CEO and CFO. At this stage of a biotech’s lifecycle the investor relations function increases dramatically with substantially more investors than when the company was private, and perhaps as many as eight healthcare conferences to attend each year, and maybe as many as a dozen analysts to be in communication with.

Importantly (not least for the IR agency I founded), most biotechs choose to retain their outside IR agency even once they’ve hired an internal IRO. Why? Well, because agencies provide not only additional bandwidth during important events (investor days, data announcements, investor healthcare conferences, J.P. Morgan week etc.), they also provide an unrivalled third party, impartial, and high-level perspective for any and all situations a biotech might find itself in.

Think about it. During my decade-plus working in biotech IR on the agency side, I’ve managed around ten clients at a time. Assuming some natural attrition (takeovers, drug failures etc.) that probably equates to around 12 individual companies each year, which over ten years might amount to maybe 60-80 biotechs in total (because our successful clients tend to stick with us).

During that same period, an IRO might have worked at maybe two different biotechs. As such, an agency brings an unmatched experience to their clients, from FDA approvals, complete response letters (CRLs), Phase 1, 2, 3 or 4 topline results, IND acceptances, patient deaths, conference participations, scientific presentations, in-licensings, out-licensings, CEO transitions, acquisitions, takeovers, stock-splits, shareholder litigation, follow-ons, PIPEs, convertible bond issuance, debt financings, analyst upgrades, downgrades… you name it.   

Moreover, at any given time we have the perspective of around ten separate publicly-traded biotechs (substantially more when we consult with our colleagues). So, we can offer perspective on your one-on-one schedule at a healthcare conference versus our other clients, we can tell you which bankers are currently the most successful or affable, which investors are putting money to work at our other clients, or which analysts are the most hardworking, to give just a few examples… and all in real time.

Overall, I would say that around half of my agency’s current public clients have an internal IRO. And that person is typically charged with investor relations, possibly public relations, business development, and sometimes Environmental, Social and Governance (ESG) as well. We form co-operative and long-lasting relationships with the IROs we work with, just as we do with our clients’ CEOs and CFOs.