The growth of biotech companies pending on the trust of VC
Spanish market tries to fetch, from USA, European Bio-executives
Madrid, May 2005 — The Alumni Association of the Instituto de Empresa Business School and Penrhyn International, world-wide partnership of independent search firms, held an Open Forum about “The Changing Role of the CEO in Emerging Companies. Biotechnology vs. IT Companies” last May 17th.
The event was chaired by José Luis Jorcano – President of Fundación Genoma España –, Christopher Mill – co-founder of Penrhyn International –, Skott Burkland – President of Skott/Edwards Consultants – and Luis Truchado – Open Forum coordinator and partner of EuroGalenus (Penrhyn member in Madrid). Furthermore, many CEOs, representing an important part of national and international technological and biomedical companies, attended the session.
The conference offered a new angle about the competences of the CEO role in Start-up companies, and pointed out, as main factor of the growth of the biotechnology sector, the impact of the risk-reduction strategies of investors. Besides, it presented the position of new technologies and the need of recruiting a CEO, able to find a balanced relationship with the key agents involved, such as technological, pharmaceutical and biotechnological industries, VC, public institutions, and the law market itself.
José Luis Jorcano, Executive Director of the Genoma España Foundation, analyzed the biotech sector situation and emphasized the contradiction between the market, that advocates the development of new products, as well as R+D, but lacks of competence to make it profitable. In Spain, investors do not have accurate parameters to evaluate biotech companies, so they assume a higher risk that hinders their funding. In addition, there are not educational institutions specialized in lecturing on the proper skills to lead startups, and that is the main reason why we are trying to recruit CEOs from USA and abroad.
Skott Burkland, President of Skott/Edwards Consultants, talked about the life cycle of IT and Biotech, and said that while IT companies obtain consistent profitability and progressively results in 4-5 years, the same process for biotech companies takes from 7 to 9 years. For this reason, VC are hesitant to invest, and an important number of biotech companies disappear in 3-5 years after their creation.
Furthermore, they analyzed the effects of the fiasco of the dotcom bubble that has caused many effects, such as the higher risk mistrust of VC companies and more skeptical and demanding capital markets. So, there is a lot of pressure to gain profits in a short-term period, which is not compatible with the idea of early consolidation and merging processes.
With regard to the specific characteristics of the CEOs, both speakers confirmed the additional complexity of the technical and scientific contents. They also mentioned the necessity of working at a global scale from the beginning and the obligation of well-knowing the specific markets regulation and the venture requirements. All these factors, show as a conclusion, the need of a CEO able to combine scientific, commercial and market management skills.
According to Skott Edwards, in the Biotech sector it is very important the contact network, so he did not recommend hiring American CEOs. The suggested trend is recruiting Spanish/European managers who want to return to Spain/Europe.
Christopher Mill said: “We can find many factors which are unchanged in the role of CEOs in an emerging company, for instance, the achievement¿s rewards, the frustration, the lack of time and resources, the differences between managers and entrepreneurs and their different definition of objectives. In addition, startups have to be passionate, believe in what you are doing and bear in mind that short-term leads to long-term. The management will change depending on whether the company goes to a trade sale or IPO, or it is meant to obtain growth (cash-self sufficiency, profitability or revenues).”
In addition to this, management teams giving support to the agents are usually investors and they tend to forget their main target, which is to establish a long-term strategic plan.
Despite of this, the speakers believe in the future of these companies that guarantee innovation and growth. Mill stated that Europe is going through a distancing from the American model and the tendency is to turn to it, just to find qualified executive managers for senior positions. He believes that VC companies will find the proper measurement in order to assess biotechnological companies and will be able to adjust to whatever change is required.