What Are We Talking About When We Talk About Biotech Entrepreneurial Spirit?

Domestic investors are increasingly discussing “entrepreneurship.”

At the recently held annual meeting of Xingze Capital, Qiang Jing, Managing Partner of Xingze Capital, stated bluntly:“Now when making investments, I place greater emphasis on whether founders possess entrepreneurial spirit, which is particularly crucial in the current environment.”

He added, “In what we call the high-tech industry, it is even more important for founders to speak in plain language and take solid, grounded actions, just like entrepreneurs in other sectors in China. They should not be led by the nose by arbitrage opportunities in capital markets or industrial policies, nor should they merely issue directives from an ivory tower.”

China’s biopharmaceutical industry has already undergone a complete cycle of ups and downs. In the innovative drug sector, which has moved from excessive cold to overheating and then into a “winter” period over the past 15 years, the qualities and spirit of founders (or entrepreneurs)—including sound judgment, steadfastness, the ability to resist the myriad external temptations, and a long-term vision—have proven especially valuable.

But when we discuss “entrepreneurship” in the biotechnology sector, what exactly are we talking about? Are we referring to a distinct entrepreneurial spirit? And where do entrepreneurs’ steadiness, judgment, and long-term vision come from?

Craig Shimasaki, CEO of Moleculera Labs and BioSource Consulting Group, published a book in 2014 titled *Biotechnology Entrepreneurship: Starting, Managing, and Leading Biotech Companies*. In Chapter 4, he specifically discusses the nature of entrepreneurship in the biotechnology sector: What distinguishes biotech entrepreneurs from those in other industries? What forces influence their decision-making? And what entrepreneurial spirit should they possess?

Although much of the book focuses on “entrepreneurs,” its content is directly applicable to all managers and leaders within any biotech organization.What It Means to Be a Biotech Entrepreneur, regardless of their positions within the organization. In these challenging times, we particularly need to return to these fundamental issues.

VCBeat has compiled the highlights of this chapter, as follows:

There is no doubt that to succeed, every company needs a capable and skilled leader; without entrepreneurs, there would be no companies. Without Rob Swanson and Herb Boyer, Genentech would not exist. Without Ivor Royston and Howard Birndorf, Hybritech would not have emerged, let alone the numerous companies later founded by their employees in the San Diego area. Diverse teams are essential to the success of any organization. However, without the drive of entrepreneurial leadership and vision, biotechnology products would never successfully reach the market.

Biotech entrepreneurs are the backbone of the biotechnology industry and the source of future innovation. Without them, there would be no biotechnology industry. Biotech entrepreneurs are visionary and passionate leaders who believe that their products or services will ultimately impact public well-being, driving them to pursue their goals. There are various reasons why biotech entrepreneurs start companies; generally, they believe that their products or services can better diagnose, treat, and cure millions of people.

Most biotech entrepreneurs found their companies with a strong sense of altruism, which often serves as the driving force behind their hard work.Of course, biotechnology entrepreneurs believe that financial rewards may await them. However, it is important to understand that these individuals are not primarily driven by wealth. Undoubtedly, there are easier and faster career paths that could afford them a comfortable lifestyle. Nevertheless, their motivation lies in proving that their discoveries or inventions can one day become commercial products beneficial to the general public.Such altruistic motives are an asset to entrepreneurs, particularly in challenging market environments where they provide essential support. Unfortunately, these same altruistic impulses can become a liability, especially when rational financial and business decisions are required.

We must clearly recognize that biotechnology entrepreneurship is the sum of all activities necessary to establish a company by integrating science and business. Through these integrated efforts, companies create, develop, and ultimately commercialize biotechnology products.

Therefore, biotechnology entrepreneurship is based on the convergence of two distinct disciplines—science and business. Every first-time entrepreneur is surprised by the complexity of managing such an intertwined, interdisciplinary enterprise. Entrepreneurs launching their first venture in the scientific field often initially believe that completing scientific research equates to success. Before long, they realize there is a vast difference between finishing a scientific project and building a successful company. Given the need to make practical, strategic business decisions—a skill set not typically possessed by most scientists—leading a biotechnology company can be quite challenging.

Entrepreneurs must “organize, manage, and assume the risks of a business or enterprise.” In other words,Entrepreneurs are the owners and managers of business risk. However, in biotechnology companies, entrepreneurs are also the owners and managers of scientific risk. This duality of roles requires individuals who understand both types of risk.

Decisions made in one domain inevitably impact related areas, as scientific issues are often inextricably linked to business concerns. For instance, if recent laboratory experimental results exceed expectations, you may need to revise the company’s planned molecular targets. This, in turn, will alter the original timeline for achieving your planned development milestones. Consequently, such changes necessitate more capital than initially anticipated to sustain the enterprise through this period. Without the necessary capital for continuous development, the company will cease to exist. Building a successful biotechnology venture requires careful integration and management of both capital and scientific issues, not to mention the myriad other entrepreneurial challenges founders face in bringing products to market.

Biotechnology startups share similarities with general entrepreneurial ventures. Both require a competitive idea, an experienced team to lead and manage business functions, the ability to attract capital support for commercialization, and the perseverance to overcome obstacles along the way. However, the differences between these two entrepreneurial paths far outweigh their similarities.

Biotechnology entrepreneurs face unique challenges that are not encountered by founders in other sectors. These challenges include: the need for substantial capital to achieve incremental progress in product development; longer development timelines; and more stringent regulatory approval requirements for commercialization. Biotechnology products also carry inherent scientific uncertainty, as many mechanistic issues often remain unclear during the development of these new therapies.

Given the substantial capital requirements, it is crucial to maximize your company’s appeal to investors and industry partners throughout its growth trajectory. No matter how promising a product idea or technological concept may be, commercialization of any biotechnology product is virtually impossible without sustained and uninterrupted funding. Therefore, capital planning and management’s ability to raise capital are critical prerequisites for the growth and development of companies in this sector.Biotech entrepreneurs must have a solid estimate, both mentally and on paper, of the total capital required to reach each value-added milestone in order to maintain their appeal to subsequent investors.

For a company in its growth stage, funding gaps are not uncommon; however, leaders have a responsibility to ensure that these short-term and temporary cash flow shortages do not lead to the company’s demise. Therefore, entrepreneurs must prepare accurate cost estimates and timelines for the development of various biotechnology products.

In addition to cost and timeframes, the biotechnology industry faces stringent government regulatory requirements that must be met before any biotech product can be brought to market. Regulatory agencies such as the FDA, MHRA, and EMA require extensive preclinical and human clinical trials to demonstrate that a biotech product is safe and effective prior to commercialization. Merely satisfying these regulatory requirements can take several years and cost millions of dollars. As scientific and technological advancements become increasingly complex, regulatory requirements evolve in response to new discoveries in biomedicine and genetic products. Given that biotech products often require years of development, it is not uncommon for regulatory requirements to be revised or changed between the initiation and completion of product development. Understanding the specific regulatory requirements for product approval is critical to securing funding and achieving successful commercialization.

An inherent factor in all biotechnology product development plans is “biological uncertainty.” These uncertainties cannot be fully understood until the product is developed and ultimately tested in laboratories, animals, or humans. It is impossible to eliminate this biological uncertainty; however,Creative managers will find ways to adjust their products within the bounds of these biological uncertainties, ultimately delivering products of immense value to their target audiences.

Entrepreneurs possess certain fundamental traits and capabilities, such as the ability to articulate their vision to others, an innate capacity to inspire others to follow, and the skill to multitask and manage key activities.

However, entrepreneurs in the biotechnology sector must also possess a set of additional skills, which I believe are critical to the success of the biotech industry. These additional skills can help leaders achieve significant business outcomes. Unfortunately, these qualities are often where new founders struggle the most.

“Unknown unknowns” may sound like circular reasoning, but it is in fact a peril frequently encountered during the development stages of biotechnology companies. Most biotech firms inevitably grapple with the pain it brings at some point.

Biotechnology entrepreneurs will face two types of unknowns. The first type is what we call “known unknowns.” These are areas of knowledge that you recognize as important, yet you are also aware that your understanding in these specific domains is limited. We have all experienced this sensation: whether in accounting, finance, regulatory law, human resources, or specific fields within chemistry, biology, or physics, our knowledge in these unfamiliar areas is constrained. However, you acknowledge this limitation and can engage consultants or seek advice from experts in the relevant fields. In other words, you know what you do not know. “Known unknowns” refer to situations where there is sufficient awareness and recognition of limited information in a domain critical to the company’s or future success, and you realize that you lack adequate knowledge to make rational decisions on how to proceed. This awareness is reassuring, as entrepreneurial leaders can seek expert advice and proceed with caution in these areas.

Then there are the unknown unknowns. In this scenario, you lack knowledge in a domain critical to the company and fail to recognize your own limitations, yet you continue to move forward. In other words, these are things you do not know, and you are unaware that you do not know them.

The primary distinction between large multinational corporations and newly established biotechnology companies lies in the fact that the former possess substantial capital and abundant resources, enabling them to withstand multiple clinical trial failures. In contrast, biotech firms typically have only one chance at successful commercialization. For a biotechnology company in its development stage, a single misstep can cost millions of dollars and ultimately jeopardize its future survival.

For Aviron, the biotechnology company that developed the FluMist intranasal influenza vaccine in the late 1990s, the “unknown unknown” was that the manufacturing process tested in its Phase III clinical trials could not be used for its commercial product. The company did not learn of this unknown unknown until June 1998, after it submitted a Product License Application (PLA) to the FDA. As a result, the FDA delayed approval and required the company to demonstrate the clinical equivalence of products manufactured using its new process and to compare this process with the one used in the Phase III clinical studies. This meant additional funding was needed for further clinical testing, leading to a decline in investor confidence. Fortunately for Aviron, its vaccine ultimately received FDA approval, and the company was acquired by MedImmune for $1.5 billion in 2001. Unfortunately, most unknown unknowns in the biotechnology industry do not lead to such a recovery and eventual success.

Unknown unknowns are difficult to recognize because, by definition, you do not know what you do not know. A good way to avoid this pitfall is to always seek advice and input from experienced professionals in your field before embarking on your intended course of action. Often, due to the pressure to accomplish many tasks quickly, our understanding of certain issues is limited, only for us to later discover that these issues have led to unforeseen consequences. This is particularly evident when planning and preparing for regulatory approval of biotechnology products. Keep in mind that regulations are constantly evolving; without up-to-date knowledge and experience of current regulatory frameworks, it is extremely difficult to fully meet the requirements for regulatory approval. Wise entrepreneurs surround themselves with trusted, experienced professionals who bring specialized expertise that the entrepreneurs themselves may lack.Furthermore, do not be afraid to ask questions. Seek ample advice and guidance when formulating plans.

In all science and technology-based companies, there is always a tension between the technical and commercial/marketing departments. This tension largely stems from the lack of multidisciplinary translators who can understand scientific objectives and “translate” business goals.

A biotechnology company in the development stage typically starts with a small team, so someone on the team must have the ability to communicate the company's scientific and business goals. An interdisciplinary translator understands business, finance, marketing, and corporate affairs, as well as technical and scientific issues—and speaks both languages well enough for people in these fields to understand.

Biotechnology companies are typically founded by individuals with technical backgrounds, such as scientists, physicians, or engineers. These founders are highly proficient in their respective technical fields. However, they often lack familiarity with business aspects, including financing, marketing, and legal matters; or worse, they have little interest in learning about or understanding these areas. For a young company, ceasing to learn poses a significant problem.

Although a team may be engaged in groundbreaking scientific research and development, fundamental issues related to its business operations, market viability, and financials can deter potential investors or partners. For instance, if the technology is exciting and cutting-edge but there is no market demand for the product, investors will not be interested. Consequently, the likelihood of securing substantial funding from seasoned investors becomes slim. Conversely, if the founder is a businessperson rather than a scientist and lacks an understanding of scientific challenges and limitations, they will operate within a pseudo-environment. They may believe that the technology can deliver a range of features and benefits, when in reality this is not feasible. In such cases, the enterprise may appear promising, but these prospects are illusory, as they cannot be supported by current scientific capabilities.

Scientists typically possess strong analytical skills and excel at questioning theories and hypotheses. They are effective researchers because they are trained to scrutinize information they do not fully understand until reproducible evidence is obtained. Furthermore, most scientists can rapidly identify inconsistencies within hypotheses and problem statements. While these traits are ideal for conducting research, they do not facilitate effective communication when discussing your company’s goals and mission with potential investors, business partners, and marketing professionals.

All entrepreneurs, whether they are businesspeople, scientists, or engineers, should adopt the audience’s perspective and communicate in language that is accessible to them.At the very least, all entrepreneurs should assume that their audience has little to no understanding of the topics they are discussing (including their specialized terminology) when communicating.

Learn to simplify all common jargon in your industry, especially when trying to convey value and the significance of your work to others.Use language that is meaningful to your audience. This ensures that listeners understand the message being conveyed without becoming confused by jargon. Achieving this requires proficiency and skill; entrepreneurs should continually practice becoming adept translators of scientific language, for instance, by using analogies when describing complex scientific concepts or biological processes. Remember, the goal of oral communication is to faithfully transmit thoughts and ideas to another person. If your audience cannot understand what you are saying, they will certainly not be able to assess whether your ideas are worth considering.

As any bilingual individual will tell you, fluency is achieved only when one begins to think in that language. The same holds true for biotechnology entrepreneurs, who must grapple with questions critical to both science and business.Scientists should practice thinking about business issues, while businesspeople should devote time to contemplating scientific problems; everyone should regularly engage with questions from other industries to ensure their understanding aligns with the facts.Businesspeople and scientists approach problems differently, and they can benefit from the ideas and solutions each offers. Furthermore, it is important to learn to follow their thought processes rather than merely accepting their final results or conclusions.

From personal experience, sharing a scientific question in a way that is accessible to non-scientists often yields valuable insights; even if the audience lacks technical expertise, they frequently offer compelling ideas. Do not hesitate to discuss challenges with trusted individuals, even if their expertise lies in other disciplines or fields. They may surprise you with innovative ideas and solutions.

When you practice simplifying problems and concepts in a way that others can understand, you will find that this process of simplification can even help you resolve your own issues. This is also a fundamental skill when raising capital.

Typically, the term “negotiation” conjures up images of two parties sitting on opposite sides of a table, heatedly debating the terms of an agreement or the price of assets. Such activities usually involve making demands and applying pressure. There must be back-and-forth exchanges until one party gains the upper hand and forces the other to concede to their demands. Negotiations in this sense do occur, but I hope that most biotechnology entrepreneurs undergoing negotiations will not encounter such scenarios.

Admittedly, when negotiating company valuation with investors, the scenario may sometimes resemble the one described above; even so, it is best to avoid letting the negotiation deteriorate into a verbal showdown with the other party.The purpose of negotiation is to exchange something of value from one’s own side for something of value from the other party.For entrepreneurs, an important aspect of negotiation is:

• Balance obligations to different entities (investors, regulators, partners, and customers).

• Balance limited time and resources.

• Those who hold or influence these resources should ensure they buy in.

Standard negotiation training workshops focus on negotiation techniques, outlining best practices and pitfalls. However, negotiation is not merely a technical issue; it involves understanding what matters to one party in order to exchange items of value to the other party. Negotiation is about reaching a compromise where both sides derive sufficient value to achieve agreement. Typically, during negotiations, one party may claim that everything is important to them, thereby limiting the scope for compromise in reaching consensus. In reality, both parties have a hierarchy of importance or priorities regarding the terms and conditions of the agreement.Entrepreneurs must learn to quickly identify what holds the greatest value for the other party, and in exchange, secure what is most valuable to themselves.

Negotiation is akin to traveling along an unfamiliar road, navigating detours and roadblocks to ultimately reach your destination. Therefore, when we speak of negotiation, we mean how we traverse or circumvent the obstacles on our path to achieve our goals. Great biotech entrepreneurs learn to become skilled negotiators at these levels, engaging in prudent negotiations as they navigate the myriad challenges of product development and commercialization.

References: Chapter 4 - What is Biotechnology Entrepreneurship?; Biotechnology Entrepreneurship: Starting, Managing, and Leading Biotech Companies; Craig Shimasaki