Preparing for Proxy Season
As we’ve discussed we are expecting the increased focus on ESG to carry through to proxy voting throughout the 2021 season. Many of the largest index funds have published their voting policies already, emphasizing a commitment to holding companies accountable by requesting increased transparency and additional details on how they are addressing everything that can be classified under the ESG umbrella.
State Street Global Advisors recently published a preview of its 2021 voting policy (available in full here). A few highlights:
- Elevating Focus on Climate Risk: Continue to engage with companies to understand their approaches to mitigating and managing the physical and transitional impacts of climate change. In 2021, focus will be on companies that are vulnerable to the transition risks of climate change, as well as companies in other sectors that, while not as carbon intensive, also face risks such as the physical impacts of climate change.
- Proactively Addressing Racial and Ethnic Diversity: Instituting new proxy voting practices to ensure companies are forthcoming about racial and ethnic compositions of their boards and workplaces:
- In 2021, will vote against the Chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not disclose the racial and ethnic composition of their boards;
- In 2022, will vote against the Chair of the Compensation Committee at companies in the S&P 500 that do not disclose their EEO-1 Survey responses; and
- In 2022, will vote against the Chair of the Nominating & Governance Committee at companies in the S&P 500 and FTSE 100 that do not have at least 1 director from an underrepresented community on their boards.
BlackRock’s Annual CEO Letter
Larry Fink’s much awaited annual (generally governance related) letter to BlackRock portfolio companies, available in full here, focuses primarily on climate change-related actions, asking companies to “disclose a plan for how their business model will be compatible with a net-zero economy,” defined as limiting global warming to 2 degrees Celsius above pre-industrial averages and eliminating net greenhouse gas emissions by 2050. BlackRock also committed itself to a series of disclosures by year-end for any markets with sufficiently reliable data, as follows:
- Publishing a temperature alignment metric for all public equity and bond funds.
- Working with index providers to publish the temperature alignment of major market indexes.
- Publishing the proportion of its assets under management that are currently aligned to net zero.
- Announcing an interim target on the proportion of its assets under management that will be aligned to net zero in 2030.
Planning for Virtual Annual Meetings
As we all know, 2020 forced many companies to shift their annual meetings from in-person to a virtual setting, which caused confusion and challenges for issuers and investors alike. A report by Douglas Chia and Ann Lee (available in full here), highlighted some of the challenges of virtual shareholder meetings (VSMs) and outlines best practices for companies that plan to host a VSM again in the future.
The report finds that many shareholders experienced a lack of transparency during the Q&A sessions, where they felt companies were “cherry picking” more favorable questions; potentially answering questions posted by the companies themselves, as opposed to verified shareholders; and limiting the opportunity for follow-up.
To address these issues, the report provides detailed instructions on how companies should tackle a VSM from start to finish, including recommendations for disclosure, preparation, the VSM platform, questions and post-meeting practices.
- Provide shareholders with complete, detailed instructions on how to attend a meeting and vote prior to, and at, the meeting;
- Provide instructions for how and when shareholders will be able to ask questions at the meeting and explain any requirements or limitations on asking questions at the meeting;
- Explain whether and how the company will address questions after the meeting that it was not able to answer during the live event; and
- Ensure technical support staff is present during the meeting in case technical challenges arise.
While we’ve bulleted out select recommendations above, we’re recommending to clients to review a full suite of best practice tactics in advance of your VSM, to ensure its maximally productive for management and shareholders.
2020’s Most Active Biotech VCs
BioCentury published an article last week reviewing VC activity from 2015-2020: these were six very active years in healthcare venture capital – but which investors were busiest?
- In 2020, the three most active VC investors were OrbiMed (38 deals), RA Capital (35 deals) and Cormorant (30 deals);
- From 2015-2020, the top 50 VCs by number each participated in at least 30 rounds. Again, OrbiMed was the most active, participating in a whopping 167 deals, 35% more than Arch, which came in second at 106.
- Interestingly, Surveyor and Janus – which occupied the two bottom slots from 2015-2019 – have both dramatically picked up their biotech VC investing. Since 2017, the two have invested roughly 70% of their overall venture funding in the sector.
- Casdin also significantly increased its VC activity in 2020, with participation in 28 rounds – almost as many as the five prior years combined (32).
Of course, 2021 is already off to a ripping start. We’ll be watching closely to see if these same trends continue, though imagine it may be somewhat dependent on how quickly this class of private companies can continue to generate returns, whether through IPOs or M&A.
Capital Continue to Flow into Biotech: Two More Funds Raised
This week, ARCH Venture Partners announced the closing of its $1.85 billion Fund XI, which will invest in the creation and funding of early stage biotech companies, specifically focusing infectious disease, mental health, immunology, oncology, neurology, manufacturing, clinical trials, anti-aging medicines, genomic and biological tools, data sciences and diagnostics spaces.
Also this week, Pontifax closed its Fund VI at $404 million, bringing their total capital under management to more than $1.2 billion. Pontifax’s strategy will remain consistent: they will look to invest in 20-25 biopharmas, with the private side focused on start-ups or early-stage companies in Israel, the U.S. or Europe. While the fund will focus primarily on venture investments, the upsized raise will also give Pontifax more capital for its public investment strategy, where it seeks to identify high-quality science in micro-cap companies with market caps under $150 million.
The markets were fairly flat this week, with the NASDAQ, DJI and S&P 500 ending down 1%, 2% and 2% respectively. The VIX was up a striking 38%, sitting at 29.62 as of market close on 1/28. The biotech markets were similarly stable, with the NBI closing down 2%, the BTK closing up 1% and the XBI closing down 1%.
The financing markets remained hot, too, with several deals pricing including:
- 1 IPOs: Ortho-Clinical Diagnostics ($1.3B).
- 1 SPAC: FS Development II ($100M), the second blank check company by Foresite Capital.
- 10 follow-ons: Adamas ($45M); Applied Genetic Technologies ($75); BridgeBio ($650M); Catalyst ($50M); CureVac ($450M); Stern IR client Evelo ($68M); Lipocene ($25M); Neuronetics ($75M); Personalis ($152M); Seelos ($31M); Seer ($254M); Suralign ($38M); VYNE ($50M).
- 7 private financings: Centrexion (Undisclosed, $41M); Design (Series B, $125M); Nirogy (Series A, $17M); Nuvalent (Series A, $50M); Plexium (Series A ext, $35M); TScan (Series C, $100M); Ukko (Series B, $40M).