But by 2005, analyst numbers had dropped to 12 and the share price fell to a low of €28.98. What went wrong? It wasn’t only the bursting of the dotcom bubble or the Neuer Markt closing in 2002. (Morphosys is now listed on the TecDAX 30.) Lemus reckons investor and analyst sentiment was hit by other developments. These included a patent dispute with Cambridge Antibody Technology (CAT), which was costing the company more than €6m a year; an expensive foray into developing its own drugs — rather than less risky partnerships with big pharma firms; and a proposed merger with British Biotech, which collapsed after news of the deal was leaked.
But Lemus hunkered down and sorted out the problems. In 2002, the patent dispute with CAT was settled. The company also restructured, laid off one-third of its staff and shifted its emphasis from long-term investments — such as proprietary drug development — to revenue-generating activities, including the launch of a catalogue business selling antibodies. In 2004, Morphosys became cash positive for the first time and a new research deal with Swiss pharma giant Novartis — in which Lemus negotiated $30m (€19m) of funding for R&D and technology licence fees, plus a further €9m investment in Morphosys’ bonds — gave the company some good news to take to the market.
In addition, Lemus temporarily limited IR activities to Germany. “As things got worse, the focus was very much on going back to the home market and establishing credibility there after having fallen slightly out of grace with the investor community in the early 2000s,” he explains. He also beefed up the IR team. After a series of investor road shows and meetings with analysts — and buoyed by improved company performance — Lemus sensed that the tide was starting to turn. It was only then, around 2006, that he expanded IR activities into the rest of Europe and North America.
Analysts are starting to return, albeit at a much slower pace. At last count, 14 analysts were covering Morphosys and its share price is hovering around the €36 mark. Lemus reckons it’s hard to say what came first — the loss of coverage or the fall in share price. “But if you were to ask me, ‘If we were able to keep all 26 analysts during a time that the markets were falling, would we have fared better?,’ my answer would be yes.”
Keeping analysts’ attention is a challenge Stéphane Boissel, CFO of Innate Pharma, a €14m French biotech firm, is currently facing. For a small-cap, Boissel has done well attracting analyst coverage. Along with Société Générale and Bryan, Garnier & Company — both of which worked on the company’s IPO on Euronext Paris in 2006 — Innate Pharma is followed by NexResearch and Raymond James Euro Equities. The latter started its coverage in summer 2007, following regular meetings with Boissel since the IPO. “We are probably the smallest company that Raymond James covers in terms of size,” says Boissel. “The two analysts we met really were very interested by the story. They understood it and they believe it has great potential so they decided to cover the stock, although I believe it’s not very economical for the firm at this stage.”