By: Oded Ben-Joseph, PhD, MBA
Many life sciences entrepreneurs have the mistaken belief that good technology is enough to gain funding, and ultimately commercial success. Interesting technology and research excellence provide a strong foundation; however, the aim of a successful business is not good science but achieving a tangible return to its shareholders. Within the life sciences marketplace, generally 100% of investor returns are generated through a liquidity event, principally the sale of the company or an IPO. Keeping this in mind, here are Outcome Capital’s top 5 recommendations for successfully translating technology into shareholder return.
Life science companies must deal with a variety of internal and external pressures including product development, clinical and regulatory progress, access to capital, competition and sector dynamics just to name a few. While all of these influence the company’s chance of success, it is critical that management interpret, analyze and align these factors with the path to liquidity.
Executives frequently confuse activity, such as key hires or building a facility, with progress towards value-inflexion milestones such as completing the data analysis of a Phase III or pivotal trial, obtaining a CE Mark or regulatory clearance, or opening an exit window. Management must be able to clearly convey their understanding of the relationship between time, capital and true development milestones, as well as how they intend to use capital to de-risk their technology and products. If they fall short, it puts the company at risk of running out of cash or failing to offer shareholder return.
Successful companies focus on one or two innovative products that solve an unmet need and/or improve clinical outcomes rather than platform technologies. Although a few platform companies have gotten lucky in identifying acquirers willing to gamble on approaches yet to yield marketable products, examples of failed platform companies are widespread. Thus, it is prudent to highlight a specific product in your pitch.
Life science companies function at the intersection of business, science, regulatory affairs, finance, and legal knowledge. Many chief executives feel they need to master all aspects of their business, however, that is seldom achievable. The real job of an effective chief executive is to craft and communicate a viable long-term strategy, secure appropriate financing and assemble the right internal teams and external advisors.
Risk management and value creation are key for investors. Most prefer to deploy more capital, not less, if it heightens the probability of hitting a risk-reducing milestone furthering the company’s ability to achieve a successful and profitable exit. Unfortunately, many chief executives hold the misconception that investors are sensitive to the amount of capital sought. Consequently, management teams often underestimate the required budget and unnecessarily risk falling short of important milestones, with a consequent need for bridge financing.
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Outcome Capital Advises Forward Photonics in its Sale April 24, 2020, Reston, VA Outcome Capital, an investment banking firm that serves middle market growth companies in aerospace, defense and government services, technology, life sciences and healthcare, is pleased to announce that Forward Photonics, LLC (the “Company”) has been acquired by an undisclosed private equity […]Read More