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Factors within your control to be (exit) deal ready

Why you should think about your exit now

The exit is a critical step in the lifetime of almost any Life Science product, in order to deliver on the company’s mission and make a big impact on the treatment and quality of life of patients around the world. While it may feel counterintuitive to think of an exit while developing an innovation, it is essential to be aware of the various options that exits provide. This will enable you to steer swiftly when you find yourself in unexpected situations that will occur over the 10-year+ development cycle of the product. In this series of articles, we discuss the different exit strategies for Life Science innovations, share key insights, and ensure you can make an informed decision to push your innovation to market.

To many Life Science entrepreneurs, securing a significant exit deal might seem beyond their control. While predicting market sentiment in the coming years remains challenging, there are however numerous factors well within your sphere of influence. In this article, the fourth in our series, we emphasize essential Life Science business aspects that empower you to build company valuation and ensure to be deal-ready at all times. As deal partners might knock unexpectedly and exciting product development outcomes may be on the horizon, your readiness to seize any opportunity is paramount in maximizing the potential success of your product’s market journey.

Key components

There are a number of key components to concentrate on that are necessary for innovation and sound business development in running an innovative company. Paying attention to these and ensuring preparedness can significantly increase the likelihood of being approached for an exit deal or proactively closing a robust agreement – thereby bolstering your chances for success. Furthermore, as any other innovative Life Science company, you may be confronted by unexpected findings during the product development and validation steps. Usually, this will result in the need for more and/or different expertise (i.e. when a new therapeutic area is opened), and a need for additional cash. By paying attention to the right product and company development aspects, you will be able to tap into opportunities that (partial) exits may bring when you need it.

Key components in exit deals

6 aspects within your control

In this article, we would like to emphasize 6 aspects that are within your control to generate value and increase the chances towards getting your preferred exit:

1) Intellectual property portfolio

Build, protect and manage a strong intellectual property portfolio: Establish robust IP management processes to safeguard the company’s IP assets. Implement confidentiality agreements, non-disclosure agreements (NDAs), and other measures to protect proprietary information during licensing discussions. Regularly monitor and evaluate the IP landscape to ensure the company’s technology or product remains innovative and relevant. Continuously update and refine the IP strategy to stay ahead of competitors and potential licensing partners.

IP integration in business strategy: Ensure that the IP portfolio aligns with the company’s overall business strategy. A coherent connection between IP assets and the company’s growth plans strengthens the case for a preferred exit. Potential partners or acquirers will recognize the strategic value of the IP in advancing the company’s goals. Make the strength of your IP portfolio apparent and leverage your patent portfolio to provide strategic insights to potential partners or acquirers. In this respect, emphasise how specific patents respond to market trends, anticipate future needs or complement the buyer’s existing capabilities. Clearly demonstrating your strategic alignment makes your company an attractive investment from an IP perspective.

2) The product potential

Conduct (early) market assessments: Conduct thorough market assessments to identify potential applications and market demand for the company’s technology or product. Understand the market landscape, competitive landscape, and target customers to validate the commercial viability and potential licensing opportunities. Seek feedback from key opinion leaders, potential customers, and industry experts to refine the technology or product and align it with market needs. This iterative process helps create a more market-ready and valuable asset.

Develop a strong value proposition and compelling market entry strategy: Clearly articulate the unique value proposition of the technology or product. Highlight its advantages, differentiating features, and potential benefits for potential licensees. Clearly communicate the market potential, competitive advantages, and scalability of the technology or product. Develop compelling marketing materials, such as presentations, brochures, and technical whitepapers, that effectively communicate the value proposition and market opportunity to potential licensing partners.

3) Business plan

Develop an adaptable and scalable business model: Create a scalable business model that can adapt and expand rapidly as the company grows. This includes efficient operations, strong supply chain management, and the ability to meet increasing demand. The adaptability will be preferred by an acquiring party to enhance implementation.

Establish a clear growth strategy: Develop a robust scale-up plan that outlines the company’s growth trajectory, target markets, and potential revenue streams. This demonstrates the management team’s vision and ability to drive future growth. Consider different scenarios and maintain a global vision.

Promote scenario planning and global vision: Extend your growth strategy by incorporating scenario planning. Demonstrating your ability to adapt to different market conditions, regulatory changes, or unforeseen challenges showcases your company’s resilience. Additionally, emphasize a global vision, highlighting how your company aims to capture international opportunities and navigate potential regional nuances.

Build a strong management team: The management team will eventually implement the business plan, or better yet improve and expand it, thus drive innovation forward. Recruit talented individuals with industry experience and a track record of success to form a skilled and cohesive management team. A strong management team, equipped with the expertise to execute the growth strategy effectively, instills confidence in potential acquirers or partners.

4) Financials

Focus on financial management excellence: Creating a robust financial foundation is paramount in positioning your company for a successful exit. Implementing rigorous financial management practices encompasses meticulous budgeting, expense control, and efficient resource allocation. It demonstrates to potential acquirers or partners that your company is well-versed in maintaining a healthy financial structure, a crucial factor in due diligence during an exit process.

Evolve a sustainable financial runway: Having a sustainable financial runway is essential. It indicates your company’s ability to operate and grow without immediate financial pressure. A longer financial runway provides stability and flexibility, enhancing your negotiating position and signaling to potential partners that your company is well-prepared for post-acquisition integration. By focusing on both short-term financial health and long-term sustainability, your company not only gains credibility but also ensures it is well-positioned for a favorable exit.

Exploit profitability as a catalyst: Maintaining profitability is a critical indicator of a healthy business model. It signals your company’s potential for sustainable returns, making it an attractive proposition for potential acquirers. Profitability directly impacts valuation, making it a vital consideration during exit negotiations. Providing a solid rationale for profitability when your product is not yet on the market can be challenging. To address this scenario, one may emphasize performing a robust market validation, sharing insights from market research, customer surveys, industry trends, or feedback from potential partners or early adopters. Moreover, it is imperative to provide detailed financial projections based on conservative and realistic assumptions. Clearly articulate the path from product launch to profitability, outlining key milestones, anticipated sales growth, cost control measures, and expected timeframes.

5) Network and relations

Establish collaborative relationships: Cultivate relationships with academic institutions, research organizations, and industry partners that align with the company’s technology or product focus. Collaborative research projects and joint development efforts can enhance the company’s credibility and access to cutting-edge technologies. Attend industry conferences, trade shows, and networking events to connect with potential licensing partners. Building a strong network can lead to valuable licensing opportunities and industry collaborations.

Cultivate strategic partnerships: Establish collaborations with larger companies or industry leaders to demonstrate the value of the company’s offerings and gain visibility in the market. These partnerships can also lead to potential acquisition opportunities.

Seek strategic alliances and licensing partnerships: Identify potential licensing partners that have complementary technologies, market access, or distribution capabilities. Evaluate their track record, reputation, and financial stability to ensure a strong fit for long-term collaboration. Initiate discussions with potential licensing partners to explore mutual interests and evaluate the feasibility of licensing or technology transfer agreements. Define the terms, scope, and financial arrangements that align with the company’s goals and maximize value creation.

Cultivate customer relationships: Build strong relationships with customers and demonstrate the value and impact of the company’s products or services. Focus on customer satisfaction, product performance, and addressing customer needs to enhance the company’s reputation. Focus on building long-term customer relationships and delivering exceptional customer value. Customer loyalty and recurring revenue streams enhance the company’s stability and attractiveness to investors.

6) Operations

Optimize operational efficiency: Streamline operations, eliminate inefficiencies, and optimize the company’s cost structure. This improves profitability and demonstrates the management team’s ability to maximize value.

Invest in talent development: Continuously invest in the professional development and growth of your employees. A skilled and motivated operational team contributes to the company’s success and enhances its value. Make sure to build a team that is right for the current (company) development phase and that is able to prepare for the next key milestones ahead.

Foster a strong company culture: While financials and strategy are vital for a successful exit, your operational team’s readiness is equally crucial. It is essential to ensure that they align with your exit goals, maintain performance, and contribute positively. Cultivate a positive and collaborative company culture that attracts and retains top talent. Highlight how your existing culture drives innovation, teamwork, and employee satisfaction. A talented, motivated, and visible workforce that is present in the field, contributes to the company’s success and increases its attractiveness to potential acquirers.

Conclusion

In the world of Life Sciences, where the road to success is marked by innovation, opportunity, and unforeseen challenges, it is essential to focus on aspects within your control to maximize the chances of achieving your preferred exit strategy. While it is true that the future holds uncertainties, we have highlighted six proactive measures you can take to ensure readiness for when the right opportunity arises. By nurturing these aspects, you can position your innovation-driven company for success and seamlessly navigate the dynamic landscape. Whether unexpected or long-awaited, your readiness will position your product for the market and ensure the highest chances for success in a highly competitive industry.

When being in control over the right business and product-development aspects, your next exit deal may be awaiting around the corner. In our next (and last) article in this series you will read about what to expect regarding typical exit deal payment structures.

Exit strategy

Would you like to learn more about exit strategies?

In our series of articles on exits, FFUND discusses the different exit strategies for Life Science entrepreneurs. Learn more about the key insights into the available exit strategies by reading the following articles:

This article is part of the series Exit Strategies for Life Science innovations cocreated by Victor Bakker and Judith Smit.

About the author
Victor Bakker

Victor Bakker