If you don’t like getting burnt, don’t play with fire … as the saying goes.
That’s all fine and dandy, and as any 2 year-old will attest, at least there is a clear and understandable causality. Over the past year as I have commented on this site, I have been willing to accept responsibility for my commentary, even sometimes knowing that it could have serious consequences. Consequences for me, for my family, for other colleagues and organisations that I am affiliated with (and who patiently “tolerate” it). Let me tell you, when your wife picks up threat letters from ADO shareholders in your mailbox, you not only know you have hit a nerve, you suddenly realise that Western Australia has sneakily gone off and developed a functioning postal system.
There is something reasonable about action and reaction. You hit, you get hit back.
But the one reaction that I did not expect this week was the criticism:
“I’m not sure that if you’re an executive director of one company, whether you should be commentating on others in the same industry. All these biotech companies are competing for the same pools of capital.’’
This idea got a few little echoes on HotCopper:
“His blog is in fact specifically focused on companies that compete with Factor Therapeutics for essentially the same pool of investors.”
This is the stupidest, most laughable excuse for tolerating crap companies I have ever encountered. Kim Hogan is clearly not a moron (he’s richer than I am, so that’s an evidentiary starting point), but this is an absolutely ridiculous position to take because it strongly suggests that our bioscience community should be a “mediocracy” instead of a meritocracy. Surely the implication here is that with a limited pool of capital, no executives or directors should be outspoken about the variable quality of companies in our industry because it runs the risk of a few snouts not getting an equal crack at the trough? Is that it? Is Australian life sciences supposed revolve around some kind of financial communism, ferreting out a few shekels every year from the same tired investors on some kind of egalitarian basis?
Well, as an investor, that is the last thing I want to hear. As a retail investor, that should make you want to take your money out of any “spec” biotech and stick it under your mattress at night (and if you live in WA, maybe get a gun and a dog as well).
I want to say two things for the record.
The first thing is that innovation and entrepreneurship is alive and well in Australia. I’m bloody tired of attending conferences and workshops and listening to the government and our “captains of industry” rabbiting on about the “problems” in our innovation ecosystem, like the lack of effective academic technology transfer (rubbish, no worse than academia anywhere else), the lack of venture capital (who cares, globally a mostly failed asset class anyhow), the lack of a culture of risk of taking (what???? … look outside your window at the incredible communities that prosper on this wide brown land). No, what is really wrong is that Australian capital markets have simply not been able to offer investors anything better than the rate of return provided by the resources industry for the last two decades, and have therefore established no financial incentive to diversify the economy beyond digging shit out of the ground. As a result, the ONLY reason why there isn’t money gushing at biosciences and medtech in Australia is because our public companies are mostly mediocre and this, in turn, means that entrepreneurs don’t get access to the growth capital they need because the really vast and powerful pools of capital don’t fundamentally believe our bioscience industry is an investable asset class.
And they would be mostly right. Make our public companies competitive and everything changes – top down.
The second thing I want to say for the record relates to my role as an Executive Director of Factor Therapeutics (née Tissue Therapies, ASX : TIS). I deliberately don’t talk about the company or its competitors (and by competitors, I don’t mean the notional “gene pool”, I mean actual commercial competitors). Unfortunately, there is also no doubt that it is virtually impossible to separate personal and professional reputational risk under these circumstances. But I will tell you, being a director of an ASX-listed biotech company – especially the one with the dubious honour of the largest market cap pummeling of 2015 (according to the esteemed Biotech Daily) – has been one of the most humbling experiences of my life. Why? Because until you have had literally dozens of “Mum and Dad” investors call you up to ask when the stock price is going to be “back to normal” because they have school fees to pay and mortgages to cover, you haven’t really thought about what it means to finance an ASX-listed biotech company. What a gift. What an amazing opportunity to have an engaged and supporting populous dip into their savings and super funds to finance Australian innovation – not just because it affords the potential of a massive payback, but because it’s actually good for our economy and the future of our healthcare system.
Besides, who doesn’t know someone with dementia? Who hasn’t been touched by cancer?
Yes, CEOs, directors, investors, entrepreneurs should ALL be commentating on the state of our industry. We don’t have sophisticated buy-side / retail analysts and commentators informing the markets like in the US, so we therefore need to take an autoregulatory approach. For sure, our industry associations are toothless when it comes to reform because their coffers are dependent on a cadre of docile and satisfied members. Don’t rock the boat here, please. The truth is, for all you retail punters out there (sorry, because biotech is a punt in this country), behind closed doors we all sit together as industry insiders and mock whatever pathetic company just managed to squeeze out another puny raise, or buy its web designer, or whose CEO tested drugs on himself, or watch a crap company buy another crap company in order to try and sell a less crap story, or test it “nth” peptide in some pointless lab experiment. We’ve even had the perverse pleasure of watching some of our “finest” public biotech offerings get absolutely sodomised by US investors.
Don’t you think it’s time to take that conversation out behind closed doors and at least attempt to separate the wheat from the chaff? I do. And for the benefit of retail investors I absolutely want to make it clear that there are a good, solid core group of executives, leaders, innovators and investors in this country that absolutely do want to compete for your capital. They want your money because they (defensibly) believe their investment thesis is going to give a superior return, not because a rights issue is going to keep the gravy train going for another year or two until larger shareholdings can be dissipated into the retail ether. Maybe it’s a couple of decades of working outside of Australia that frames my mentality, but my answer to Kim Hogan is definitively “yes”.
Yes. YES. Y E S.
I do want our best executives to step on every lousy company out there in the quest for capital, because capital should be fought for, valiantly protected and respectfully deployed. Access to capital should never be treated as the mere artifice of being a public company.
And anyhow, who should know better than “Us”?
Image credit : The phenomenal Ryan McGuire. As always, you inspired me when I needed inspiration.