6 Pillars of an Effective Biotech Business Plan
One of the things that make the biotech industry unique is the significant amounts of money that businesses will need to develop a product. While internet or software companies can commercialize a product through bootstrapping or after just one round of seed funding, a biotech firm will typically need three, four, or even more rounds of fundraising. On average, it costs between $25 million to $100 million to develop new medical diagnostics and devices, and more than $1 billion to take new drugs from the laboratory through regulatory approval to sales.
There’s no way around it: raising money will arguably be the single most time-consuming activity you will engage in as a biotech entrepreneur. And to be successful, you’ll need to start with a strong business plan. Based on our experience, here are 6 key components to include in a biotech business plan:
1. Market Opportunity
You will need to describe what problem your product will solve, how painful that problem is (cancer is a much more painful problem than hiccups), and how many people have it (biotech investors will generally only invest in market opportunities north of $100 million). You should also show that there’s currently no solution available, or if there is, that it’s either ineffective or significantly inferior to yours. Don’t be intimidated if you’re dealing with the latter; the presence of competitors is actually a good indicator of market opportunity.
2. Intellectual Property
As mentioned in a previous blog post, patents give your company a legally defensible monopoly on the market. You will need to present your patent portfolio and whether the patents are issued or pending, U.S. or global. With no product in sight for approximately three to 10 years, intellectual property is one of only a few assets upon which a biotech start-up company’s valuation is based.
3. Market Strategy
Once you’ve demonstrated that there’s a significant market need, you’ll need to discuss your strategy for capturing that market and your time frame for implementing it. You’ll also explain why you think your strategy will work based on your understanding of customers (e.g., their needs, purchasing habits, etc.); how your product will be priced and why your price points make sense; and how it will be sold and distributed. This section will probably also need to discuss some of the potential partners in your space, as biotech companies often hand off late stage development to larger companies with deeper pockets.
4. Financial Projections
In this section, you’ll describe how much money you intend to raise and how it will be used to achieve product development milestones. You’ll also estimate your gross margins, net income, expenses, cash flow, and balance sheet on a pro-forma basis for the next several years. Broad categories such as “Administrative” and “Marketing Support” would suffice; investors understand that it’s impossible to make detailed projections too far into the future. Support a positive outlook with evidence.
5. Management Team
Here, discuss the qualifications of your management team and explain how they can help your company achieve its goals. For the purposes of funding, focus on business leadership and scientific/technical expertise. Is your CEO a serial entrepreneur with a track record for founding and growing biotech companies? Is your Chief Scientific Officer widely published in prestigious journals? Highlight those qualities. If you don’t have a complete executive team, don’t worry; most start-ups can’t immediately afford to hire the expertise they need. However, be sure to discuss how you plan to obtain that expertise, such as by initially relying on consultants.
6. Executive Summary
Here is the plain truth: investors rarely have time to read through an entire business plan. With possibly hundreds of startups vying for their attention, many will just commit to reading the Executive Summary. Then if – and only if — they find it compelling enough, they’ll ask for the plan itself. Thus, the Executive Summary is not an introduction to the business plan; think of it rather as like a resume, a standalone document that succinctly highlights key attributes, and whose goal is to entice investors to follow up and learn more.
Your business plan is intended to be a living document. Update it whenever significant changes occur in your technology, business model, marketing strategy, or management team composition. Lastly, since you’re completely swamped with all the commitments associated with starting a biotech company, you may be tempted to outsource the writing of your business plan to a third party. My advice is to avoid doing that. Hire consultants to help you edit and bounce around ideas, but the plan should be a document that you write yourself. The discipline of thinking through and writing a comprehensive business plan is almost as important as the end product itself.
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