Innovation, Commercialization, and Start-Ups in Life Sciences

James F. Jordan

• Publisher: CRC Press
• Year: 2021
• Print ISBN:
  9780367533045
  9780367533038
• Edition: 2
• eBook ISBN:
  9781000453676
• Topic: Business
• Subtopic: Finanza d'impresa
• Index: Business

Innovation is a translation of a new method, idea, or product into reality and profit. It is a process of connected steps that accumulates into a brand reputation required for success. Unlike Fortune 500 companies, whose projects are self-funded, a start-up must simultaneously have a value proposition that attracts a customer (for revenue), investors (for capital), and acquirers (for a liquidity event or IPO). A high percentage of start-ups fail before attaining positive cashflow, due to a variety of reasons that are detailed in this book.

Avoiding the pitfalls and wrong turns are the goals of this book. Innovation, Commercialization, and Start-Ups in Life Sciences details the methodologies necessary to create a successful life science start-up from initiation to exit.

Written by an expert who has worked with more nearly 500 life science start-ups, this book discusses specific processes and investor milestones that must be navigated to align customer, funder, and acquirer needs. Successful commercialization requires attention to multiple constituents, such as investors, regulators, and customers. Investors require liquidity for their return, which is achieved through selling their stock in a public or private sale. The reader will gain an appreciation for the necessary data, partnerships, and skills needed to create a competitive and sustainable company. The author discusses such specific issues as customer problems, demonstrating sales access, and ensuring intellectual property is impervious to competitive advancement. This book is intended to be suitable for entrepreneurs, venture capitalists, and investors in both business and academic settings. These organizations have specific departments, such as R&D, operations, business development, legal, regulatory, and marketing, that would also benefit from this book.

FEATURES

• Focuses specifically on life science start-ups
• Examines how to determine a company valuation and future "fundable milestones"
• Explores how to align regulatory and clinical strategies
• Discusses intellectual property derived from a university or individual through formation to exit.
• Reviews how start?ups must simultaneously meet the needs of multiple constituencies at once: investors, regulators, customers and exit candidates

James F. Jordan is an author, consultant, and speaker. He is a Distinguished Service Professor of Healthcare & Biotechnology Management, a former Fortune 100 executive, and a managing director of a venture fund.

Access the Support Material: https://healthcaredata.center/

Cover design by Sarah Mailhott.

Section IV

A Start-Up Must Tell a Compelling Story

17 Address Your Story to the Needs of All Constituencies

DOI: 10.1201/9780367533052-17

A start-up must be able to tell a compelling story. A concise message must be crafted in a way that is applicable to the individual receiver. The start-up’s customer is interested in understanding how the start-up is going to solve her specific problem. Acquirers are interested in understanding how the start-up will add unusual returns or de-risk their business, and funders are interested in understanding their return on investment (ROI) and the associated risk.

The Customer's Story

Returning to Figure 7.1 in Chapter 7, the perspective of the customer is based upon where the customer is placed in the health care systems flow chart. Regardless of where the customer is within the health care systems flow chart, he is still always trying to improve the outcomes formula below:

$\mathrm{Outcomes}=\uparrow \mathrm{availability}+\downarrow \mathrm{costs}+\uparrow \mathrm{quality}$

Let’s explore how to articulate this formula for a moment. We need to be able to understand how to discuss the formula at both the macro and micro level for the customer. At the micro level, one looks at the individual procedure cost, while at the macro level we are looking at the overall cost to treat. Using a technology that does not change procedure costs, or even increases the individual procedure cost, that allows more procedures in a fixed time increases availability and improves outcomes. A second contribution to the formula may be a simple overall cost reduction per procedure. This benefit is obvious and generally the easiest to explain. The third contribution to the formula could be an overall decrease in long-term complications, thus improving quality. Although a quality increase may have no impact on the individual procedure to the operating room, the total cost of care is certainly reduced.

The Acquirer's Story

Without getting into a finance course, it is hard to understand how an acquirer is motivated without some basics. Whether companies are publicly traded or privately traded, they all have shareholders. In any given period of time, a calculation of earnings per share (EPS) articulates how profit is allocated to each share of stock. This formula allows for comparison inside the company between time periods. In the case of publicly traded companies, it allows comparison among competitors. The formula is as follows¹:

$\frac{\mathrm{Net\; income}-\mathrm{dividends\; on\; preferred\; stock}}{\mathrm{Outstanding\; shares\; of\; stock}}$

This formula is usually calculated going back four quarters, which gives you a historical perspective of the company. This is also calculated going forward, usually in quarters, in one-year increments, and frequently in multiple years. Publicly traded companies usually provide guidance on your future earnings. When this guidance is given, forecasts become expected and that is what we will call usual returns.

So, the next question: how is a stock’s price valued? The price of the stock is generally determined by its price earnings (PE). The PE ratio is:

$\frac{\mathrm{Market\; value\; per\; share}}{\mathrm{Earnings\; per\; share}}$

For example, if a share cost $15 and the EPS were $2, the PE would be $7.50. Some people refer to this as the multiple, as its implications are how much someone would be willing to pay for $1 of earnings. The value of this formula becomes more meaningful when comparing it against your competitor’s formula. In our example, investors would be willing to pay $7.50 for one dollar of earnings. If they were willing to pay $5.00 for one dollar of earnings on a competitor’s stock, clearly there would be a higher expectation for the company earning $7.50. The PE ratio discussion was included here so the reader can appreciate that it is driven by EPS.² Exploration of EPS causes one to appreciate that its driving force is net income.

Referring bac...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Contents
• Foreword
• Acknowledgments
• About the Author
• Section I: Innovation Is A Process of Connected Steps
• Section II: Investment Must Be Connected To Exit
• Section III: Align With The Industry Norms
• Section IV: A Start-Up Must Tell A Compelling Story