Responding To Tough Markets: Restructurings In Biotech

Written by Lindsay Mayhall on May 10, 2022

The life sciences industry has been operating under a tough market environment for the last couple of years. The cost of launching new drugs has risen dramatically, and an increasing number of companies are restructuring their operations to cut costs and try to stay afloat.

Get Razor-Focused On Your Target

When it comes to the biotech industry, keeping in mind your company's specific target and focus is a big factor in being able to successfully make it through tough markets. The biotech sector has been a particularly hard-hit one of late; as many are aware, there's a lot of volatility in that industry, with market cap swings well above the market average. But we have found that even in those volatile times, there's a sweet spot for companies who have a clear idea of their target and know how to get there.

A company can make their target more specific by using a combination of geography and disease state. For instance, if your company focuses on endocrinology, you could choose to specialize in diabetes in the United States instead of endocrinology across the globe. This isn't to say that your company should only be limited to one country or disease state; you can still expand globally while remaining focused on one particular area. The important thing is keeping your options open while maintaining your core competencies throughout the process. This is especially true when things get difficult.

Partner Early And Often

 When a company is facing a financial crisis, it’s important to partner early and often with your legal counsel.

The first step is to make sure that the company has a plan in place to get through the downturn. This may include cutting costs, laying off employees and other short-term measures.

Once you have that plan in place, it’s time to start thinking about how you can protect your assets and employees from lawsuits during this difficult period. The best way to do this is by restructuring your company’s employment agreements early on and getting them approved before your financial problems become too severe.

If you wait until the last minute, then restructuring employment contracts will be much more difficult because there will be fewer options available for reducing compensation or benefits than if you had done it early on when times were better.

Have An Exit Strategy

It is important to think about how the company will be sold or taken public. This is especially critical in biotech, where the end-game is typically an exit either through a sale or an IPO. To maximize value, a company must position itself so that it can be attractive to potential acquirers.

A company's value is directly related to its ability to meet the criteria of potential buyers (and investors). This can be done by defining a clear and compelling business narrative that aligns with the goals of the buyer and investor. If you are looking for an acquirer that wants to add your technology to their product line, make sure your story fits into theirs. If you are looking for a strategic partner with a specific need, make sure your story meets their needs. In addition, if you are preparing for an IPO, you should be prepared to answer questions about how you compare with other companies and why an investor should buy your stock rather than another stock.

Positioning is critical because it sets the stage for everything that follows in the process and determines what value might be achieved under different scenarios (i.e., stand-alone vs. sale vs. strategic partnership). The positioning strategy must include specific milestones along with clear goals and action plans that can be used throughout its duration.

Put A Timetable In Place To Meet Goals

Another way to cope with tough markets is to set a timetable in place. A timetable gives a company the ability to measure their progress and determine if they are on track to make their expected goals. It also gives them a chance to decide whether changes need to be made for them to meet those goals. In order for the timetable to be effective, it should include details about what needs to be done and how long it should take. For example, if a biotech firm wants to launch a new product in three months, they would need to have all of the materials ready by a certain date and then have everything shipped by another date. They might also want to have some kind of marketing strategy in place so that they can promote their new product once it's released. This could involve anything from social media campaigns or advertisements on television or radio stations. If you're going through a restructuring process at your company then this type of planning is critical because there will be many people involved who are trying their best but may not always agree with each other's ideas or methods for achieving success.

Use A Scenario-Based Planning Process

Scenario-based planning is a logical and methodical approach to planning for the future. It helps companies think through their options, make sound decisions and align resources around their key strategic priorities.

The basic premise is that life does not proceed in a straight line. In fact, it is full of surprises and unexpected events that can throw even the best-laid plans off track. Sometimes these surprises are good—the markets for your products take off faster than expected or you receive a valuable new patent. Other times these surprises can be bad—your lead drug candidate fails in clinical trials or a competitor launches a competing drug that steals market share from your own products.

To understand how scenario-based planning works, let’s consider an example of how this process could apply to biotech companies with strategic plans based on four key priorities: (1) commercializing drugs currently in development, (2) bringing new drugs into development, (3) optimizing costs through restructuring and (4) expanding operations overseas. The company has already created a business plan that outlines the details of each priority, including key milestones and resources required to achieve them. The company may even have picked out an “optimistic” scenario that assumes all goes according to plan and its revenue projections align with timetables.

In the end, companies have to balance the need to cut costs, reduce exposure to risky assets, and provide higher returns for shareholders in tough economic environments. That can involve everything from job cuts to asset sales. And while biotech companies may be more vulnerable to these kinds of changes, they are also better positioned to weather market storms than some other industries. With large upfront investments and lengthy approval processes needed to launch new products in the healthcare space, a company's strongest asset can also be one of its most valuable liabilities—and identifying how these strengths and weaknesses fit into each company's overall strategy is vital when evaluating whether or not it makes sense long-term.