Beyond The Balance Sheet: Thinking Broadly About Dilution In Building A Transformative Biotech

Posted December 16th, 2020 by Josh Brumm, in Biotech financing, Capital markets, From The Trenches

By Joshua Brumm, CEO of Dyne Therapeutics, as part of the From The Trenches feature of LifeSciVC

Over the course of my career in healthcare, I’ve been fortunate to serve in a leadership role through four IPOs and even more financing rounds. All told, I’ve raised well over $1.5 billion in capital. That means I’ve spent a lot of time thinking about dilution.

And not just dilution in the familiar sense of issuing equity to additional investors to obtain financing. Over time, I’ve come to realize that other forms of dilution can make or break a biotech startup. Dilution of mission, dilution of focus and even dilution of your investor base are pitfalls that can trip up even the most experienced executive team – and can risk hurting your fundamentals enough that you end up with far more financial dilution than you had ever intended.

In this blog, I’d like to share what I’ve learned about dilution across all spheres, in hopes that my experiences will be useful to other executives navigating the challenges of the biotech startup world.

Establish a mission that drives you daily

First and foremost: Mission matters.

There can be a temptation to think of mission and vision as window dressing; to be used on the opening slide of a pitch deck and then forgotten. In my view, that couldn’t be further from the truth. Your mission is your reason for getting up every morning. It’s the commitment you communicate to patients and their families. It’s why you work your heart out every single day. You need to live your mission and make sure everyone on your team lives it, too.

Mission is also crucial to investors. They need to know that you know where you’re headed as a company – and that you have a clear understanding of the value you will create when you’ve achieved that goal.

At Dyne Therapeutics, where I’ve served as CEO for more than a year, our mission is to deliver life-transforming therapies for people living with serious muscle diseases. Our vision is to become the world’s leading muscle disease company. To achieve those goals, we’re developing modern oligonucleotide therapeutics designed to overcome the limitations of current muscle-directed medicines. Our mission and vision are absolutely fundamental to Dyne. Everything we do – not just our research, everything – is intentional and strategic, a step on the path to those goals. I often say we are fortunate at Dyne that we knew at an early age who we wanted to be when we grew up. That’s the power of a clear mission and vision.

I’m certain that this strong foundation has been essential to our financial success this past year, including our $116 million crossover round in August and our $268 million IPO in September.

Setting a clear mission isn’t just about attracting investors, though; it also helps you correctly value your company during financings. A CEO’s job is to look not just at the parameters of the deal in front of you, but at the trajectory you expect the company to take over time. That’s where your mission and vision come in. If you’re confident you’ll become the world’s leading muscle disease company, for instance, you can run the comps and develop a thoughtful estimate of what the company should be worth when it has reached that stage of development. Then you can work backward from that number to assess the appropriate valuation for the company at Series A, Series B, IPO, etc., keeping in mind that you’d expect to step up in value with each new raise.

I think of financing like a jigsaw puzzle; you must put the pieces together to optimize value and maximize optionality with every financing. It’s hard to do that without a clear, overarching goal in mind. That’s where the strong mission comes in: It’s the picture on the front of the jigsaw puzzle box. It reminds you where you’re headed, which in turn helps you plan how to get there.

Maintain a rigorous focus

When I joined Dyne in the fall of 2019, we had recently established our three lead indications, all rare muscle diseases: myotonic dystrophy type 1 (DM1), Duchenne muscular dystrophy (DMD) and facioscapulohumeral muscular dystrophy (FSHD). From a strategic standpoint, these indications were carefully selected; each represents huge unmet need for a substantial patient population (in the U.S. alone, for instance, there are more than 40,000 individuals living with DM1).

We believe our FORCETM platform, which is designed to enable precise and potent targeting of muscle tissue, could also address other important indications, including rare skeletal, cardiac and metabolic muscle diseases. We could have sought to signal our ambition in these arenas by rapidly expanding our pipeline. Or we could have licensed our three core programs to a big pharma company with resources to support our path to the clinic.

After careful consideration, however, we did neither.

Branching out to take on more indications risked diluting our focus and distracting us from our aggressive drive to the clinic in DM1, DMD and FSHD. Partnering our core programs too early risked diluting our financial value by giving away the rights to future assets.

Focusing on the three indications that best supported our mission, by contrast, put us in a position of strength when reaching out to investors for our crossover round and our IPO. They could see the potential for us to do more in the future – we had preserved plenty of optionality to expand to additional indications – but they also could see our laser-focus on muscle. And they could see we had the tools and the team to quickly advance our existing portfolio, which has the potential to drive tremendous value on its own, even without future expansion.

Having mapped our path to the clinic in each indication – an exercise that required scoping the resources, time and talent it would take to get to each inflection point – we have now turned our focus to executing with excellence. We make it a point to hold ourselves, and one another, accountable for marching steadily through our timelines. My leadership mantra is “we do what we say we’re going to do,” and the whole Dyne team has embraced it as we move purposefully to, and through, each mile marker along the way.

Work with those who believe in you

With a strong scientific platform, a compelling mission, a strategic focus and a clear roadmap to reach key inflection points, you’re in a position of strength. That, in turn, gives you the ability to carefully select investors who truly share your vision.

It’s important to remember that investors are not just writing the checks. Often, they will have a seat on your Board. You need to be sure those seats are filled with individuals who genuinely believe in your big-picture vision for the company.

Ideally, your investors will serve as true partners as you work through questions of strategy, science and operations. At Dyne, I’m fortunate to have an exceptional Board – including both founding investors and independents. Though they represent many different backgrounds and experiences, they work together as a team to guide Dyne toward our shared goals. I text and call our Board frequently to discuss strategy. Knowing that they are fully committed to the company’s mission and fully aligned with my vision as CEO gives me a great deal of confidence in their advice.

If your investment syndicate or Board is diluted by the presence of individuals who don’t share your vision, you will likely find these consultations more frustrating than fulfilling. In the worst case, this type of dilution can severely impair your ability to reach your long-term goals for the company.

Throughout my career, I’ve been able to hold key roles in negotiating partnerships, developing pipelines and establishing and executing on financial strategy. In each role, I’ve seen firsthand the pitfalls of dilution – and the importance of thinking strategically to preserve optionality and build a transformative company. I believe we’re on our way at Dyne.

This has been a difficult year for everyone, but as we approach the holidays, I’m mindful that we at Dyne have been quite fortunate in 2020. Our entire team is grateful – and even more mindful of our responsibility to deliver for patients. I’m looking forward to the important work we have ahead in 2021.

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