Growth is usually viewed as evidence of success.
A biotech company raises another round. It adds another indication. The pipeline expands. New executives are hired. Clinical programs become larger. Manufacturing capacity increases.
All of those decisions may eventually be necessary.
But there is a question that should come first:
Has the company generated enough evidence to earn the next level of investment?
Biotechnology is different from most businesses because growth often occurs years before the underlying product has been validated. A company can spend tens of millions of dollars building an organization around assumptions that the next experiment may prove wrong.
That makes sequencing critical.
The objective should not be to build the largest organization the company can finance. It should be to build the capabilities required to answer the next important question—and then scale as uncertainty is reduced.
Start With the Problem, Not the Size of the Opportunity
Interesting science does not automatically create an attractive drug-development opportunity.
Before expanding a program, management should be able to answer a more fundamental question:
What important problem can this science realistically solve?
That requires looking beyond prevalence or theoretical market size.
Who are the patients? Can they be identified? Where does the current standard of care fail? What improvement would materially change clinical practice? What will the competitive environment look like when the product reaches the market? Can the therapy be manufactured economically? Is there a realistic regulatory path? Would payers recognize sufficient value?
A technology without a sufficiently important and addressable clinical use can become a very expensive research program rather than a valuable asset.
Evidence Should Earn Investment
Every stage of development should reduce meaningful uncertainty.
Preclinical work should provide enough evidence to justify entering humans. Phase I should answer important questions about safety, pharmacokinetics, dose and, where possible, pharmacodynamic activity. Phase II should begin establishing whether the therapy produces meaningful benefit in the intended patient population.
The question management should repeatedly ask is:
What have we learned that justifies spending the next dollar?
This is where biotech companies can get into trouble.
A successful financing does not necessarily mean a company should expand its pipeline. An encouraging early signal does not necessarily justify another indication. Completing one stage of development does not automatically mean the organization should begin operating as though the next stage will succeed.
Capital provides the ability to scale. Evidence provides the reason to scale.
A Clinical Trial Should Create a Decision, Not Simply Data
Clinical development is one of the largest uses of capital in biotechnology.
Yet the value of a trial is not determined simply by whether it produces data.
Before entering a study, management should understand the question the trial is intended to answer. What result would justify the next stage of development? What result would cause the company to stop? Has the appropriate patient population been selected? Are the endpoints capable of demonstrating clinically meaningful benefit? What might the competitive environment look like by the time the trial reads out?
A positive result that leaves the most important strategic questions unanswered may create far less value than management expects.
The trial should create a decision, not simply data.
A Larger Pipeline Is Not Necessarily a More Valuable Company
Platform companies face a particularly difficult temptation.
If a technology potentially applies to several diseases, why not develop several programs?
Because every program competes for the same capital, management attention and organizational resources.
The value of a platform is not simply the number of potential indications it can generate. Part of its value comes from management's ability to determine which opportunities deserve investment and when.
Which indication offers the strongest biological rationale? Which patients can actually be identified and enrolled? Where can the company demonstrate meaningful differentiation? Which program can create the greatest increase in value relative to the capital required?
Sometimes advancing one program decisively creates more value than advancing five programs incrementally.
Build Capability Before You Build Infrastructure
As a biotech progresses, it requires increasingly sophisticated capabilities.
Clinical development, regulatory strategy, CMC, finance, medical affairs, market access and commercialization eventually become important components of the organization.
But needing access to expertise is not the same as needing to build an entire internal function.
The timing matters.
Hiring too late can jeopardize development. Hiring too early can consume the runway required to generate the evidence that would justify the organization being built.
The question is therefore not simply:
Will we eventually need this capability?
It is:
What capability do we need now to reach the next value-changing decision?
Commercial Thinking Should Begin Before Commercial Infrastructure
This distinction becomes particularly important as a program advances.
Commercial thinking should begin years before approval. Commercial infrastructure should not.
Indication selection, patient identification, endpoints, physician behavior, competitive positioning, payer evidence and market access can all influence development decisions long before a commercial organization is required.
By the time a company reaches late-stage development, many of the decisions determining the product's future commercial potential have already been made.
The objective is not premature commercialization.
It is making development decisions with an understanding of the market the product will eventually enter.
Capital Should Buy Answers
A financing round is not simply additional runway.
It is shareholder capital that management is responsible for converting into evidence and, ultimately, enterprise value.
The important question therefore isn't only:
How long will this financing last?
It is:
What important uncertainties will this capital allow us to resolve?
Instead of simply saying, "This financing provides 24 months of runway," management should understand which development milestones the capital will reach, which uncertainties those milestones should resolve and what decisions become possible afterward.
Biotechnology converts capital into evidence.
More capital does not automatically create more value. What matters is what management learns with it—and what decisions that new information makes possible.
Partnership Can Also Be a Form of Scaling
Scaling does not necessarily mean doing everything internally.
Sometimes a partner provides the most capital-efficient path to the next stage of development.
Partnerships can provide capital, development expertise, manufacturing capabilities, commercial infrastructure, geographic reach and risk sharing.
Keeping 100% of an asset that a company cannot afford to fully develop may ultimately be worth less than retaining a smaller interest in an asset that successfully reaches patients.
The objective should not automatically be maximum ownership.
It should be maximum risk-adjusted value.
Scale When Evidence Earns Scale
There is no single formula for determining when a biotechnology company should expand.
Drug development remains uncertain. Companies sometimes must invest ahead of definitive evidence. Manufacturing capacity takes time. Clinical infrastructure cannot appear overnight. Commercial preparation cannot begin immediately before approval.
But investment ahead of evidence should be intentional rather than automatic.
Scaling is not simply hiring more people, adding programs or spending more capital.
Scaling is increasing organizational capability without allowing complexity and fixed costs to grow faster than evidence. This was one of the central principles in the original analysis.
The broader principle is straightforward:
The company should become larger as uncertainty becomes smaller.
Capital commitments should increase as confidence increases. Organizational complexity should follow validation rather than precede it. Management should always understand which question the next dollar is intended to answer.
Before adding another indication, another clinical program, another executive or another major capital commitment, management and the board should ask:
What have we learned that has earned us the right to scale?
The answer will be different for every company.
Determining that answer requires a deeper assessment of the asset, clinical-development strategy, competitive environment, capital requirements, commercialization potential and the decisions required to reach the next value-inflection point.
The PharmaKonsult Perspective
The most important strategic decisions in biotechnology are rarely isolated decisions.
Indication selection influences clinical development. Clinical-development decisions influence regulatory strategy. Regulatory strategy influences capital requirements. Development choices can affect future market access and commercialization. All of them ultimately influence the potential value of the asset.
The challenge is determining what to fund, what to delay, what to stop, what to partner and what evidence should be generated before committing additional capital.
That requires looking across the entire development and commercialization strategy rather than evaluating each function independently.
For a more detailed assessment of your company's development, commercialization and scaling strategy, please contact me at PharmaKonsult.com.
Joseph McCoy
Founder & Principal Consultant
PharmaKonsult.com
About Joseph McCoy
Joseph McCoy is Founder and Principal Consultant of PharmaKonsult and an executive commercial strategy advisor with more than three decades of pharmaceutical and biotechnology commercial leadership experience across neuroscience, rare disease, endocrinology, institutional healthcare and specialty pharmaceuticals.
