Preparing To Scale Your Biotech Startup

Posted September 22nd, 2015 by Ankit Mahadevia, in Biotech startup advice, From The Trenches

This blog was written by Ankit Mahadevia, CEO of Spero Therapeutics, as part of the “From the Trenches” feature of LifeSciVC.

After many months (or years) of grinding, your science seems to be working, the market is responding to your story, and it’s time to scale your startup for the future. It is a heady time, when everything seems to be working right and the challenges of starting up seem to be in the rear view mirror. However, this fortunate position is not a time to stand still.

In my observation, great companies like Cubist and Alnylam separated themselves as they scaled with a series of team building and capital planning decisions that took place years before it was evident those decisions were needed. I share a few hard-won lessons about our journey scaling startups, avoiding missed opportunities on the one hand and avoiding getting ahead of our skis on the other.

People (!!!)

You can insert your favorite management expert’s view on great teams (one of my favorites here). Even more than senior leadership, it’s our strong bias that finding that next generation of leaders is the most critical task to undertake during scale-up. Setting a strong culture and maintaining high scientific standards comes from senior leadership for sure, but strong leadership at all levels ensures that these values are taken to heart as the company grows far beyond its current scope.

What does all this mean in practical terms? Draft for talent rather than short-term need and build your next level of leadership aggressively. In this environment, good people are hard to find and it pays get them while you can, even if the “prime time” for their skill set is a quarter (or year or more) off. The most acute example of the downside of not proactively hiring for talent I can remember is a company that deferred the decision to hire a strong Chief Medical Officer until after it dosed its first patient because of the perceived cost and seniority relative to the scope of the role; when the CMO search dragged out, their Phase II design and trial recruitment were suboptimal and challenged crucial fundraising efforts.

Capabilities: To Lab or not to Lab?

A closely related question to hiring is what capabilities a company should invest in as footprint and resource grows. In rent-challenged Cambridge, this often boils down to whether to build a lab or stay virtual. In general I’ve observed that companies with financial and scientific scale do build a lab, for the higher throughput and bespoke science that it enables relative to the contract model.

However, before doing so it is worth asking the tough questions about whether a lab will 1) be used consistently and 2) really offers capabilities that thoughtful outsourcing cannot given the quality and sophistication of today’s CROs. Labs, and other bricks and mortar infrastructure like manufacturing are expensive, take people to run, and divert leadership time. My fellow blogger Jonathan Montagu has written eloquently about the merits of the virtual model here. In Cambridge, one can split the difference with a semi-virtual model, as we’re fortunate to have a variety of “rent a lab” constructs that offer the freedom of one’s own lab without the fixed costs or infrastructure management required.

A cautionary tale to the “build it if you can” philosophy is a company I have observed over the last 7 years – they had a bespoke drug/device combination, and chose to build their own manufacturing facility to improve cost of goods and scale. When product timelines became delayed and the fundraising environment got worse, the company almost went bankrupt under the weight of their facility costs but for a timely government grant.

Capital planning: Take the Money (but don’t run)

As the sage biotech experts of the Steve Miller Band opine, much of scaling a biotech involves taking the money. A scaling company has broader and often more frequent needs for capital – as a CEO you will often reward yourself after a successful fundraise with (you guessed it) more fundraising. For this set of expectations and needs, it pays to be prepared. When in startup mode it was acceptable to plan for cash quarters in advance, it is a must in a scaling company to plan years in advance towards clinical and even commercial inflection points. It’s hard to plan how to get the capital you need if you don’t know your needs.

A key issue that your investors, Board, and team quickly must get comfort with is dilution. A management team must resist all pressure to not capitalize their business appropriately. Everyone – prior investors and management teams – will own a smaller piece after a financing. Our business is one that spends money for years before it makes money; there is no escape from dilution and it is in my opinion a strong sign of progress and scale. Trying to preserve a larger piece of the pie by not raising capital when you should may mean a smaller (or no) pie for everyone in the future. That said, the decision to take money has quite a few strategic implications from either a team or investor point of view that require analysis; a Board may feel that future milestones could lower the cost of capital and mitigate dilution. The downside of the strategy, that the market could turn and money on the table today may not be as feasible to get tomorrow, is worth weighing very carefully.

One last thought

Scaling is a complex business. There is a whole set of new variables to contend with as you grow – a larger team with more personalities, more complex Board dynamics, and more exposure to the capital markets. It’s important to never forget what got you there – the culture and sense of adventure it took to take the chance at building a company in the first place. Holding capital, team, and labs aside, this is the essence of what makes working at a biotech special, and what’s important not to lose as your company goes on to grow and accomplish great things.

Ankit Mahadevia

Serial biotech entrepreneur and executive
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