Transcript Commercial Plan Development for Scientists

Developing a Commercialization
Plan:
The Importance of Knowing What
You Don’t Know
June 3, 2010
Rob Lindberg, PhD, RAC
Director, BATON Program
Hypothetical Applications
“Black Box”
?
?
?
?
?
…then a miracle happens
The World is Saved!
Voila!
Glory!
Children Fed!
Fame!
Diseases Cured!
Unmentionable
Wealth!
…that’s how it works, right?
So what’s in that Black Box?
PROCESSES
RISK
Risk - a part of all things entrepreneurial
Risk is not necessarily something to avoid or deny.
Risk must be
Identified
Calculated
Managed
Common areas of business risk for life sciences companies:
Technology performance
Financing
Business model
Regulatory approval
Customer Adoption
Time
Management team
IP
Competition
Sales
If you want partners, investors (and SBIR reviewers) to
buy into your vision, it’s critical that you convey an
understanding of the processes and risks associated with
the commercialization of your technology...
…and a step-by-step plan for eliminating the risks
What business are you really in?
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R&D Discovery Company
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Service Company
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“Vanity” or “Lifestyle” Company
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Vehicle for funding academic research lab
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Consultancy
Which one am I?
What business are you really in? (cont’d)
R&D Discovery Company
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Growth opportunity
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Game-changing, huge opportunity
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Small-but-viable market
Platform vs. “one-trick pony”
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(growth co. vs. rapid out-license)
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Intellectual property is king (esp. patents)
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Typically requires substantial equity investment
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Angel and/or Venture Capital (multiple rounds)
Risk
Reward
Management team & investors evolve with stage of
company
What business are you really in? (cont’d)
Service company
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Contract research
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Dependent on proprietary IP ?
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Generates revenue
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Significant infrastructure costs
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Typically not a target for venture capital
“Vanity” or “Lifestyle” company
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Hobbyists (
commitment to commercialization)
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Phase I applicants are screened for commercial merit
Consulting
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Selling wisdom, not a product or service
Gremlins that sabotage startups
Observation:
Every new company thinks that finding funding is it’s
primary challenge.
Finding purpose and mission must happen first.
 Inability to maintain focus on one business goal
 Inability to distinguish commercial vs. research goals
 Unwillingness to partner / share / trust / delegate
Gremlin #1:
Inability to maintain focus on one business goal
Observation:
Nothing cripples a promising startup earlier than an
inability to focus on a single commercial endpoint
Establish focus
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Cannot pursue every conceivable product simultaneously
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Triaging opportunities:
Market
Intellectual Property
Regulatory
Funding
Maintain focus
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Single-minded determination/staying on track
Gremlin #2:
Inability to distinguish commercial goals from research goals
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Scientific research ≠ Product development
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Scientific drivers ≠ Commercial drivers
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Compartmentalize
“Recognize that a shift from basic research to translation research to
preclinical and clinical studies is less and less creative and free wheeling
and more and more regimented and following prescribed steps.”
“Recognize that the goal of the company is NOT to prove that the founder's
idea is right but to make a product. This means that …
…. the founder will have less input & control over time
…. the ultimate outcome may be determined by factors that have very little
to do with founder's science.”
Ryszard Kole, Ph.D.
Professor, Lineberger Comprehensive Cancer Center
Founder of Ercole Biotech, Inc
Senior Vice President, AVI BioPharma
STTR recipient
Gremlin #3:
Unwillingness to partner / share / trust / delegate
“Allow your child to be raised by the village”
Trust
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Emotional attachment
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Lone wolf, “I can do it myself”
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Consultancy? Not an R&D company
Must partner life sciences opportunities for success
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Understand your limitations
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Structure for shared risk/reward
Why do I need a business person? I’m smart…
Sure, you’re plenty smart, but…
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Time is of the essence
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Requires differing skill sets and aptitudes
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Scientist
Creative force
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Business
Driving force
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Knows how to sync all the moving parts
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How do I trust someone with my baby?
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Equity – aligns interests
What about me?
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CSO, SAB
Management team
Senior management (CEO)
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Serial entrepreneurs
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Corporate industry execs
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Others (e.g., (pre)clinical development experts)
Attributes
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Passion for building opportunities from scratch
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Knack for effectively channeling inventor energy
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Talent for finding money
Terms of Engagement
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FT salaries are rare in very early companies
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Compensation typically milestone-based, equity
Evolution
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Different skill sets are required as company evolves
Commonly needed skill sets
Accounting
Industry expertise
Banking
IP & IP strategy
Business development
Lab space
Business mentoring
License/option
Business plan writing
CEO
Corporate legal
(incorporation, etc)
Contract research (CRO)
Financing strategy
Grants writing
Manufacturing
Market Research
Preclinical or early
technology development
Product development plan
Regulatory strategy
Sales & marketing
Strategic consultants
What do I need? When?
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Identify critical urgent areas of need
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Talk to people that have developed similar products
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Business counseling (lawyers, SBTDC, NCBC)
Terms of Engagement
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Carefully define the scope of work
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Cash (fixed-cost deliverable vs. open-ended billable hours)
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Deferred compensation
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Partnering (shared risk) can extend your runway
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Equity
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Careful! You only have so much equity to share!
Incorporation
Corporate structure
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Delaware C Corp, NC, LLC, etc.
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SBTDC counselors, accountants can help you choose best vehicle
Inception/incorporation package:
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Articles of Incorporation
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Ownership (Founders’ shares, etc)
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Confidentiality agreement template
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Employment and non-compete documents
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Stockholder agreements
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Stock structuring and vesting agreements
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Standard & consistent: start “clean”, anticipate investor DD
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Good legal advice can be worth every penny
Business plan
Presents a compelling story and business opportunity to
present to potential partners and investors
Provides “internal marching orders” to keep everyone
engaged & focused towards a common goal
Creating a business plan forces you to…
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Understand all the moving parts that must be sync’d
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Develop your commercial vision (gives context & purpose)
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Quantify necessary resources (financial and human capital)
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Commit to specific activities and a timetable for
completion
Elements of a Compelling Business plan
Create a great story that demonstrates…
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Focus on a market-driven commercial opportunity
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Understanding of your customers and their needs
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Advantages of your technology relative to other solutions
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IP portfolio that establishes FTO & a barrier to competitors
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Strategic technology and commercialization plan and the
key factors that influence commercialization (e.g., regulatory)
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Knowledge of the risks and a plan for addressing them
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Funding requirements
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“End game” (goal, define “success” for company)
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“Plan B” (alternative products, markets)
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Plan for making money for company, investors
Market Research
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Validated customer need must be the primary driver
Market “pull” ≠ Technology “push”
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Define “addressable market”
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Primary research (end-user)
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Seek out & engage end-users early (don’t hypothesize need)
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Game changer? Incremental improvement? Me-too?
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Eases adoption hurdle
Secondary market research (reports, etc.)
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Published market analyses
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Inexpensive alternatives (9:30 session)
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Interns: MBA students, postdocs can be helpful
Market Research
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(cont’d)
Competition
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Research stage
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Early development (product pipeline)
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Products on the market
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Resources for identifying competitors
You ALWAYS have competition!
Intellectual Property (IP)
What is Intellectual Property?
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“Creations of the mind” for which property rights are recognized
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Invention, not discovery per se
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Legal right to exclude others from practicing your invention
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Protection: Patent, trade secret, copyright, trademark
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In the life sciences, patents (and trade secrets) rule
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Priority date (U.S: first to invent)
Who owns my invention?
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Assignment of patent rights
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Access to core IP via license, option, etc.
Confidentiality
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CDA?
Intellectual Property (cont’d)
Value of IP estate
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Barrier to entry – competitors
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Freedom to Operate (FTO)
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Non-infringement of core IP
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ID add’l IP needed to practice
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Legal opinion vs. patent landscape analysis (“pre-FTO”)
Investors and partners are keenly interested in collective value
of the intellectual asset(s)
Developing an IP strategy
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Patents vs. trade secrets
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Provisional patents (establish priority date)
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National Phase
Product development planning
Focus on commercialization
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Scientific research ≠ Product development
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Understand specs necessary for adoption
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Milestones
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Often associated with IP or regulatory requirements
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Incrementally eliminate technical risk
Engage INDUSTRY experts to establish strategy
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Regulatory/registration path & strategy (PM sessions)
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Listen to people who’ve developed similar products in
your targeted market
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Industry & market validation
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Insiders: Know what has failed and why
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SAB (not just academic researchers & friends)
Financing
Preliminary resources
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Friends, family, fools (usually not tied to equity)
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Bank loans
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Company (generally not an option)
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Individual (2nd mortgage, retirement, savings)
Research grants & loans
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Federal: SBIR/STTR, NIST, etc.
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Research only
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Non-dilutive, non-repayable
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SBIR Matching Programs
Other
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Foundations
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NCBC, NCIDEA, etc.
Financing (cont’d)
Corporate: Grants, Co-development Partnerships
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Exploratory: licensing, equity, first right of refusal, etc.
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Alignment of interests
Equity investment
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Angel Capital (usually < $100K)
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Individual angels
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Organized angel networks (preferred)
Venture Capital (usually $500K  millions)
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Board seats, management oversight
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Looking for exit prior to product launch
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Multiple rounds, evolving syndicate of investors
Company valuation
Establishing a rational financing strategy
Map funding needs to technology & corporate
development milestones
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Not feasible to seek a single seed investment to
cover entire development cost
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Divide the development process into milestonedriven components
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POC, working prototype, favorable regulatory hurdles
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Estimate costs of each step
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Map potential financial sources to each step
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Financing strategy
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Not all money is the same
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(cont’d)
Research vs. non-research; Dilutive vs. non-dilutive
Understand investors’ motivations, limits and needs
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Does investor profile match your opportunity?
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Do interests align?
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Chemistry? This is a long-term relationship
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“Patient capital”?
Everything changes when you take someone else’s money!
Business plan (revisited)
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Financials
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Projections of expenses, income
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Defines financial requirements for company
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Consistent with business model
“End game” (long-term goal)
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Sales growth
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Exit (product, company, investors)
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Out-license?
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Merger/acquisition?
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IPO?
Commercial Planning Checklist
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Establish independent commercial entity
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Obtain license to asset from IP holder
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Solicit & engage strategic services, management
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Research IP, market, regulatory path
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Triage opportunities for technology
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Choose initial product focus
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Create strategic development plan
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Establish business & technology milestones (+ costs)
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Set near-term financing goals
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Capture corporate vision in a business plan
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Business plan (final thoughts)
Contagious enthusiasm – what excites you about this? Share it!
Be compelling without exaggerating or relying on “sales-y”
language!
Your business plan is always evolving
You don’t have to know all the answers, but
you’d better know the questions!
(know what you don’t know)
Get help!
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SB(T)DC’s
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State economic development centers
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Entrepreneurship programs
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Business schools
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Council for Entrepreneurial Development
Business plan competitions
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Universities, SEBIO
Workshops & Forums
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Investor-Ready Entrepreneur, NxLeveL, Biotech Forum series
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Incubators (10:30 session)
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NIH Technical Assistance Programs (PM session)
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NCBC BATON Program
www.ncbiotech.org/baton
[email protected]
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