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What’s Different About a Biotech Business Plan?

Your business plan serves to introduce your company and open doors to angel investors, venture capital funds, investment bankers and other potential partners. Your plan must speak the investor's language, projecting both excitement and realism while answering questions about the business and explaining how it will succeed in a clear, concise way.

All business plans should be tailor-made to tell the story of a particular venture. While there are certain items that must be included in any plan, the emphasis will vary greatly depending on the nature of the industry and the particular circumstances of the firm. Filling in the blanks of a business plan template rarely results in an exciting document that reflects well on the venture and its management. However, if you are preparing a biotech business plan, the idiosyncrasies of your industry dictate that your plan be “more different” than usual.

Avoid Getting Bogged Down in Technology

Like any business plan, your biotech plan will include a description of your company - its markets, its technology and product “pipeline,” achievements, intellectual property, legal structure, stage of development, management, directors, key advisors and ownership. There are a number of good books on business plan writing that describe these elements. Your discussion of markets must describe what critical, unfulfilled need your venture will address. It should describe how other companies have sought to address this need and why your approach is likely to succeed. Investors want to put money into a company with good management and product pipeline. Most prefer to avoid one-project ventures. Therefore, it is important to present a platform technology or expertise that will result in both near term and future products.

One mistake common both to biotechnology and other technology companies is the temptation to include too much technical detail in the business plan. Keep in mind that your reader may not be a technology expert and your immediate goal is to open doors. If your business plan generates interest, readers will ask for more information and bring in the experts to help them evaluate your technology. Prepare an “elevator speech,” a clear, passionate, two-minute presentation that describes how your venture’s innovative approach is going to change the world and save lives. You can add a few easily understood supporting diagrams, pictures or graphs and call it a day. The technology section of your business plan should be short and easily understood. You can be prepared with scientific publications, patent applications, technology white papers and other technical documents. These can be referred to in the business plan, but in the plan itself, you should avoid including too much technical detail.

Burn Rate Versus Milestones

Progress in biotech does not happen with two guys working out of a garage. Typically, discoveries follow years of scientific endeavor in academic or industrial laboratories. Development of these discoveries into products is likely to involve the joint efforts of a diverse team of scientists and experts in animal and human testing, manufacturing, intellectual property, and regulatory procedures.

Discovery and development in the life sciences is usually expensive, lengthy and risky. As a result, a key measure in understanding a biotechnology venture is the “burn rate” - the rate at which the venture is consuming cash. The burn rate will be juxtaposed to the venture’s capacity to raise cash from investors or partners. The capacity to raise cash will, in turn, depend on the venture’s ability to generate “news” by reaching meaningful milestones (as well as extraneous “market” factors). Comparing a biotech venture’s burn rate and its capacity to raise cash is similar to comparing projected future revenues and operating expenses in a more typical industrial venture.

In practical terms, this means that your biotech business plan will have to focus heavily on determining the burn rate and describing milestones. The burn rate is the translation of the venture’s operational plan into dollars and cents. Developing an operational plan requires defining tasks, figuring out what resources will be required to achieve each task and estimating how long each task will take. A “task” may be achieving 99 percent accuracy in a diagnostic assay or completing Phase I clinical drug trials. Whatever the task, you will have to decide whether it will be outsourced or performed internally, justify your approach, and describe how you arrived at your timetable estimate through comparisons to industry benchmarks or the experience of other companies. Tasks and timelines are often presented in Venn diagrams.

In parallel, at each stage in a venture’s development, it will require a certain level of management support. Initially, a company may rely heavily on outside consultants; at some point, it may hire senior managers and support staff in particular fields (business development, human resources, intellectual property, regulatory affairs, etc.). A key feature of a biotechnology business plan is the venture’s personnel recruitment plan describing the positions, numbers and salaries of employees and when they are brought aboard. After determining resources such as scientific and support personnel, facilities, equipment and supplies required for particular tasks, these items have to priced. Translating the operational plan into dollars and cents yields your venture’s burn rate.

Defining tasks and estimating their duration is the key to determining when the company will reach important milestones. Attaining milestones enables the company to raise capital, make a deal or, eventually, sell a product. In the biotechnology industry many companies have gone public before earning any meaningful revenues.

A common business model for young biopharmaceutical companies is to enter licensing agreements with established biotechnology or pharmaceutical companies (“Big Pharma”) that can provide capital and expertise for continued clinical development and eventually be responsible for manufacturing and marketing a pharmaceutical product. If this is your business model, you have to elaborate at what stage you intend to enter licensing agreements and what your expectations are in terms of immediate payments, future milestone payments and royalties on eventual sales. You will have to justify your expectations by comparisons to other biotech-big pharma deals. If your business model involves selling a device or marketing a technology, you will have to describe the kind of deals that are involved and how you will raise capital along the way.

Be Optimistic but Realistic

Investor’s know that biotechnology tends to be a risky investment. Many of the most promising biotechnology products do not make it to market. To protect their often sizable biotechnology investment, investors want to be confident their money will be used responsibly by management. Investors want to see that management understands the risks and is prepared for various contingencies. If there are gaps in the background of your company’s current leadership, it is important to present your plan for recruiting additional top-level managers. Recruiting new management is a legitimate use of investment capital, which should be clearly stated in a biotechnology business plan.

Finally, biotech business plans must reflect knowledge of regulatory hurdles and intellectual property issues -two areas of special concern in life science investments. Unsubstantiated statements and unestablished claims will appear as wishful thinking and reflect poorly on management. Painting one overly optimistic scenario in the business plan will do the same. Therefore, when you write the business plan for your biotech venture be passionate and optimistic, but at the same time take care to be grounded in reality.

Written by Maxwell Rosenblum, Director of Advantage Consulting.