To succeed, an emerging biotech firm needs to maximize the value of its therapeutic asset(s) as they move through the development process and hopefully to market. It must realize that value throughout the journey, typically via a series of transactions with investors and/or partners. If it doesn’t, then it probably won’t be around long enough to benefit patients or other stakeholders. Ideally, those transactions culminate in the therapy’s successful commercialization, either by the company itself or through one or more partners.
To realize optimum value from any asset, an emerging biotech company must:
- Have clear internal alignment on the strategic objectives for the company and its key asset(s).
- Understand the potential of each asset and communicate that potential to investors in a way that’s relevant, credible, and engaging.
Investors need to understand exactly what they’re investing in, how the asset will likely perform in the marketplace, the risks involved, and why the asset will be different and better than current and future alternatives. In short, they need to see a compelling proposition that excites them about the therapy’s likely commercial value and motivates them to act accordingly.
In many cases though, leaders in emerging biotech companies are highly focused on the scientific and clinical aspects of developing a therapy. This is essential, as the science is a critical value driver for the company. However, as important, is developing an understanding of the commercial perspective on the asset. Often, this ends up being delayed and/or given a cursory level of attention, as leaders are most often focused on designing and managing trials, managing cash, and generally keeping the company running.
Often, when seeking to raise capital or find a development or commercialization partner, emerging biotech firms communicate the asset’s scientific, clinical, and regulatory situation. Materials for potential investors usually include elements such as:
- Key scientific information related to the product, including its mechanism of action, data from preclinical and/or clinical studies conducted to date, and future development plans and timelines
- Plans for upcoming regulatory submissions, such as an upcoming investigational new drug (IND) application for a very early-stage product, etc.
- A high-level look at the size of the potential market opportunity
While important and necessary, this information is only part of the story. Plus, it’s not necessarily the part that will most effectively communicate asset value or help set the company up for the best possible transaction. Further, any deal or partnership the company executes will involve business and financial professionals. Before committing funds to a company or asset, they must understand—and view as credible—the asset’s potential commercial and financial value and a road map for unlocking that value in the market. A robust commercial proposition is often missing or included at a cursory level.
Unfortunately, this risks making it more difficult for the company to realize the value it deserves, which means fewer resources for continued operation and timely development of the asset and additional therapies. In this two-part series, we explore why it’s important for emerging biotech firms to have internal alignment on the strategic objectives for the company and its asset(s) and to develop a strong commercial proposition early. We also provide some guidance regarding how to do this effectively.
Here, in part 1, we identify the key things company leaders must agree on before they can develop an effective commercial story, thereby providing a solid foundation for engaging with potential investors and partners. We also outline the core components of any good commercial proposition. Later, in part 2, we will explore some keys to success that companies should use when communicating the commercial proposition and asset value to potential investors and partners.
Securing Internal Alignment
To create a compelling commercial proposition for potential investors and/or partners, leaders must first align internally on a few things. Let’s look at some of these foundational elements.
The Need for a Commercial Proposition
As mentioned, often in emerging companies, the commercial side of the story can easily become de-emphasized. Leaders may acknowledge that something needs to be done about it but underestimate its importance to their future success.
There is also a tendency to think that commercial considerations should come much later in the process, rather than earlier. In reality, leaders must align on the need for doing this early, as the insights gained can significantly inform and improve the development process, position the product for ultimate commercial success, and enhance asset and company value.
How to Define the Product’s Application
For example, is it strategically more desirable to define the product’s application somewhat narrowly, perhaps hoping to establish a dominant presence and maximize penetration into a specific market niche? Or should the company define it more broadly, possibly opening up a wider array of disease states or market segments? There is no simple, one-size-fits-all answer to this question. In large part, the answer depends on the nature and size of the unmet need, the clinical threshold required, and the current data regarding where the product is most effective. Leadership’s decision on this can have profound implications for the asset’s potential value, clinical development plan, commercial proposition, and investment needs.
The Basic Outline of the Commercial Proposition
The company must establish a basic narrative around the need the therapy addresses and why it can be the preferred solution relative to current or other future therapies. It should also ensure that the scientific data align with and support the desired commercial proposition. If the data is at odds with the desired commercial proposition, then leaders will need to adjust the commercial proposition..
Resource Needs
Leaders must have a unified understanding of the people, resources and capital that will be required to achieve their goals, as well as the implications for asset/company value and the impact on shareholders. If the company plans to commercialize the asset, then it needs a good handle on what it will take to do that – resources, capabilities and investment to develop and commercialize the asset. If its goal is to advance an asset from phase 1 to phase 2 and then execute a partnership deal, then leaders must understand the development requirements and costs.
The Go-to-Market Strategy of the Company
Should the company go-it-alone and commercialize its asset or is it best to partner or sell the asset? Or is a hybrid model more appropriate in which the company co-promotes or commercializes on its own in some markets and finds partners in others? With emerging companies, there can sometimes be a disconnect between the strategic direction leaders want to take and what is realistic or practical.
For example, a company’s leadership may want to take an asset all the way to market and commercialize it, but their perspectives might change when confronted with the investment, people, and capabilities that are required to actually do so. Regardless, the company’s leaders must be aligned on where they want the company to go and how. That will be foundational to their strategy for raising the capital needed and the messages they must communicate to enable that. Company leaders at the same time must be nimble and ready to revisit their go-to-market strategy based on changing market dynamics.
The Current Dealmaking Environment
Determining the intrinsic value of the asset is important, but that value does not exist in a vacuum. The deal environment is constantly changing and evolving. Company leaders must be aware of the current valuations, multiples, deal terms, deal structures, etc. that are prevalent within the therapy’s space at the time(s) in question. That awareness will provide critical context when attempting to build a value story around the asset and working to structure deals. It helps company leaders understand what’s typical—and possible—in their space and also helps set reasonable expectations.
Core Components of a Commercial Proposition
The level of rigor and detail that a company should build into a commercial proposition will vary depending on its stage of development and business objectives. However, there are some core components that will serve as its basis. In part 2, we will address this in more detail. For now, we identify those components at a basic level.
Unmet Need – The company must articulate the unmet need in the marketplace that the therapy in question is supposed to address (and its drivers).
Market Landscape – To properly articulate the unmet need, leaders must be familiar with the landscape in which the asset will operate. For example, they must understand:
- The current standard of care
- Current therapeutic alternatives (competitors) and their product profiles, which will shed light on their relative strengths and weaknesses regarding safety, efficacy, tolerability, dosing, etc.
- Pipeline therapies, their potential profiles, and the future treatment paradigm
Target Patient Population – The target patient population must be clearly defined. It’s not enough to say (for example), that a therapy will be targeting patients with non-small cell lung cancer (NSCLC). That would most likely be far too broad, resulting in an inflated view of the asset’s market potential and harming credibility with potential investors. It may be more realistic to specify something like 2nd line post-PD-(L)1 NSCLC. The company can hypothesize the optimum patient population early but should refine it based on the data as an asset progresses through clinical development.
Potential Market Size – Early on, this can be a high-level analysis, getting more robust and detailed as the therapy advances through development. Communications should at a minimum provide a good idea of the total addressable market for the asset based on the target patient population. In advanced stages, they should also provide insight into the estimated share the asset can be expected to capture over time and the revenue it would likely generate. There are a couple of ways to do this:
- Studying analog products to assess how they performed on the market and apply those lessons to the therapy in question – Finding near-perfect analogs is not possible for most novel therapies, therefore triangulation from a selected “good fit” basket is likely required. Every company has its own unique situation and context, which is important to remember when using analogs.
- Developing a forecast by taking into account key factors such as disease incidence and prevalence, the overall size of the target patient population, estimates for market adoption rates and peak market share, and pricing and access assumptions – This is a more robust approach and is more practical for later-stage assets.
Coming Next
Once the company achieves basic internal alignment on the items above, it is ready to begin constructing a compelling commercial proposition and “story” that it can share with potential external partners and investors. In Part 2, we will provide detail on some key success factors for creating and communicating this commercial proposition. Some of the key success factors that we will address include:
- Making the narrative easy for investors to understand
- Tailoring the narrative to various stakeholder groups to maximize its effectiveness
- Ensuring credibility
- and more…
