Published in Journal of Commercial Biotechnology, August 2018
Authors: Dr. Echoe Bouta and Dr. Oded Ben-Joseph
Despite the dedication of the management team and board to a company’s success, an often overlooked component is the dynamics of the segment in which the company operates. In an effort to demonstrate the importance of the external view and how segment dynamics are likely to significantly impact the reality of companies, we analyzed recent data between 2015 and 2017 pertaining to financing events, M&A transactions and initial public offerings (IPOs) in three separate sectors: therapeutic devices, oncology therapeutics and antibiotics. The analysis presented will provide management with a valuable estimation of the required capital to achieve value-inflection milestones as well as the anticipated return on investment upon a liquidity event. These examples demonstrate the fundamentally different dynamics of these sectors, which will impact the path to liquidity as well as the probability to closing an exit transaction. For example, we found that therapeutic device companies have to be at or close to regulatory approval prior to an exit. In contrast, the oncology therapeutics segment supports healthy exits across all stages of clinical development. Despite the high unmet need for novel antibiotics, both financing and exits have been limited in this sector. Return on investment is greater upon an M&A transaction versus an IPO. The presented data demonstrates that exit opportunities and return on capital are largely sector-dependent. Thus, savvy management should adopt an external, market-driven evaluation and analysis rather than inward-looking and uniformed biased judgment. Crafting a mature, market-aligned strategy will increase the probability of success.
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