From the lab to the boardroom - making a biomedical start-up succeed

Michael Norris discusses the challenges which biomedical SMEs face and how putting the right management structure in place can help take a product or service to market  Most early stage biomedical companies come to being through the passion and commitment of an innovative thinker who has an idea which they believe has the potential to make a real difference to the world. Having a cutting-edge scientific idea is of course key to success but the journey from initial research and development to getting a product or service to market is long and complex. Having the right tools in place for this journey is essential if you are to prosper in a competitive world. By their very nature, biomedical SMEs face many challenges, particularly in the first six months to two years and statistics show that up to 90% of early stage biomedical businesses fail before they reach profitability. So why is this? One of the most common reasons behind this statistic is that the management team in the company has not adapted to match the changes in the life cycle of the business. It is relatively easy to access grant funding for a worthy scientific idea to support continued research and development. An example is the Technology Strategy Board’s £180m Biomedical Catalyst which is delivering life sciences funding for UK SMEs and researchers looking to develop solutions to healthcare challenges. Another example is the North West Fund for Biomedical, managed by SPARK Impact, which has invested more than £17 million in SMEs across a range of biomedical areas including pharmaceuticals, medical devices and diagnostics. But when the time comes to move away from the laboratory, the founder needs to establish if further external investment is required to fuel the next phase of business growth. Examples of other external finance include private investors and angel networks. But there comes a time when hard work and enthusiasm cannot take the business any further and a good management structure is needed to take it forwards and access these new funding routes. My role at involves helping early stage biomedical companies with everything from start-up funding and commercialisation to long-term business growth and development. Over the years, I have worked as chairman or in non-executive director roles with a number of biomedical companies which have received external equity investment. During this time I have been asked to advise innumerable company founders in exactly this position and there are a few basic points I always make upfront. Firstly, whilst the business owner is no doubt a very skilled practitioner in their field, it is essential to surround themselves with good quality people to do those things they cannot. Examples include regulatory issues, quality assurance, finance, logistics and commercial. Secondly, once the business owner takes cash from an external investor it is no longer ‘his’ or ‘her’ business – in all probability the new investor (whilst still only holding a minority stake in the business) will have significant control over how it is operated. Thirdly, and most importantly, a consequence of having external investors in the business is that you are no longer a research organisation – the investor will want to know how you are going to commercialise your idea and create value for them on exit. If you want to do more research then I am afraid it is back to grant funding or the charitable sector for funding. To start that important step of moving from laboratory to boardroom, it is advisable to have external advisors who can embed themselves into the business. Taking on this role means that the advisor can work closely with the founder to ensure the right decisions are taken at the critical time. The advisor should review what the company has achieved to date, help to develop a business plan and ask questions such as: What is the problem which your product/service will address? How will you be able to do so better than your competition? How will you make money out of this? When and how will any investor be able to make a profit on exit? This, alongside the points raised earlier, tends to make people think deeply about what they are considering. If, having been challenged in this way, the founder decides he still wishes to grow his business, the process can really begin to move the business forwards. Here I become a little bit dogmatic – it is highly unlikely that a Venture Capitalist will support a business which is led by a first time entrepreneur with a scientific background. This is why it is important to find someone who has experience of commercialising a technical product in an SME to take the lead in the company. It is advisable to choose high quality advisors who can commit to being chief executive officer or chairman (usually on a part time basis to start with) and add the commercial, fundraising and governance skills required. Having experienced staff who have ‘been there and done it and have the scars to prove it’ makes a real difference to biomedical SMEs as they look to secure essential investment and successfully take a product or service to market. With this key person in place, it is then possible to fine tune the business plan and get a feel for which funders may be interested in the opportunity. For most biomedical SMEs, the initial funding requirement is relatively modest (less than £2 million) and with a limited number of investors in this segment of the market, it is important to utilise the experience of people who can tailor the proposition to the right potential source. Once this is done it is advisable for the company, including the new chief executive officer or chairman, to present the opportunity to the funders in a professional manner setting out how they would make money from an investment therein since this is what they exist to do. A successful outcome from this process is not just receiving the necessary funding – this is only the first step. Real success comes from delivering the business plan which was pitched to the investor, building the team, developing a product the market wants and making it available at the right price, successfully building sales and exiting on good terms for all stakeholders. If there is one piece of advice which I consider to be above all others it is this – surround yourself with good people and give them the opportunity to shine. Only then will your biomedical idea thrive into a successful product or service which the market needs. Case study: Bringing a product to market – with the right advice Albert Medical Devices has developed an innovative product in the urinary catheter market. 12 months ago, Norris Biomedical Services was approached by the founder and the major investor to help the company through the challenging transition from development to commercialisation. A very experienced chief financial officer (CFO) was introduced into the business for six days over a two week period. The new CFO immediately carried out a full financial review and analysed progress against key milestones. Following this, a recommendation was made to the founder and the major shareholder that a CEO with significant experience of commercialising medical devices be appointed to focus the business on commercial success. Norris Biomedical Services introduced a CEO to work in the business two days a week alongside the CFO who committed three days a month and together they rewrote the business plan and restructured the operation to target the short term opportunities. The business has achieved US FDA approval for its product, established contact with distribution networks and most importantly created a single vision into which the whole of the team has bought. In recognition of the progress made, the company has been able to raise a further c£1 million of equity funding to complete commercialisation. Author Michael Norris is chief executive officer of Norris Biomedical Services which offers strategic support to biomedical SMEs Contact www.norrisbiomedical.com