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"The economic environment in which emerging companies now do business is becoming increasingly difficult, with decreased investor spending on risky, long-term investments such as new technology introduction."

DAVID EDINGTON, TECHNOLOGY AND INNOVATION  CONSULINTING, PA consulting GROUP

Helping emerging companies make it big

David Edington and James Wright
Innovations in Pharmaceutical Technology
September 2010

The commercialisation of a new technology is the most important task that an emerging company will undertake; by getting certain key factors right, companies can ensure that their technology stands the best possible chance of being transformed into a successful product.

The economic environment in which emerging companies now do business is becoming increasingly difficult, with decreased investor spending on risky, long-term investments such as new technology introduction. At a recent PA Symposium, Hermann Hauser (Co-founder of Amadeus Capital Partners) commented that in the UK, in 2009, biotech company buy-outs were down 70 per cent, venture investments were down 50 per cent, and very few new funds were established (1). Among the world’s richest nations, new start-up companies fell by 10 per cent in all sectors according to the Global Entrepreneurship Monitor
(GEM) (2). Unfortunately, in these challenging economic times, a number of these companies have failed, with investors changing their investment risk strategy and losing confidence in the market. Others are currently at critical points in their product and company evolution – on the cusp of delivering great products, but still struggling to clearly define a strategic direction or commercialisation approach. And some have succeeded in taking great products to market, generating both revenue and strong growth. Whilst the fundamental factor that unites these companies is a combination of great technology, and scientific and commercial entrepreneurship, there are other critical success factors needed to successfully transform a promising emerging technology into a competitive
product in the marketplace.

From a long track-record of working with emerging UK healthcare technology-based companies trying to take innovative and potentially disruptive new products to market, we believe companies need to get the following right to bring healthcare technologies to market successfully:

  • People: get the right people at the right time and
    have a flexible workforce

  • planning: plan and integrate to ensure a holistic
    view of product development, commercialisation
    and risk

  • partnerships: form the right commercial,
    development and supply chain partnerships to
    enable you to do what you do best, and

  • product pipeline: have diversity in your product
    pipeline – get one product to market fast but
    ensure additional products follow on rapidly.

Get the right people at the right time and have a flexible workforce
Having the right people in key leadership roles at the right time and finding the right size for the organisation is a critical balance. Grow too fast and the company might run out of cash, but grow too slowly and the company may miss the opportunity to win in the marketplace. According to Hermann Hauser, emerging companies in 2009 typically faced a 20 per cent reduction in head-count in order to reduce their cost-base and provide investors with confidence in their sustainability (1). Having a large number of full-time employees is a significant financial burden for a company to carry, especially given theunstable nature of activity in new product development and realities about the time required to get to market. We have seen a number of failing companies grow to reach headcounts in excess of 50 without having generated significant revenue, and in certain cases resulting in the companies entering administration.

Leadership of emerging com anies requires different capabilities and character traits throughout the company’s evolution, as described by the well-known Greiner curve (3). To get a company off the ground and bring in the first round of funding needs a different skill-set and motivations than a company moving into late-stage product development. At the beginning, a leader with a successful track record in entrepreneurship is essential as the company grows though creativity. The Chief Executive Officer (CEO), who is often a company founder, requires good contacts and an insatiable appetite for selling and relentlessly establishing credibility in the company and its technology to potential investors around the world – time and time again.

As companies transition into a directed growth phase of development and commercialisation, having key people in leadership positions that understand the business – the core science, product development, supply chain, sales and financial management of cash flow – is crucial. Typically, emerging companies employ the majority of people in R&D, even when the business is dependent on getting a product to market. The CEO must become someone who can align and articulate a clear goal to the company and the external world about products and market. They must also be able to build the necessary core competencies within the company and carefully select the right management team, opportunities and partners with whom to engage.


To enable this growth, emerging companies need to maintain core technology and scientific competencies and product champions, while tapping into a flexible workforce of contractors and consultants to support product and supply chain development. The benefits of maintaining a flexible workforce were articulated by
Sphere Medical’s CEO Stuart Hendry (1). Leading up to a 510(k) submission, the company grew significantly in size to meet the requirements of the US market. Rather than hiring additional full-time employees, Sphere  brought in a mixture of experienced product development contractors and consultants in order to achieve specific milestones. Managing this additional temporary workforce, however, required people within the company who were familiar with what needed to be delivered to meet the market requirements, and who could direct and
coordinate these additional resources. PA Consulting adopted this approach in developing its own technology venture companies, employing a small permanent team of as few as three individuals and sub-contracting non-core activities until the company was close to revenue.

Plan and integrate to ensure a holistic view of product development, commercialisation and risk
Within healthcare, products are becoming increasinglycomplex technologically – often involving a combination of biochemistry, fluidics, optics, robotic
engineering, materials and software requirements. This complexity affects the business in terms of the resources and multi-disciplinary skills needed to develop products and to manufacture and supply these products to market – all while meeting a diverse set of regulatory and quality requirements. Even within small companies, the dreaded ‘development silos’ exist, especially when development encompasses a number of seemingly unrelated work-streams in areas of differing expertise.

To ensure that the product reaches the market within time and budget deadlines, an agreed integrated design and development plan is essential. To execute this plan while managing technical risk, integrated teams with product champions working alongside technical experts must be established. An integrated programme of work allows senior managers to have a holistic view of progress by setting out a programme structure focusing on three core areas:

  • Adopting an approach to project management that encourages a culture of collaboration while actively managing technical risk

  • identifying, monitoring and communicating technical interdependencies to achieve successful solution integration

  • embedding quality assurance in all processes and at every stage of the project.

To implement this successfully requires not only project management skills, experience and a strong project culture, but the collaborative integration of technical experts who work across all work-streams and disciplines.

Silos are broken down by having an integrated plan, as well as product champions responsible for an integrated product and technical experts that operate across workstreams and functions, identifying interdependencies and
technical risks. For example, chemistry is often undertaken on a disposable consumable as part of a diagnostic device. A product champion should be made
responsible for all aspects of the development of the consumable, rather than leaving it to individual workstream teams to decide what the priorities and key risk
areas are. By bringing an integrated team together, companies can rapidly identify and resolve those issues that are delaying development projects. In one notable example, we helped a company resolve in just 15 minutes a key issue that had been open for several months simply by bringing together the integrated project team in the same meeting for the first time!

An additional benefit of generating a project culture and moving to an integrated and holistic approach is the positive impact it has on staff morale, enthusiasm and
output. People generally like to see how things work together to deliver the end-product, and not just be constrained by – or involved in – only their own area of expertise. Integration brings work-streams closer together, allows for the rapid identification of technical and commercial risk, and provides a clear definition of what success means – both within a work-stream and in the context of achieving the overall business goal.

Form the right commercial development and supply chain partnerships
Emerging companies often seek commercial partnerships in which the other parties have a vested interest in taking a product to market. Some emerging
companies are developing disruptive technologies that are hugely exciting and appealing to a large number of potential commercial partners and investors.
Undoubtedly this is a good problem to have, but it can be a double-edged sword as all potential partners and investors want to learn more and investigate the
technology and company further, before committing to that high-value investment or buy-out. The effort required to chase and develop these potential partnerships can deflect the focus of a company away from getting a product to market. The work involved in developing these partnerships also plays to the perceived strengths and interest of emerging companies in the technology, rather than focusing on the market and product.

Therefore, as disruptive technologies may attract considerable external attention, care must be taken to avoid making too many commitments to a large number
of potential partners. Moving too quickly to the next big opportunity and changing the priority of the company’s development efforts has been seen to delay product
delivery and adversely affect resource focus. Keeping projects on the ‘back burner’ may work for a short period of time, but failing to deliver against targets and meet partner expectations is unlikely to demonstrate to investors that the company is capable of product delivery, and ultimately this may reduce the number of potential investors or buyers.

Getting a product to market successfully must be the ultimate goal, even in the face of what appears to be more ‘attractive’ but less tangible opportunities. This
may seem an obvious statement, but many companies can be pulled from pillar to post and lose site of the goal of product delivery and revenue generation. Companies should take the quickest route to market, rather than trying to deliver the perfect product. This is in line with the thoughts of investors; Ronald Openshaw (CEO, Lucia Capital) noted that companies must seek to generate revenue as soon as possible (1). Getting to market as fast as possible will realise market value, minimise the risk of further dilution and give the organisation a platform on which to build. It will also demonstrate to the external world that the technology is viable and can be commercialised.

Contract manufacturing organisation (CMO) and third party logistics (3PL) partnerships are often sought by emerging companies to deliver their supply chain requirements and provide regional or global market access. It is essential to follow a robust supplier selection process and have access to resources that are experienced in leading the definition of requirements, identification of partners, and selection and negotiation to obtain the right partners to deliver the appropriate balance of cost, service and quality. This is one of the key levers in
delivering target product cost.

In addition to supply chain partner selection, the commitment to ordering tooling and production equipment for the manufacture of a new product is a critical and expensive business. It is common for emerging companies to need to commit to this investment prior to receiving firm customer orders, making it essential for commercial risks and funding options to be well-understood and reviewed before
capital expenditure is released. Some emerging companies choose to set up pilot or specific manufacturing lines in-house, but typically only when the manufacturing process requires skills that are not readily obtainable outside the company or they perceive significant value in maintaining internal know-how.
Most emerging companies operate under such challenging time-scales that manufacturers selected to produce clinical or pilot lots often become the
manufacturer of the first-off commercial product by default. It is important, therefore, to consider ‘rightsizing’ during partner selection: too large and they may not provide you with the level of prioritisation required; too small and they may not be able to meet the market demands as launch volumes begin to grow.

Moving from a proven CMO to a low-cost alternative is usually only advisable for low technical risk manufacturing operations, or when there is significant experience in running an established manufacturing process. Keeping supply chain partners in a local geography facilitates more straightforward exchange of
information and trouble-shooting – a vital requirement for first commercialisation, especially when processes may be new to the world and demand close
management and information sharing. As a small company with limited resources, these early CMO partnerships need to be carefully selected, valued and nurtured. It is important to ensure that knowledge of the process and product is maintained through the lifecycle of the product, and that this can be effectively
transferred tofuture CMOs as the product matures – should the need arise.

Another factor is the requirement for specialist external development or manufacturing expertise. This requirement can significantly increase product
commercialisation costs as there may be only one or two suppliers worldwide with the capability or licences to do the work. In the worse case, the development partner becomes the critical path or highest risk activity, at which point detailed monitoring of progress against schedules is essential. In this situation, careful management of the development partner is a necessity and ideally the partner should share in some of the risk, for example, based on milestone payments.

Have diversity in your product pipeline - get one product to market fast but ensure additional products follow on rapidly
Many emerging companies are developing ‘technology platforms’ where the underpinning system (for example, hardware, chemistry and software) defines how the technology is applied and what types of product can be developed. These companies must get the core enabling technology right, but need a product application to begin revenue generation. Even a disruptive platform technology is not useful without a market-relevant product, and emerging companies must try to develop and commercialise at least two products. Backing only one product could result in a perceived failure of the platform if the product doesn’t perform in the market.

Investors will also be looking for a number of potential revenue streams, and evidence that the technology can indeed be applied across a number of products. Therefore, emerging companies should have a product development
‘plan B’ and focus on a follow-on product(s) without overstretching or compromising delivery of the lead. In the case of new chemical entities (NCEs), there will be a lead NCE project on which the majority of the company or team resource is focused; however, a smaller resource will be working on a back-up fast-follower NCE and will be ready to accelerate this compound should issues affect delivery of the lead product.

Typically, emerging companies will generate a number of product opportunities and should implement an internal project review board to assess this potential and actual portfolio. A process should be set up to enable rapid review and assessment of the market and path to profitability for both new and existing product opportunities on a quarterly or bi-annual time-frame.

Conclusion
New product introduction is one of the most difficult tasks for any company to deliver. In the current economic environment, commercialisation of new technologies by emerging companies is increasingly challenging, even when the technology is potentially hugely disruptive to the market. To ensure successful realisation of a competitive product in the marketplace, emerging companies should:

  • Be flexible in headcount, recruiting the right people at the right time

  • ensure integration of product development and commercialisation 

  • actively identify, maintain and build strategic supply chain relations with partners who will help realise timely and effective product launch within a quality managed environment

  • ensure that they have a well-defined product proposition and pipeline.

References
1. PA Symposium, Adapting to life in the new economic
environment, January 2010
2. www.gemconsortium.org
3. Greiner LE, Evolution and revolution as organisations
grow, Harvard Business Review, May 1998.


David Edington is an applied physicist and product developer with eight years’ experience of helping clients to accelerate the commercialisation of new technologies. At PA Consulting, he focuses on the medical device and low carbon technology sectors, providing technical and management guidance on taking concepts out of R&D and bringing them to the market quickly and cost-effectively. David’s PhD research involved the development of a novel optical system for the study of molecular liquids and bio molecules.

James Wright has over nine years’ industry experience delivering complex projects requiring his operations expertise in extended and outsourced supply chain management, procurement, supplier
selection and product commercialisation. His experience is based on working with world class organisations in the medical device, diagnostics, consumer products and industrial manufacturing sectors

To contact David or James, please send an email here.


Contributions from Angus Forster who worked for PA Consulting for over four years. He holds a BPharm and a PhD in pharmaceuticals, both from the University of Otago (Dunedin, New Zealand). Angus is a published expert in drug formulation and has presented at international scientific meetings.


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