A recent UMD study has found that VCs pay little attention ot the content of business plans.This is not much of a surprise. I’m generally bearish on business plans, but I do recognize their important role.
Having written several business plans and having successfully competed in business plan competitions, I’ve recognized that many of the highly structured elements of business plans are simply inappropriate for biotechnology firms. Elements such as five-year financials will almost certainly change, but what is important — and which has not been ruled out by the UMD study — is that the thought processes behind the business plan are important indicators of investment.
One of the things I look for in reviewing business plans (and in reading papers for the Journal of Commercial Biotechnology) is evidence of higher-level thinking. Is the entrepreneur just filling out the sections of a business plan with crude numbers (i.e. the market size is $x and we intend to acquire y% of that market) or have they thought about the numbers and identified the factors contributing to the market size and the steps which will be necessary to acquire any portion of market share?
Despite the recent claims that VCs don’t read business plans, I suspect that they will continue to request them — if only to see if the entrepreneur can define the business proposition. Rather than seeing business plan writing (which, incidentally is not the same as business planning) as a rote exercise, one should look at it as an opportunity to demonstrate advanced understanding of the commercial opportunity and the steps required to realize it.
In a previous post I introduced a slideshow – Beyond the Business plan — which is a companion lecture to my textbook, Building Biotechnology. The focus of this talk is on addressing the elements beyond a traditional business plan — when conditions change (and they will), what will you do?
I’ve got two appearances at BIO related to the Scientific American worldView project:
On May 18th I’ll be participating in a press conference at 1pm in room A340
On May 20th I’ll be participating in a roundtable at 3:30 in Thomas B. Murphy Ballroom I, Bldg. B, Level 5.
Hope to see you all there!
For all the talk of the numerous biotechnology companies with mere months of cash left and the predictions of looming liquidations, mergers, and acquisitions, it is important to note that a measure of destruction can benefit industry progress.
Economy Joseph Schumpeter coined a term for industrial progress through destruction: creative destruction. In this process, growth occurs by the development of new companies, which develop new innovations and replace older companies.
Even mergers and acquisitions can drive progress, as they free seasoned executives from their former jobs. The story of Hybritech’s key role in the development of the San Diego biotechnology cluster is a case study of this kind of growth:
Creative Destruction: Hybritech's role in building the San Diego Biotechnology Cluster
Source: Building Biotechnology
So, while the process of creative destruction may be painful for those who are employees or investors in the destroyed companies, it is a natural element of business cycles, and an essential part of driving progress.
Courtesy of DrugPatentWatch.com:
Drug Patent Expirations in May 2009
*Drugs may be covered by multiple patents
In 2005 India mostly strengthened their patent laws to meet international norms, with the distinct requirement that new drug products must “differ significantly in properties with regard to efficacy.” This requirement for a significant improvement in efficacy only applies to drugs — not to other patentable inventions like pens, car engines, etc., and is of concern for drug companies seeking to protect their inventions in India.
In 2007, Novartis received a first-hand demonstration of the limitations of patents under these new rules. They failed to receive patent protection for Glivec (sold as Gleevec in the U.S.). In response, Novartis opted to redirect hundreds of millions of dollars of R&D to other countries — essentially voting with their feet.
A recent partnership between Merck and India’s Nicholas Piramal (NPIL), potentially worth more than $300mm, suggests that Merck is unfazed. In this partnership, NPIL is responsible for essentially the entire drug discovery chain, from candidate identification through pre-clinical and early-stage clinical trials.So, one may ask the question: Have Novartis’ experiences affected other companies, and is Novartis actually redirecting their investments?
Pfizer is also investing strongly in India, announcing their intentions to develop drugs for conditions endemic to India.
Novartis, on the other hand, is keeping their word. Whie they did recently announce plans to dramatically increase the headcount at their India Development Centre, the company reiterated that these were not R&D jobs: “This is not a high-end work and the nature of job is similar to business process outsourcing. We will think of doing high-end R&D work in India only when the patent laws are made totally compatible with WTO norms”
So it appears that Novartis isn’t influencing the activities of others. The question remains: who will bend first? Novartis or the Indian Government?
John Avellanet, a frequent contributor to this blog, is giving a talk for my biotechnology management class at the NIH next week. He’s posted his slides and some background readings on his web site at http://www.ceruleanllc.com/NIH/. These materials will only be available until April 25th, so hurry on over and read them.
The Scientific American WorldView project, where I’ve been serving as lead editorial consultant, is ramping up for its May 20th launch at BIO 2009. One of the objectives for the project was to put marketing-speak aside and objectively measure biotechnology innovation progress around the world. Going beyond gross regional measures, we compare individual countries to distill best practices, opportunities for growth, and uncover hidden gems.
Intrigued? You can hear me talk more about it on BIO’s BIOtech Now blog, and the full publication will be available at BIO 2009 in Atlanta.
Courtesy of DrugPatentWatch.com:
Drug Patent Expirations in April 2009
*Drugs may be covered by multiple patents
Does Roche’s recent acquisition of Genentech mean the end of the big-biotech business model? Has Genentech lost it’s independence? Not so, if history decides to repeat itself.
Roche has already bought (and sold) Genentech once before. It’s not unimaginable to think that they’re using the current economic crisis to do another value-based flip. Using an excerpt from Building Biotechnology to illustrate, Roche pocketed several billion dollars when it bought and sold Genentech in 1999:
So, before you write-off Genentech, consider that Roche may simply decide to flip them again.
I’ll be giving a talk at the Johns Hopkins Carey Business School Entrepreneurship Conference on March 21st titled “Entrepreneurship: What Not to Do.” The talk will cover cases in failed entrepreneurship in biotechnology, elucidating some of the forseeable and unforseeable factors which can lead to failure.
Hope to see some readers there. If you can’t make it, you may want to check out “Beyond the Business Plan” or Building Biotechnology, on which this latest talk is based.