By Matthew Pillar, Editor, BioProcess Online
Launching a biopharma isn’t for the faint of heart. Many pieces of an elaborate puzzle must converge to take a biologic’s therapeutic potential from an idea to clinical success. There’s the science, the funding, the talent, the lab support, the scale-up, the process and manufacturing, the clinical trials planning, and, of course, the vigilant watch of industry regulators.
To kick off our Business of Biotech podcast series, veteran founder and multi-board director Allan Shaw offered some straight talk on each of these topics. He shared advice and insight about what works, derived from an impressive—and ongoing—run leading emerging biopharmas through the startup gauntlet.
That run is multifaceted. As a four-time public company CFO, Shaw mastered big pharma financial operations at companies including then-$2 billion, 5,000-employee Serono (acquired by Merck in 2006). As an entrepreneur, he mastered the application of good management to small businesses at companies like Syndax, which had 18 staffers at the time of its Shaw-led acquisition and 40 when he left. Now, his career is dedicated to consultative and board-level roles with new biotech entities. It’s this experience that informs his ability to pinpoint and overcome the limitations of young, aspiring organizations while nurturing the efficiencies and resourcefulness of new, nimble organizations.
We caught up with Shaw to get his take—delivered in the New York straight-talk he’s known for—on 9 specific and vexing challenges faced by virtually any biotech startup in the life sciences space. Here’s what he had to say.
BioProcess Online: How early is too early for a new biopharma leader to be thinking about going public, selling, acquiring, brokering a merger, or some other avenue of exit?
Shaw: This answer to this question requires a bit of context, so I’ll start by noting that I've seen a lot of young organizations come across some very interesting science, but it's sometimes lacking the connection to clinical and commercial relevancy. This is the business of science, it’s not academia. A lot of younger companies are overly informed by academia, which results in a lot of group think.
Secondly, creating a successful biotech is not a sprint, it’s a marathon. Many founders embark on the journey thinking that all they need to reach a successful exit is that one special partnership. They're not necessarily thinking about maximizing the value of what they’re doing. But the closer they get to sophisticated potential partners, the more those potential partners are going to want to assess the company’s vision for where it’s going.
Another consideration relevant to the question is how many shots on goal a company is willing to take. The plan is important, but getting there might require the founder or leader to take the thing to the finish line—or at least, much closer to it—than they had hoped.
Succession planning in terms of your management team is also important. It’s not just you. People invest in teams. Given the choice between great management and a middling asset or a great asset and a middling management team, I’ll always take the former. A great management team is going to figure it out.
You need to think about your optionality in that context, and this is probably the most important takeaway, you’ve got to think about how you're going to build a company for the long-term. If you're thinking you’ll be able to just build something that you're going to flip, people are going to see right through that. They're going to game you, you're just not going to be taken as credible, and that will translate to your value at the end of the day.
If an exit is your goal, I think the best way to go about it is building a long-term, sustainable business. If there's an exit at the end of the day, so be it.
BioProcess Online: Funding is an obvious and prerequisite part of the puzzle. What's your best advice to an emerging biopharma CEO on building a pitch deck?
Shaw: There are a lot of different inputs that you need to think about. You can't just go to Microsoft PowerPoint and pull out your pitch deck. You need to think about your messaging, and you also want to build a chorus. One of the things that people sometimes overlook is the importance of medical affairs and the development of a scientific advisory board (SAB). I'm shocked at the number of companies that don't have an SAB. It speaks directly to how you're approaching development and what you’re doing in terms of bringing real world activities and perspective to the table that informs your development activities. It's also when investors are looking to corroborate what management is saying. They’re going to want to know who the key opinion leaders are, who's involved, and who are the investigators.
If you try to start doing this in the middle of your financing efforts, it’s a little late. That's something you need to think about up front. You also need to think about your publication strategy and make sure you have your IP battened down before you publish. I've seen unfortunate instances of people keen to publish without getting that nailed down. You’ve got to answer some fundamental questions. What is your competitive advantage? What is the competitive landscape, and where do you fit in it? It's often easy to tell people why you're an interesting investment and why you might be different, but you really need to be mindful of why now. As an investor, why should I be getting involved with you now, when there's a lot of investment opportunity. Raising money right now is a competitive sport. There’s never been more money around, and there have never been more people with their hands out. I approach all of my engagements with the assumption that every investor has attention deficit disorder. If you don't get it out early, it's going to get lost and it's going to get glossed over. So you need to get these things buttoned down. You need to have your answers to these questions.
You should also be going through good rehearsals with what I would call friendlies. Everybody has their circle of friends. There may be some investment banks or analysts that aren't going to rip your head off or have collateral consequences, but they can give you really good constructive feedback before you get out there.
It’s also important to remember that this is a reiterative process. We've switched our deck 50 times in the process of a road show. As you deliver it and see people's reactions, there's a feedback loop. You need to be mindful of that feedback loop so you can incorporate it.
On that note, when you take your deck on the road, don't hit a hundred people at once. Be a little bit more metered, so you avoid making the same mistake a hundred times.
BioProcess Online: Financial markets are once again reminding us just how capricious they can be. Give us your best advice on finding funding in these volatile times.
Shaw: Yeah, I guess the first thing I would say is whether your bank accounts are overflowing or running thin, I would certainly suggest that you take the same disciplined approach to the way you allocate money. I have noticed over the years that when bank accounts swell, leaders of emerging biopharma firms tend to get a little lax. Perhaps that's human nature, but I really would encourage people to continue to deploy cash as diligently as possible. When you're early, what’s most important is what's creating value. Make sure your expenses are gated, and protect yourself. I think extending your runway is probably the most important thing. You don't want to run out of cash. There's a tendency for people to get in front of their skis. They underestimate the time it's going to take to raise money.
Maintaining business momentum is the backdrop, and time is the enemy. Cash flow is the most important thing in terms of maintaining a company's operational capabilities. You need to be resourceful, you need to be thoughtful, and again, it goes back to what I said earlier about preserving choices.
Funding strategy is relative to where a company is in their capital formation as a private firm. There are certainly the traditional pedigree investors, which make it generally easier to go public because you need to “bring your own beer to the party,” which investors see as validation.
Reverse mergers also become an opportunity. They used to be viewed as a pariah, but they’ve become increasingly fashionable. I view reverse mergers as akin to a breeched birth. You're being born regardless, and after you land on your feet, you're as good as the guy that came out the other way. It's just not as elegant.
When you'd look at the fact that we've had a historical level of IPOs over the last six years, I'd say more probably about 50 percent of those companies are likely to become zombie companies at the end of the day. There seems to be a long opportunity for reverse merger candidates. Not all of them come filled with gas, but again, if you can bring your own liquidity to those things, they're viable ways of getting out.
It also enables you to think a little bit about the best time, and how, to reduce your cost to capital. I've given this a lot of consideration, particularly when we were looking to go out in 2016 with Syndax. The market was really imploding at the time. That was probably the worst time in the last seven years to do an IPO. When we went to launch our IPO, the front page of the Wall Street Journal said the IPO market was closed. We were going to be meeting with the board and the bankers that day in order to launch our IPO the following Monday, and that’s what everyone was reading. I think bottom line is, you can't time the market so you want to be able to reduce your cost to capital.
You also have to be very cognizant of your timelines. If you get too close to them, people don't want to invest. Don’t wait until after some of those readouts, because sometimes they're not bright lines, they can be gray. Public companies can pivot their data readouts much better than a private company.
The bottom line is that you simply can't time the market. When you're thinking about going public, it's very distracting organizationally. If you're on the runway waiting for the windows to open, that can create a level of paralysis organizationally where nothing gets done.
BioProcess Online: You can't time the market, but you can attempt to build the valuation of your company through your talent. Help us understand the direct line between talent and company valuation.
Shaw: The business’s science lies in its talent. You need to make sure you’ve gone beyond the CEO. Probably the most fundamental position in the organization is a chief medical officer. I think that helps tie a lot of this execution together. It ties medical affairs in, it reduces your execution risks, and it's no secret that it's probably the hardest position to find right now because there's more demand than overall supply.
I think everyone has their functional strengths and their general blind spots. A collaborative, non-siloed approach becomes increasingly challenged in this virtual company mentality, where people are all are scattered about and you don't have the same water cooler conversations that you might otherwise have. The fact is that communication and coordination are key, and an open environment stimulates an open dialogue.
Thinking about it more from a functional perspective, you need adults in the room. I've been helping a lot of companies, and I view this as helping them professionalize, providing adult supervision and helping them identify what they don't know. On that front, I think having a regulatory strategy makes sense. Time is the enemy. If there are ways that you can do things thoughtfully on a regulatory perspective to squeeze time and take advantage of accelerations that the FDA may enable you to do, I think those are things that one should be able to understand. I think investors appreciate that. The development side is critical.
In terms of operations, you need good CMC and drug supply. My sense is for young companies, those things are sometimes viewed as luxuries, but there's a movement now towards fractionalization, where you can really get highly qualified, experienced folks who are involved with a handful of different companies. Candidly, everyone benefits from that. You bring in the right expertise that’s “in the circle,” working with a whole bunch of other people. They're highly relevant to the different manufacturers, and regulatory agencies. They actually bring a lot more gravitas to the table than you might otherwise consider.
The other area that I think doesn't really get a lot of appreciation, and I think this speaks to culture and people, is about not just being able to recruit people, but to retain people. This is particularly important when you get into areas like Boston and other highly competitive spots.
I think human resources is an area that helps set the tone. If you bring in a human resource person that has a seat at the table, I think everybody understands that that's a proxy for where the people and the employees sit. That’s important. Again, people view that as a luxury. I think when you're building a team, that's probably the most important investment that you make at the end of the day.
BioProcess Online: With funding and people and science in place, maybe it’s time to talk about leaving the incubator. What development and financial milestones do you look for that makes it clear to a new or emerging biopharma CEO that it's time to leave the nest?
Shaw: I don't think there's a one-size-fits-all answer to that. My general feeling is that no one is investing in you because of your facility or lab. Again, it depends on the nature of the organization, but to me you want to keep your overhead low, there's no value in G&A expenses.
Keep overhead low until you run out of space, when you want to try and get people more under one roof. From what I've observed, there are a lot of what I would call a halfway houses that can get you out of the incubator and into science parks, like the Alexandria Center for Life Science complex, which offers a great location for companies to move out yet still work in a collaborative environment with other companies.
There may be other cost effective options relative to the example I just provided, but my personal perspective is when you've got a pathway to really de-risking your programs and moving into the clinic, that’s the best time. I realize again, depending on what you're doing, you may have more traction as a preclinical company, but I would certainly wait until you need to, keep your expenses down, and take advantage of the things that these organizations provide for you. Value gets diluted when you start moving out and you're spending your time and money on things that don't create value.
BioProcess Online: Speaking of de-risking the program, when you're a new CEO and you've perhaps never seen or managed the regulatory infrastructure, that can equal risk. How does quality data serve to de-risk the impending CMC and process scale up exercise?
Shaw: You’ve got to be careful about scale up, especially as it relates to outsourcing. You want to make sure you have the right controls and oversight. I would encourage people that outsource to a CRO to realize that they’re not abdicated of that. That's really a misunderstanding. They should manage the CRO. They should certainly have clinical research assistants that are working with these guys and providing that level of oversight.
At one of the companies I worked with, we were working with an affiliate at the NIH, and we threw additional resources in there from a data resource perspective in order to make sure that it was a beyond reproach. That's not something to be underestimated.
Again, time is the enemy, so I would not be shy about making sure you've got the right regulatory advisors, whether they're in house or outsourced or part time, you do not want to be doing this without the right chaperones.
BioProcess Online: GMP is prescriptive, yet the means to the end is somewhat flexible. What's your best advice for new biopharmas to maintain flexibility in the capacity and production decisions that they make, yet still reach those GMP milestones that are so necessary?
Shaw: Yeah, it's a great question and certainly with the advent of gene therapy, where now people are starting to think about bringing some of these processes in house, it's a question that's being debated more than than it's ever been. But as a general observation, in terms of CMC, I would characterize it as arguably one of the most underappreciated functionalities in all of life sciences and biopharma. I think it's akin to the offensive line of a football team, where no one seems to care until there’s a penalty on the field. It’s a living definition of where risk management could really be done up front to avoid all these infractions which have reached record levels coming out of the FDA.
Consequently, if you think about gating factors in terms of getting your drugs approved after safety and efficacy, it's CMC. It's an area that I think people should really pay much closer attention to, and make sure they have the right professionals in place to address. It's an issue, and it's going to remain an issue because VCs are going to be challenging this. You need to really have your arms around it. Candidly, one of the things that companies, and young companies in particular don’t consider, is that the availability of drug supply is probably one of the greatest rate limiting gates in terms of initiating clinical studies. If you don't have that drug supply sorted out in a timely manner, you're going to miss your timelines. Missing timelines have implications in terms of credibility with investors, and candidly, your timelines move out. You're still burning overhead and therefore you're actually burning your cash. You're reducing your cash runway at the end of the day. These things can be extremely costly.
BioProcess Online: When it comes to the CMC considerations for first in human studies, what happens to a first time biopharma CEO's blood pressure around the risks associated with CMC considerations and first in human studies, and how do they mitigate that risk?
Shaw: I guess, depending on the upfront toxicity profile results, that will reduce some of your anxiety. If there's a history of monkey fatalities, I would assume you're going to be a little bit more anxious and would question the wisdom of moving forward. But in seriousness, I think there are a couple of interesting considerations. Obviously, you've got to make sure your toxicity profiles are done. I would encourage getting those done before you scale up on manufacturing, to the extent you can do that cost effectively. It would really be a problem if you invested all this money, and then your toxicity profiling forced you to throw everything out.
The other thing, =whether it's first-in-human or as you're trying to line up your safety studies and you're trying to make sure you have enough supply to move into phase two. If you're in oncology in particular, if you're doing safety studies and people are still looking for signals, if you're not getting a signal there, your phase two may not have the legs or the justification. You don't want to commit a half a million to a million dollars to buy the drug product before you’ve definitively conducted that study. Wasting a million dollars on a study you won’t be doing, and explaining that to your investors, will also create a lot of anxiety for first time CEOs.
BioProcess Online: Let’s wrap up with gap analysis and next step assessment of development status. How do you identify holes and use that knowledge to guide next steps?
Shaw: I think it's healthy exercise to continually reassess your organization's strengths, weaknesses, opportunities, and threats. A traditional SWOT analysis is important in such a fluid environment. I think people tend to forget that this is a competitive spot. There's a lot of competition out there, and you need to understand the relevancy of your activities. This is the business of science, particularly in oncology. It’s breathtaking how quickly these programs are moving and how good science is being cannibalized by good science.
It's a challenge because you're making these business decisions, you're allocating capital on five- and ten-year timelines with hopes these programs get to the commercial finish line. There are a lot of different things that can get in the way along the way. To be mindful of those things, you need the organizational sophistication, awareness, and confidence to pivot when things need to pivot. I think a wise man once put it to me that if you make a wrong turn and continue going down the road, it's still a wrong turn. The longer you take to identify that and make a U-turn, the longer the time to catch up. Meanwhile, you're throwing good money after bad money. I would suggest killing anything that's not working and moving forward. Keeping things around because you're afraid of what ending it means, or because you think you need your job; those are not sustainable strategies.
To me it's about your credibility and your integrity, and if you talk truthfully and transparently and have a plan, you maintain optionality and choice. If one door is closed, you open up another one, and if it closes, you open up a window.
Listen to the full conversation on the Business of Biotech podcast, produced by BioProcess Online and supported by Cytiva, formerly GE Healthcare Life Sciences.