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? • R&D Discovery Company • Service Company • “Vanity” or “Lifestyle” Company • Vehicle for funding academic research lab • Consultancy Which one am I? What business are you really in? (cont’d) R&D Discovery Company • • Growth opportunity • Game-changing, huge opportunity • Small-but-viable market Platform vs. “one-trick pony” • (growth co. vs. rapid out-license) • Intellectual property is king (esp. patents) • Typically requires substantial equity investment • • • 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 • Contract research • Dependent on proprietary IP ? • Generates revenue • Significant infrastructure costs • Typically not a target for venture capital “Vanity” or “Lifestyle” company • Hobbyists ( commitment to commercialization) • Phase I applicants are screened for commercial merit Consulting • 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 • Cannot pursue every conceivable product simultaneously • Triaging opportunities: Market Intellectual Property Regulatory Funding Maintain focus • Single-minded determination/staying on track Gremlin #2: Inability to distinguish commercial goals from research goals • Scientific research ≠ Product development • Scientific drivers ≠ Commercial drivers • 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 • Emotional attachment • Lone wolf, “I can do it myself” • • Consultancy? Not an R&D company Must partner life sciences opportunities for success • Understand your limitations • Structure for shared risk/reward Why do I need a business person? I’m smart… Sure, you’re plenty smart, but… • Time is of the essence • Requires differing skill sets and aptitudes • Scientist Creative force • Business Driving force • Knows how to sync all the moving parts • How do I trust someone with my baby? • • Equity – aligns interests What about me? • CSO, SAB Management team Senior management (CEO) • Serial entrepreneurs • Corporate industry execs • Others (e.g., (pre)clinical development experts) Attributes • Passion for building opportunities from scratch • Knack for effectively channeling inventor energy • Talent for finding money Terms of Engagement • FT salaries are rare in very early companies • Compensation typically milestone-based, equity Evolution • 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? • Identify critical urgent areas of need • Talk to people that have developed similar products • Business counseling (lawyers, SBTDC, NCBC) Terms of Engagement • Carefully define the scope of work • Cash (fixed-cost deliverable vs. open-ended billable hours) • Deferred compensation • Partnering (shared risk) can extend your runway • Equity • Careful! You only have so much equity to share! Incorporation Corporate structure • Delaware C Corp, NC, LLC, etc. • SBTDC counselors, accountants can help you choose best vehicle Inception/incorporation package: • Articles of Incorporation • Ownership (Founders’ shares, etc) • Confidentiality agreement template • Employment and non-compete documents • Stockholder agreements • Stock structuring and vesting agreements • Standard & consistent: start “clean”, anticipate investor DD • 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… • Understand all the moving parts that must be sync’d • Develop your commercial vision (gives context & purpose) • Quantify necessary resources (financial and human capital) • Commit to specific activities and a timetable for completion Elements of a Compelling Business plan Create a great story that demonstrates… • Focus on a market-driven commercial opportunity • Understanding of your customers and their needs • Advantages of your technology relative to other solutions • IP portfolio that establishes FTO & a barrier to competitors • Strategic technology and commercialization plan and the key factors that influence commercialization (e.g., regulatory) • Knowledge of the risks and a plan for addressing them • Funding requirements • “End game” (goal, define “success” for company) • “Plan B” (alternative products, markets) • Plan for making money for company, investors Market Research • Validated customer need must be the primary driver Market “pull” ≠ Technology “push” • Define “addressable market” • Primary research (end-user) • • Seek out & engage end-users early (don’t hypothesize need) • Game changer? Incremental improvement? Me-too? • Eases adoption hurdle Secondary market research (reports, etc.) • Published market analyses • Inexpensive alternatives (9:30 session) • Interns: MBA students, postdocs can be helpful Market Research • (cont’d) Competition • Research stage • Early development (product pipeline) • Products on the market • Resources for identifying competitors You ALWAYS have competition! Intellectual Property (IP) What is Intellectual Property? • “Creations of the mind” for which property rights are recognized • Invention, not discovery per se • Legal right to exclude others from practicing your invention • Protection: Patent, trade secret, copyright, trademark • In the life sciences, patents (and trade secrets) rule • Priority date (U.S: first to invent) Who owns my invention? • Assignment of patent rights • Access to core IP via license, option, etc. Confidentiality • CDA? Intellectual Property (cont’d) Value of IP estate • Barrier to entry – competitors • Freedom to Operate (FTO) • • Non-infringement of core IP • ID add’l IP needed to practice • 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 • Patents vs. trade secrets • Provisional patents (establish priority date) • National Phase Product development planning Focus on commercialization • Scientific research ≠ Product development • Understand specs necessary for adoption • Milestones • Often associated with IP or regulatory requirements • Incrementally eliminate technical risk Engage INDUSTRY experts to establish strategy • Regulatory/registration path & strategy (PM sessions) • Listen to people who’ve developed similar products in your targeted market • Industry & market validation • Insiders: Know what has failed and why • SAB (not just academic researchers & friends) Financing Preliminary resources • Friends, family, fools (usually not tied to equity) • Bank loans • Company (generally not an option) • Individual (2nd mortgage, retirement, savings) Research grants & loans • • Federal: SBIR/STTR, NIST, etc. • Research only • Non-dilutive, non-repayable • SBIR Matching Programs Other • Foundations • NCBC, NCIDEA, etc. Financing (cont’d) Corporate: Grants, Co-development Partnerships • Exploratory: licensing, equity, first right of refusal, etc. • Alignment of interests Equity investment • • • Angel Capital (usually < $100K) • Individual angels • Organized angel networks (preferred) Venture Capital (usually $500K  millions) • Board seats, management oversight • Looking for exit prior to product launch • Multiple rounds, evolving syndicate of investors Company valuation Establishing a rational financing strategy Map funding needs to technology & corporate development milestones • Not feasible to seek a single seed investment to cover entire development cost • Divide the development process into milestonedriven components • POC, working prototype, favorable regulatory hurdles • Estimate costs of each step • Map potential financial sources to each step NORTH CAROLINA BIOTECHNOLOGY CENTER NORTH CAROLINA BIOTECHNOLOGY CENTER Financing strategy • Not all money is the same • • (cont’d) Research vs. non-research; Dilutive vs. non-dilutive Understand investors’ motivations, limits and needs • Does investor profile match your opportunity? • Do interests align? • Chemistry? This is a long-term relationship • “Patient capital”? Everything changes when you take someone else’s money! Business plan (revisited) • • Financials • Projections of expenses, income • Defines financial requirements for company • Consistent with business model “End game” (long-term goal) • Sales growth • Exit (product, company, investors) • Out-license? • Merger/acquisition? • IPO? Commercial Planning Checklist  Establish independent commercial entity  Obtain license to asset from IP holder  Solicit & engage strategic services, management  Research IP, market, regulatory path  Triage opportunities for technology  Choose initial product focus  Create strategic development plan  Establish business & technology milestones (+ costs)  Set near-term financing goals  Capture corporate vision in a business plan NORTH CAROLINA BIOTECHNOLOGY CENTER 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! • SB(T)DC’s • State economic development centers • Entrepreneurship programs • • Business schools • Council for Entrepreneurial Development Business plan competitions • • Universities, SEBIO Workshops & Forums • Investor-Ready Entrepreneur, NxLeveL, Biotech Forum series • Incubators (10:30 session) • NIH Technical Assistance Programs (PM session) • NCBC BATON Program www.ncbiotech.org/baton [email protected] NORTH CAROLINA BIOTECHNOLOGY CENTER