July 9, 2025

How To Work With A “Difficult” Equity Analyst (And Why Your First Clinical Trial Update as a Public Company Needs to Be Positive).

Have you ever noticed how most equity research recommendations for new biotech stocks are Buys? How can that be when we know the failure rate for drug development is so high?

The answer lies with analyst self-selection. Before a group of banks brings a new biotech to market via IPO, the bankers first require a nod from the research analyst that would potentially cover them once they’re a public company.

If the analyst is “negative” (another word would be unsupportive) on or of the biotech, its technology, or prospects, the bankers won’t risk bringing a biotech to market.

Consequently, when analysts’ initiation of coverage reports come out 25 days post IPO, it’s no surprise to see Buys on the front pages of all the reports.

And yet – for biotech companies who have been public for longer, we typically see a range of recommendations (Buys, Sells and Holds).

How does this transition happen and how should a biotech treat an analyst who has soured on them?

Let’s start with the golden rule. The golden rule for every biotech is: make sure your first clinical trial update as a public company is positive. If it is, this sets you on a virtuous upward cycle of higher market capitalization, most likely a successful follow-on financing, greater liquidity, and greater happiness.

Not so if your first clinical trial update is negative. Not only will some of your key investors jump ship (because failure of a lead program tends to be highly correlated with failure of a biotech’s secondary and tertiary programs), but your analysts will as well.

Put yourself in the shoes of one of your analysts.

They believed in you and your therapy. They trusted you when you said your preclinical data was compelling, and that you could execute clinically. And they put their name to countless research reports telling the world what amazing value your stock represented, and recommended people to buy it.

And now they have egg on their face.

Some analysts may downgrade you to Hold. More sensitive souls may call you a Sell.

How then do you mend these fractured relationships?

You can do it through positive data, but the chance that positive trial results follow the failure of your lead program is rare.

So, really the question posed to you is, do you engage or disengage with analysts who look upon your investment thesis unfavorably.

Throwing your toys out of the pram and simply stopping talking to an analyst who now rates you as a Sell might seem appealing, but remember, no one ever changed someone’s mind by not talking to them.

Instead, respectfully disagree with their conclusions and remain amiable. If you do this there is a chance they may come round.

And there is a chance that your second clinical data announcement is actually positive.

They key is to engage, engage, engage.

Now, no biotech is ever going to pick a bank to participate in a financing when their analyst has a Sell recommendation on the company. So, after a few fundraisings that omit the offending institution, the analyst/bank will likely drop coverage of you, bringing the fractious relationship to an end.

Warm engagement while that slow death takes place however, makes everyone’s lives a bit better.