Aisling Capital: Strategies to survive the boom

May 19, 2015 ctheodoropulos

The biotech industry survived the financial valley of death of the past decade and emerged into a figurative land of milk and honey. Rejoice, but remain vigilant. These boom times are nearly as dangerous as the cash-strapped recent past.

Today’s danger isn’t a lack of financing or exit options. Instead, the risk is that company gatekeepers will relax, spend too freely and fail to leverage the wealth of resources in their surrounding ecosystems to build their companies and stretch their capital.

Embrace the ideal scenario

“The biotech industry has beaten Standard & Poor’s and NASDAQ for five straight years, showing sustained performance,” noted Dennis Purcell, founder and senior advisor at Aisling Capital LLC who is confirmed to participate at BioPharm America™ this September. “We’re in a good place. Money managers realize that if they’re not invested in biotech, they’ll lag behind the market averages.

Dennis Purcell

Dennis Purcell, Founder and Senior Advisor, Aisling Capital LLC

“The past two years have been the best time for biotech exits, ever,” Purcell continued. Those exits are driven by a strong stock market enamored with the biotech industry, and by big pharma’s reliance upon biotech companies to fill their pipelines. Consequently, acquisitions and ventures with big pharma are competing with IPOs as exit strategies. For biotech, he said, this is the ideal scenario. It’s also the time companies may make strategic mistakes.

Leverage the broader ecosystem

Despite the boom, biotech executives should take the time to de-risk their companies and strategize for the future. That means not only reducing financial risks, but also leveraging existing resources and even re-evaluating the composition of the board as vital needs change.

Reduce financial risk

“The industry is in the midst of a transition in terms of how companies are funded,” Purcell said. “Historically, companies raised Series A, B and C funds and then launched an IPO. Now, when we look at two companies starting on the same day, one may raise USD 100 million and the other is in stealth mode raising USD 50,000 for experiments.”

The difference is attributable to their needs and long-term strategies.

Single-product and platform companies have different financing needs. Purcell advised single-product companies to engage in small financings. “Run the experiments and, if they don’t work, kill the project.”

For platform companies, however, he said, “raise a lot of capital so the platform technology has time to realizes its potential and produce multiple products.”

Clearly, the financing strategy varies by company. The objective is to develop a strategy that supports “multiple shots on goal,” Purcell said. “This industry is built on big wins.”

Think innovatively

Biotech companies are known as innovators, but their innovation must go beyond products to include development strategy and company structure.

“As a venture capitalist, too often when companies talk with us, we’re given one option and one strategic direction,” Purcell said. Instead, he advises companies to develop a strategic plan that has a few innovative options for products and growth. “A strong company with several options is always better.” When financing windows close, companies with limited options find themselves scrambling for cash and hoping to survive till the end of the year, he said. Therefore, “it’s more important than ever that the board and management teams are in synch.”

Be bold

“Use your stock as a strategic asset to build the pipeline, and for other activities.” With Wall Street favoring biotech, this may be the time to acquire the technology and expertise to take the company to the next level. For example, noting the valuation discrepancy between some of the big biotechs and big pharmas, Purcell said he’s wondering if we will see some major acquisitions of pharma by biotech, reversing the historic direction of such acquisitions.

Leverage expertise

“At Aisling, we’re spending more time than ever before working with foundations and patient advocacy groups. They know the science, the companies and the trends, and help us think through what’s coming next,” Purcell said.

He also recommended working with people with a long biotech track record. “The biotech clusters that grew the fastest were those with a pool of serial entrepreneurs.” Boston, for example, is populated by entrepreneurs from Millennium, Genzyme and other successful biotech companies. “When you talk about building a company faster, it helps to have people who’ve been there and done that before, because they’re already part of the community and have a network.

“Of course, every CEO was a first-time CEO once,” he acknowledged. To succeed quickly, executives need to surround themselves with savvy, experienced people.

“That means people who’ve seen the boom and bust. The industry is in a state of euphoria right now, so it’s nice to have people who can prepare for the bust.”

Reassess governance

As companies grow, the skills needed to govern and manage them change. “For startups, the milestones are very straightforward: file an IND and raise Series A, B and C funding,” Purcell said. But, several years later when the company has a USD 500 million market cap, USD 150 million in the bank and product in Phase III trials, the thinking must turn to manufacturing, reimbursement and how to build this business beyond the startup phase. At that level, different skills are required, and the composition of the board must reflect that.

Leverage excess infrastructure

“The industry has overbuilt its infrastructure. Every company has its own labs, buildings, CEOs…” Purcell said. They’re not always needed. “Don’t build in fixed costs unless they’re truly necessary. Instead, leverage existing infrastructure within the local biotech community,” Purcell suggested.

Options include creating partnerships or ventures with CROs, CMOs, big pharma and others to get maximum use of equipment and facilities. Incubators, for example, provide shared equipment and space for startups. For established companies, innovation labs or creative partnerships may perform a similar role.

Purcell also suggested the possibility of sharing management expertise among non-competing companies—particularly if they can’t yet support full-time C-level staff. “It may not be feasible, but at least ask the question,” he advised.

Obviously, the opportunities to access infrastructure and expertise are more plentiful in major biotech hubs like Boston. “It’s incredible what’s going on in Boston now,” Purcell said, pointing to the synergy unleashed by serial entrepreneurs.

Aisling Capital focuses its life sciences expertise on companies developing products, services and technologies to address unmet medical needs. Since 2000, Aisling has raise USD 1.6 billion in committed capital over three funds.

The venture capital firm helps prepare companies for a variety of exit possibilities. Recent IPOs, for example, include Cidara Therapeutics for USD 76.8 million in April and Dermira for USD 125 million in October. Last September, Aisling facilitated the acquisition of Ambit Biosciences by Daiichi Sankyo for USD 410 million (including future contingent payments).

Meet Dennis and find out more about Aisling Capital’s current focus at BioPharm America 2o15 in Boston, September 15–17.

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