Effective Scaling Strategies In Pharma

By Ed Miseta, Chief Editor, Clinical Leader

You have a molecule that appears to hold potential for a disease state. You also have some funding in place, and opportunities for your start-up look promising. But several challenges still lie ahead.

You need to hire the right people to help you move forward. You need to learn how to get along with your investors. And you need to locate new partners and investors to help you develop the product and take it to market. Nothing at this stage in your company’s growth is easy or inexpensive, and unfortunately, this stage often determines the success or failure of your business. A panel consisting of an entrepreneur, a consultant, and representatives of pharma met at the Outsourced Pharma West Conference and Exhibition to help attendees navigate through these issues.

Often, the first thing you have to do is decide whom you are going to hire. Whom should you select to help you execute the plan you have in place? If you will be acting as the CEO of the company, our panel recommends that you start off with a knowledgeable chief medical officer and then a qualified CFO to help you manage costs and assist with future fundraising efforts. With a technology- or science-based company, bringing on a technology person would generally be the next step. Of course, identifying the titles that need to be filled is one thing. Finding the right people to fill them is another.

HIRING THE WRONG PERSON CAN SPELL DISASTER
When you are a young and unknown start-up, convincing strangers to buy into your idea and join the company can be a challenge. It also can take a lot of time. For that reason, many CEOs hire people they know simply because they understand the skill and work ethic of people they have worked with in the past. At the same time, you cannot run out and hire every person you know.

“Hiring someone in the start-up phase is like going on one date with someone and proposing marriage,” noted one panelist. “This is why it can be so efficient to hire someone you already know. One of the key attributes you are looking for is trust, and you will always have more of that in a personal connection than a total stranger. For example, if I hire a scientist, the only conversation I ever want to have with them is ‘Did that work?’ All I want is a yes or no answer. I don’t want to walk away wondering what they meant by something they said. It erodes the relationship. If I hire someone I trust, I don’t have to worry about that scenario.

Another panelist recommended hiring people that you know will work well under pressure. There is always pressure involved in working for a start-up, especially when it is relentless and coming from all sides. A lot of it will originate with your investors who want to hear where things stand and whether the project is still on track. This is another area where trust comes into play.

Always remember this is a tough business, and a lot of things can and will go wrong. All management teams will look good when things are going well. You won’t find out how good your team really is until things start to hit the fan.

ALWAYS TRY TO GET ALONG
In this business, relationships are critical, as is getting along with the companies you do business with. If working with a CMO, it’s important that your scientists see eye-to-eye with theirs.

One attendee noted a situation where a biotech hired a head of outsourcing who did not seem to fully understand the company’s chemistry. When it came time to select a partner, instead of speaking to knowledgeable sources in the industry, he opted to hire a broker to help with the search process. “We have been negotiating with them for six months,” noted the attendee. “In the meantime, we have already proved the concept and produced the molecule, and are ready to patent our work. How do you avoid these situations?”

While the panelists empathized with the situation, they did not offer much hope. “The chances the CEO will fire the guy he hired are about zero,” noted one of them. “It will be left up to you to decide how you want to handle the situation.”

The lesson to be learned is that much of what happens in the start-up phase — the funding, hiring, etc. — is all about relationships. If your best scientist for some reason has a falling out with your CMO the decision to dump the scientist or the CMO is never an easy one.

“This is a small community,” noted another speaker. “You never want to throw someone under the bus in order to prove you were right. There is a lot of business out there, and we will walk away from any relationship if it doesn’t make sense. There has to be a comfortable fit between the two firms. If we don’t have a fit, then it doesn’t make sense to be involved.”

USE CAUTION WHEN CHOOSING YOUR BOARD
As one panelist noted during this session, if there is money in front of you, you should take it. But if you have the luxury of being able to choose what money to take, you should also perform due diligence on the investors you’re considering. Realize going in that there will be VCs who will be good to deal with and those who are not.

For a young CEO starting out in the industry, your investors and board will be important parts of your life. All of your investors and board members will expect you to spend some amount of time interacting with them. The panel recommends you find folks who will support you in the relationship.

“It is not uncommon for investors to come up with random suggestions that are meant to be helpful, but which are often quite ridiculous,” noted one panelist. “Someone recently shared their solution to this problem with me, and I found it to be quite ingenious. If you go to a meeting and try to get everyone to agree with you, you will spend a lot of time arguing with them. Instead, try listening to their comments while smiling and nodding. When the person stops talking, move on to the next slide. The barrier to moving on to the next slide are the words “no” or “stop.” If you don’t hear those words, just let them talk, and then move on. It doesn’t matter if you agree with them or not.”

“I was once in a similar situation,” noted another panelist. “Sometimes you get an investor who can only be described as a wild card. You don’t know them, you don’t necessarily trust them, and you never know what kind of crazy ideas they will present. With one, I was always wondering how we would be able to move forward with his ideas. People would agree with him because everyone wanted to get along. Afterwards, I would call up the board chair and ask if we were really going to do what was suggested. Generally, we would have a discussion and then fix the situation behind the scenes. These are issues you need to be prepared to deal with.”

Preplanning for these meetings is also a big help. For example if there is a data package that you want, talk with the investors ahead of time to understand their concerns and know their perspective going in. Having that knowledge ahead of time will help you to know if you have their support or if it will be a battle. You always want your board meetings to go as smoothly as possible and with as few votes as are necessary.

Another good suggestion: If you are in a situation where you have 20 or 30 angel investors, the best thing to do is put them into an LLC. Then have one representative from that LLC report back to you. That will keep you from having to deal with all of them individually.

SOMETIMES, THINGS WILL GO WRONG
No matter how much time you put into building relationships, sometimes things will still not go as planned. The panelists were prepared to share some of their personal experiences.

“With one company I was with, we made the decision to purchase portable containment facilities to aid in a manufacturing process,” noted one panelist. “We did not have a lot of money at the time, and I believe we paid around $100,000 for them. Unfortunately, they were frames with a plastic bag that just did not do what they were supposed to. Eventually, we threw them in the trash. We also wasted a lot of time and energy trying to make them work. The lesson learned from that was with a new technology, check it out thoroughly ahead of time and make sure it would actually work for the application you have in mind. You can paralyze yourself with analysis, but it pays to spend a week doing research to ensure a new technology will work.”

Internal conflicts can also be a problem for CEOs to overcome. These may revolve on how you’re going to sell the product, how to properly develop it, or even the technology itself. There may be an ongoing debate between the CEO, the CFO, the CSO, or someone from regulatory affairs about what you can and can’t say about a product.

When you are ready to sell the company, you might also face struggles against your own team. One panelist heard stories about these kinds of situations getting so heated that the board had to fire everybody, including the CEO, and start over. Certainly not the situation the founders had in mind.

Issues might also arise when the CEO of the company is too close to the technology. “That can be a problem,” added a panelist. “I’ve worked for CEOs who knew a great deal about the science, and some who knew nothing about it at all. There are certainly pros and cons to it. I have found it is distracting if the CEO acts like a board member who throws out ideas all the time, and then goes out and talks to the junior staff and has them do what he says. It can be a difficult conversation when you go to team members and tell them to stop doing it. On the flip side, they can be well-qualified to make complex scientific arguments about why we should be doing something. If they don’t have the experience of being a CEO, they just need to know when to back off.”

Finally, the panel recommends keeping in mind that the time to recoup your investment is much different in life sciences than in other industries. In technology you can start a company with a couple million, sell it in two years, and make a large profit. In this industry, the physics of science takes time. There is also an incredible regulatory burden, which one panelist noted is second only to the IRS in terms of intensity and the possibility of capricious decisions.

“This is a process that simply can’t be rushed,” he notes. “You can make money in biotech, but realize you will have to be patient. I tell scientists and investors that if they want to get rich, they should become an investment banker. But if they want to do something that might change the world, the biotech industry is a great place to be.”