What I Think

A number of strategies are applied to development in biotechnology and I suppose the same principles apply to many industry sectors. But in all cases companies need to have the cash to invest or they are not in the game.

In my experience in biotechnology, many companies invest in a single product opportunity or technology idea and raise funds necessary to get to a “major milestone”.

If they make it, the additional funds needed to complete the development can be raised. This necessarily means that most of these businesses are development companies and are in the “all or nothing” business.

There are many high profile examples of the ones that didn’t make it. I am not comfortable in that kind of business. I like to have products in development, not product in development.

A majority of financing comes from sharing the risk and the upside with partners through licensing. Together, as partners, they complete the work to the market. They provide the capital and expertise in regulatory or marketing, we provide the technology and manufacturing expertise.

This model also has hurdles and risk. Balancing the risk by having more than one product in the development pipeline puts me in the comfort zone.

No matter what, these development activities require financing. It can be achieved in two ways that I have found successful.

The first is to build a base business with products that can generate revenue in a market that requires lower technical and regulatory hurdles. That business can be grown and supply cash for the larger development activities and real upside in the business.

It also provides some protection for those periods when timelines are stretched or products in the pipeline don’t make it to the end zone. This happens in all biotechnology companies. There is always risk in what biotechnology companies do. But a base business lowers the risk by providing an ongoing business as well as a training centre for new employees and new technologies. A number of the biotechnology survivors follow this model.

Development of novel products always involves risk, and senior managers have to have some courage and confidence when making decisions about whether to make the investment or not. Besides the obvious cost of development, there is always the “other opportunity” management passes on. Is there a business case? Is it technically feasible? Is there proof of concept? So what is the risk?

I have found that I am most comfortable averaging down the risk with a portfolio of products, any one of which could increase the value of the company tenfold. That is why I operate a company that has three products with large potential. We took a number of years to reach the point where we now have three promising products/technologies that can be worth hundreds of millions to the shareholders once in the market. All of these products are now in a late stage of development and so may convert into value for shareholders soon.

My colleagues and I used a combination of base business profits, partnership fees, equity financing (only two small financings) and debt to fund these developments. This has preserved much of the value for shareholders especially those that have a significant holding in the Company. We have always managed cash conservatively and lived on modest salaries. I personally don’t earn options which allows other senior managers with a smaller position in the Company to share in the upside. We do not have lavish offices and we ride in the rear of the plane. This has translated into a vast majority of the funding for our development activities being derived from non dilutive sources.

We don’t focus on share price although we all work to increase it. We are building a business that creates wealth and the only way to do that is by executing the plan. We have had some success and have experienced our share of disappointments. But we have continued to put ourselves in a position to win.

We have had large companies take illegal action against us to protect their market. We have successfully licensed our products to partners that have the financial capacity to complete the projects with us, but have changed priorities part way through the development process and disconnected the relationship (we kept their investment). These sorts of events slow us down but because of our profitable base business, we have been able to continue and protect the downside risk for the business.

At some point all this progress will lead to the objective. If you have the staying power and the management team is willing to make the sacrifices to get to the finish line, then the probability of success is high. But you have to be good at science, you have to have some luck and you have to deal with all the business distractions without losing focus on the plan. One large market product launched and you accomplish the objective.

My office door is open most of the time. Visitors can be placed into two groups, business colleagues or shareholders. Business colleagues often come to my office to talk and seek advice on a wide range of business issues. Shareholders generally contact me by phone or email. All have questions that are important to them.

This blog gives me the opportunity to share my views on a broad range of issues that affect both groups. You will see that I look at things differently than you will find in the “official” world of the biotechnology and pharmaceutical industries and the business of being a public company. In the “unofficial” world, maybe I find myself in good company. I think it’s worthwhile to provide these views, not as a regular published column but rather as a source for my opinion on things I usually don’t discuss.

My door is open.