How to Evaluate a Biotech Company? It’s Still About Management, Hale and Garner Say
Life science startups are facing a lot of challenges today, and the biggest of all is the lack of capital and increased scrutiny from venture capitalists that goes with it. But over the years of booms and busts, the thing that biotech companies must have is a great management team.
That was the consensus view from life science experts Cam Garner, executive chairman of Verus Pharmaceuticals, David Hale, chairman of Somaxon Pharmaceuticals, and Fred Muto partner in charge of the Cooley Godward Kronish San Diego office, during a recent panel discussion. My firm, Cabrillo Advisers, organized this event along with Cooley Godward.
Garner and Hale, serial entrepreneurs and company founders, shared the many recent changes they have seen in the market. Both panelists agreed the issues facing the industry centered on the conservatism of venture capital groups and how they were managing their investment strategies.
Historically, entrepreneurs had to present a vision to venture capitalists of how they were going to build a company. Now, Hale said, it is more about showing how you can achieve an exit with the least amount of capital.”
One other big difference in biotech financing today is how much more work in the early days goes into market research because venture people want to see and understand the real commercial opportunity before they put the capital in, Garner said.
The panelists agreed the most important factor that distinguishes a company they are willing to work with is the management team.
Management needs to have experience, and needs to be able to attract additional financing, Hale said. This new dynamic makes it much more rare for a first-time CEO to get a shot to run a venture-backed company.
In closing, the panel was asked to present an outlook for the industry. Both Garner and Hale felt the market would remain challenging for the foreseeable future while Muto was more optimistic. While it’s unlikely that venture capital will flow to biotech like it once did, and there are some huge structural challenges, there have been times in the past when people wondered whether the whole world would end for biotech, Muto said. Obviously, it didn’t.