Talent: The Key to Biotech Value Creation
By Chris Molloy, CEO of RSA and first published in EPC in September 2015 and posted to the RSA website on 03.09.2015.
Without exceptional leadership talent, the value of intellectual property (IP) in biotech companies would be unrealisable for investors. Some may regard this as controversial, but our latest research and our knowledge of the investor community leave us in no doubt.
The first in our new series of RSA Talent equityTM reports on European biotech companies shows how talent and IP combine to form the two pillars of a successful biotech business. Using data from EvaluatePharma and other industry sources, we analysed 551 venture-backed biotech companies and their strategic transactions, including 3,105 licensing deals, 178 IPOs and 629 M&A transactions. We applied objective performance measurement criteria, our own talent expertise and industry knowledge to vet the selection of the top CEOs.
Our report identifies the key traits of the CEOs who drive biotech success, and profiles 10 CEOs and the top 25 venture-backed biotech companies from the last 10 years.
Speed of growth demands stream of new talent
Our key driver was the rapid growth that the industry continues to see and the challenges of finding the best people to maintain momentum. Last year saw venture firms plough $6.55bn into the biotech sector, with Europe alone seeing a year-on-year increase of $1.24bn in investments. The figures tell a story of renewed interest in the life sciences: more deals, more partnerships and more investment.
With initial drive coming from the US, Europe is being refreshed by a broad range of new investment models, including crowd funding, angel investment and specialised crossover funds. VCs and public companies acting as ‘operational investors’ are also active in growth areas of the life sciences, such as personalised medicine. New ‘patient capital’ investors (e.g. Woodford) are breaking the old model of 10-year fixed funds and investing for the longer term. This diversified market is enabling biotech firms to raise funds to invest in small- and large-molecule as well as devices, digital healthcare and healthcare data.
Given this vibrant environment, it’s easy to underestimate the essential value that biotech leaders bring to the success of the sector. Without being able to match talented leadership with the burst of funding and innovation that is catalysing the industry, there’s a risk that the sector won’t fulfil its true potential.
An equation for success
Yes, investment fuels the biotech industry, and intelligent business models allow investments to grow. As our report shows, however, it is the ‘equity’ value of talent, combined with the IP that investors pay so much to own, that underpins the creation of real value. The combination of these vital ingredients is what makes biotech work. That’s why we’ve focused our energy on producing this report which identifies the criteria for leadership in the sector. Valuation of IP is familiar to every investor in the biotech sector, and careful due diligence is essential before putting money at risk. Because of the vital importance of people to that success, we believe the same professional due diligence is necessary when assessing biotech leaders and their teams. Quite simply, IP and talented people are two equal parts of the equation; without one, you’ll struggle to make the most of the other.
Our report pinpoints the criteria for success. Bringing business leaders into a company can and should be led by due diligence. Investors and company management need decision support and comparative analysis of talented candidates.
Many companies focus on hiring costs – the due diligence – rather than the long term value of the talent they are selecting. This is the opposite of how they think about their R&D assets. To be fair, this behaviour has been made worse by the many executive search firms who have only used limited database information on executives as their key proprietary assets. Our insight into assessing talent explains why we believe deep analysis and due diligence provide decision-makers with valuable intelligence when searching for new leaders. Actively discovering and developing top talent is a never-ending task for any company that aspires to be the best.
Taking the long view
When we look at Europe’s leading CEOs, we see the importance of staying power and a long-term commitment. Many of the most successful CEOs in our study were either founders or very early hires into the business. True entrepreneurs have a long-term perspective; they are committed to their cause and take the view that, “It will be good in the end. If it is not good now, then it is not the end.” Investors, both private and public, have supported those CEOs over the long term. This has often been through significant challenges, requiring changes of strategy, a refocusing of the science or a rethink of the business strategy. The leadership of a strong CEO through both good and challenging times has, in our analysis, proven to be one of the most significant factors in building value. This long-term view is what sets the success of this group apart. The successful CEO will always be looking at the long-term value and objectives of their firm. You can see in the companies we have profiled the long-term arc of travel for these CEOs. The most successful leaders have had their eyes focused on the future while managing the twists and turns in the road.
Building the right team
It’s critical for CEOs to be multifunctional. Being able to show strong leadership across a combination of technical, commercial and operational activities is invaluable. But CEOs can’t and shouldn’t do it all, so to accelerate growth they need the ability to build the right teams, recognising that other people are also key to success. Quality people are capable of increasing the value of IP assets, but rarely do great assets succeed without quality people. Company leadership is critical to the organisation’s ability to raise funds and deliver on the business model.
Commercial skills from the outset – financial acumen, deal-making abilities, scientific insight
Combining commercial acumen with an understanding of the technology is also essential. In this sector the CEO’s role revolves a great deal around fundraising, so it’s vital to be able to demonstrate intelligent use of funds to develop assets quickly and efficiently. Equally, it’s also important for the CEO to explain clearly the science that underpins the firm.
You’ll see many examples in our top 10 list of CEOs who are able to bridge the science, the financing, and the commercial aspects of their businesses to enable investors to feel confident that there is strong scientific and commercial leadership. Our top CEO cohort has sailed both calm and choppy waters using commercial acumen and deal-making skills to guide themselves and their companies. This isn’t something that can be left until the IP is complete. Today’s highly partnered and deal-rich environment requires commercial strategy to be built alongside, and to influence, scientific strategy.
How can this report help the biotech industry?
Through this analysis, we have developed a high-definition understanding of what makes successful biotech CEOs in the European environment. This has enabled us to develop an insightful model of what it takes to be successful. When it comes to searching for the right executive for your firm, or to valuing an investment, nothing is more important.
We are first and foremost an advisory firm, and our advice is based upon our in-depth knowledge of what ‘good’ looks like. The research we’re publishing in our report is the tip of the iceberg of our knowledge about this sector, and the traits that make people successful within it. If you want to know more about our analysis, or about how successful people drive successful companies, talk with us.