Late last year, Barron’s predicted a wave of biotech merger and acquisition activity, citing plenty of “dry powder” in the form of ready cash. (In fact, the largest biopharma firms have enough in their coffers “to more or less buy every single small-to-mid-cap biotech company,” according to Jefferies analyst Michael Yee.) However, the expected M&A onslaught has yet to materialize. Some industry experts speculate the reason lies with biotechs who believe their valuation is over-inflated and Big Pharma buyers who are waiting for those valuations to fall.
When activity does begin to pick up, rest assured that buyers will be attracted to reasonable prices and acquisition targets they deem to be de-risked – either on the cusp of regulatory approval or already approved for market commercialization.
Large pharma and medical device companies frequently innovate through acquisition. Still, they are risk-averse, preferring that new drugs and technologies be ready for regulatory submission or approved before investment or acquisition activities. This creates a gulf in investment and funding for activities needed to reach critical commercialization milestones, including preclinical testing.
Therefore, it’s never been more critical for early-stage pharma and medical technology companies to operate with high efficiency and a very clear design, development, regulatory, and commercialization process.
“The scarcity of early-stage capital demands answers to questions and prioritizing milestones and activities as efficiently as possible to make the next [funding] round possible,” says Tiffany Wilson, President & CEO of University City Science Center.
To prove value, life science innovators must achieve milestones to make good on what they raised money to do. Accomplishing these milestones makes it easier to obtain funding for the next task or to produce higher ROI upon acquisition or other exit event.
Feeling the burn: $10,000 days
“Based on my experience working with early-stage medtech companies and startups, burn rates up to $100,000 per month – or more depending on stage and milestones required – are commonly required for de-risking activities critical to moving the machine towards its highest potential ROI,” said Wilson. “Contract negotiation, study execution, regulatory testing, marketing, travel, salaries, office and lab space, quality systems… all of those items consume precious resources and are difficult to turn off once the faucet is open.”
For these early-stage companies, even a single day can be costly. Says Wilson, “$10,000 of burn per day, whether the innovator or company makes meaningful progress, if any, in the de-risking or commercialization pathway is common. It’s critical that market-facing discovery take place before beginning the expensive process of design, testing, and development – particularly in the life sciences sector.”
Other industry experts agree. “The concept of the $10,000 day might actually be conservative,” says Michael Young, Founder and CEO of biomedwoRx. “[Expenditure and burn rate are] always on the minds of early-stage life science leadership.” The challenge is considerable given the complexity of the work. “You can think of development activities management like a fleet of airplanes that all have to reach a specific destination [and] are all in the air, in different air spaces, at the same time,” explains Young. “They require a tremendous amount of organization and data to effectively deliver their payloads to their destination or end point.”
Some measures can provide relief – shifts in remote work capabilities have reduced a certain amount of need in physical location expenditure. Contracting with outside consultants and experts can limit some line item expenditures. But as Tiffany Wilson points out, careful management of life science innovation and development activities requires vigilance on all fronts. “Know what you need, anticipate what you can, engage the right experts at the right time, and execute, execute, execute.”
So what’s required for early-stage companies to work more efficiently and control resource burn? The answer may lie in seemingly mundane activities like sorting through data sets, analyzing influence networks to identify key opinion leaders, and sorting through observations gathered from different sources and stored in disparate systems and teams.
Small organizations spend significant time on these activities – likely several days’ worth. What if they could reduce the number of days required to complete a preclinical study by 20 days? That’s $200,000 saved (and available to invest elsewhere) or 20 additional days of runway. And these critical gains can likely be made with an assist from technology built to collect and organize key scientific insights.
More at stake and more in common with industry leaders
Young medtech and life science companies have as much at stake, if not more, than the industry giants that acquire them (or license their technology). But their needs and requirements – especially related to insights generation and engagement with physicians, regulatory experts and officials, preclinical providers, and associated experts – have a high commonality and more riding on each expenditure.
“I think [the] idea of $10,000 days as somewhat analogous to Malcolm Gladwell’s 10,000 hours mantra,” says Nephrodite Co-Founder and CEO Nikhil Shah, DO, MPH. “While certain months may have higher intensity burns than others, it is not hard to imagine $300,000 per month or $3.5 million per year for many new medtech or drug development activities considering all the requirements, including overhead.” Shah adds that those rates almost always escalate with activities for every milestone required on the pathway to commercialization.
Drug and device innovation must also happen alongside other critical activities, like answering questions from investors and other stakeholders and addressing commercialization, marketing, or sales strategies. While important, these can take time away from technological, regulatory, or other tasks needed to achieve success – or, as Shah puts it, “resource-invasive” for teams that are already running lean.
With so much at stake, including efficient use of funding for milestone achievement to achieve follow-on funding success, limiting the number of $10,000 days should be top-of-mind for early-stage life science companies. Opportunities for increased efficiency could be found in faster insight generation through asynchronous communication, enabling teams to be in two places simultaneously.
“The difference between [companies] that succeed and those that don’t [is the ability to] pivot when needed,” says Shah. “If you can pivot with money in the bank – including resources for unanticipated requests or requirements – the odds of survival and success increase significantly.”