It’s difficult to imagine anyone launching a biotech company in anticipation of it stalling and becoming a turnaround three or five years later. Still, many companies find themselves just a few years after launch in a position where growth (if there was any) has stagnated and raising capital is increasingly difficult. In popular media, there is a tendency to focus on the breakout successes, and somewhat on spectacular failures- but the “no mans land” in between success and failure gets scant attention. I believe this is partly because people want clear endings—and a turnaround is anything but clear. Turnarounds are messy, depressing affairs full of missed promises and regrets.
In capital markets, the reasons a company finds itself struggling may include “bad luck” as a compound fails efficacy, “higher operating losses”, or “poor management“. However, it is important to remember that biotech turnarounds are in a suspended animation of sorts; they have not yet succeeded or failed. As it is far easier to perform an autopsy after the patient is deceased, popular business lessons are usually derived after a company has failed.
Turnarounds are messy, depressing affairs full of missed promises and regrets.
Outside of capital markets, there isn’t much information on the experiences of turnarounds.
So, what is it like to do a biotech turnaround? If you are considering joining or investing in one, or are in the midst of your own turnaround, please read on.
First, some background: I have been engaged in four different biotech turnarounds, with companies ranging in revenue from $3M to $62M, spanning biotech tools, early-stage therapeutics, and diagnostics. Each had stalled out in revenue, or was quickly running out of cash, and all were increasingly unable to obtain additional financing. Here are common themes among all of the turnarounds:
1. Dreadful Morale
From CEO to warehouse worker, everyone knows the organization is in trouble. There is no lack of finger pointing and trust is a rare commodity. This is doubled if you are brought in to help steer the ship (few will trust you and many will point out the many missed opportunities or errors). Additionally, key talent is difficult to both retain and obtain. Due to risk, new talent won’t join if they have done their homework, while existing employees are exploring other employment options. And, who can blame them? In a biotech turnaround where there have been layoffs, resumes are flying out the door and the work environment may be absolutely toxic.
There is no lack of finger pointing and trust is a rare commodity.
2. Too Many Solutions
This is likely somewhat contrary to what you may think, but turnarounds often try to get themselves out of the hole by attempting a multitude of solutions in hopes that one or more are profitable. While this approach is completely understandable, working capital is in short supply and is being diluted among all the efforts. Additionally, the team may not be pulling together so attempts at solving problems are not approached cohesively.
Trying multitudes of solutions in hopes that one or more are profitable.
3. Business Practices That Create Bottlenecks
There are foundational reasons that lead a company to stall out and become a turnaround. Some may be outside the control of the company, but in my experience all the turnarounds also had business practices that created a bottleneck to success. To a large degree, all of the biotech turnarounds had self-inflicted wounds. In three of the four cases, there were fundamental disagreements between management and the board of directors or shareholders. In two cases, basic sales and marketing practices had ceased as management tried to cut their way to freedom. In all of the turnarounds, lines of communication and responsibility were extremely muddied. This muddiness was largely due to layoffs and a multitude of reorganizations. The layoffs and reorgs resulted in odd centers of power where legal or QC teams were making decisions on commercialization strategy, or customer questions were being handled by executive admins.
To a large degree, all of the biotech turnarounds had self-inflicted wounds.
Which is More Difficult, Start-up or Turnaround?
Having also done a number of start-ups, I find turnarounds far more challenging.
In a start-up, you are the one creating future problems. In a biotech turnaround, you are faced with solving a host of issues across an incredibly short timeline, from morale to cash flow. You will learn far more from a turnaround than a start-up—an experience that actually makes your future start-ups stronger. Of the four turnarounds I have participated in to date, each had different outcomes. One became widely successful, one was favorably acquired, one is still struggling, and one sank. The sinker was my first turnaround, and it was also the one that taught me the most. A turnaround forces you to make difficult business decisions and live with the results.
So, Why Do a Biotech Turnaround?
In short, turnarounds are difficult affairs. They are, however, rewarding in a different way than start-ups or growth businesses. When creating a new start-up venture with a novel product or service, you celebrate each launch and every newly acquired customer. Growth businesses are exhilarating- and perhaps the easiest- as you catch market tailwinds. Growth businesses can make investments easier than struggling organizations as they have more free capital, while affording the occasional mistake.
A biotech turnaround offers few of these rewards and is definitely not for the faint hearted. Little operating capital leaves no room for error, and the company has likely already launched products while retaining a small number of customers. As mentioned earlier, a turnaround is excellent for personal growth and the raw experience gained is exceptional. Pulling your way from last place to finish in second or third place is a win. A successful biotech turnaround is a great outcome for both investors and employees. When you succeed in your turnaround, there is no victory lap but a huge sense of relief and the reward is in the jobs you saved and the relationships you made. The products or services keep science advancing and the redeployment of the venture capital keeps the big wheel spinning.
Turnarounds are simply rewarding in a different way than start-ups or growth businesses.
If you are engaged in a biotech turnaround, BrainSpores wants to hear from you! We understand the issues in regaining commercial traction and are ready to help. Contact us at email@example.com.
- There is a paucity of information on biotech turnarounds outside the capital community, but turnarounds are common.
- Being inside the whirlwind of a turnaround is significantly different than reading a business case review.
- In the authors experience, challenges in turning around a biotech include:
- Low morale and high retention risk.
- Fragmented approaches to achieving solvency.
- Unclear roles and responsibilities largely due to layoffs and re-organizations.
- While biotech turnarounds are difficult, they can be rewarding both personally and professionally in the experience gained and the jobs saved.