When and how to bring in a chief executive officer to lead a project is one of the primary questions for physician entrepreneurs. In prior columns, we’ve discussed many considerations related to early stage product development and the journey of the physician entrepreneur. There usually comes a time when the entrepreneur will realize they need support from someone who has a different skill set and experiences for taking a new treatment, technology or idea to the next level as a company, and decides it’s the right time to bring in a CEO (see February 2015’s OPDI, “The Scientist-Entrepreneur as CEO”).
Here, we’ll look more at the question of “how,” now that you’ve made the decision to find a CEO, and discuss some considerations we’ve seen working with our client partners in their process of finding their first CEO.
In the recently released book, “For Blood and Money: Billionaires, Biotech and the Quest for a Blockbuster Drug,” author Nathan Vardi details the exciting, multifaceted journey of the development of Pharmacyclic’s blockbuster drug Imbruvica, and of the competing drug Calquence by Acerta Pharma. The book offers many lessons, and is a captivating case study of the interplay of founders, early investors, venture capital, developers, key opinion leaders, employees and exit strategies. It highlights the many players involved in the successful identification, development and launch of a successful drug, and the importance of using your network of contacts to surround a project with the best people possible.
Also of note, the book tells the tale of how an individual with no pharma development background (but being very driven to get things done) came to become CEO of what became an extremely successful product, and one of highest profile exits in biotech. This shows that there’s no specific mold for a CEO of a biotech firm, or a standard process for the transition from founder to new CEO. The story also highlights how a drug can be identified on the shelf of a pharma company, and ultimately be acquired for very little (in the case of Calquence, it originally was spun out of large pharma for just $1,000!), and that a single entrepreneur founder can have the opportunity to acquire a product, incubate it and bring it forward to a point where they then need to bring in someone else who can help bring it to the next level. We often refer to these client partners we work with in early stages as just “a physician and a molecule,” referring to a program early in its life prior to actually being an established start-up company.
Next, we’ll describe some key lessons we’ve seen entrepreneurs learn as they go through the process of identifying the profile of the first CEO, where to find someone and how to engage.
First, start with what’s needed as a skill set, recognizing there’s no one person who has all the necessary skills. As highlighted in Vardi’s book, there’s no set profile. Instead, it’s more a matter of what your program needs at that point and in the near future. Certainly, in most cases there is need for capital, so experience with and networks for fund raising are important; but is the focus on angel investors and high-net-worth individuals, or a larger Series A venture round or strategic pharma (or all of the above, as is often the case) and what will those investors be looking for in a new company? Recognizing that individuals may have strengths in one or more of these categories, what type of investors and relationships—and thus what type of road show—are needed? For example, is the first year focused on putting together a license deal on the drug or on a drug delivery platform for the lead drug candidate? Or is it focused on identifying and negotiating with the right contractors/partners to surround the project with, or managing your IP strategy and portfolio? Ultimately, being a strong project manager who can identify rate-limiting steps and key value-infection activities, and make good decisions, is necessary for the early CEO, since they’ll ultimately wear multiple hats. In “The Business of Venture Capital” by Mahendra Ramsinghani, the author provides a comprehensive discussion from the viewpoint of a venture fund, including how a VC performs due diligence on potential CEOs. From that perspective, while emotional intelligence and technical skills are important, those skills need to be matched with drive, the ability to define short term goals, rapid execution and the ability to simply get stuff done. When answering the question, a good way to look at it is: Is the project/company in a better place with this person as CEO? Also referenced in that book is a famous statement by Warren Buffet that the three key factors to look for in a CEO are integrity, intelligence and energy.
Talking with various individuals with different skill profiles will also help identify what type of person will fit best. Be patient. Make use of your networks, and the extensive unique connectedness within our small niche industry space of ophthalmology. It may be someone coming out of a recent exit from a large pharma firm, or transitioning from another development company. Consider this process as your first opportunity to pitch your project and then refine the pitch so that it ultimately will be polished when you eventually present it to investors and partners. We’ve seen companies shift indication selection, dosing and overall strategy based on the evolution of their discussions with CEO candidates and the subsequent refining of their plans. This can be a healthy process, as long as you keep the end goal in mind.
There are cases in which one individual may decline at first, but then, after repeated discussions and some time to explore and vet the opportunity with their own network, they become more excited about it and accept the position. Because the ophthalmology space is such a close knit industry, don’t burn bridges. If someone declines your CEO position (or you decide it’s not a good fit), and then you consider them for a subsequent project (because, of course, you are a serial entrepreneur), discussions will circle around again and that person could then be a great fit for that next project.
One person won’t have all the expertise you need for your venture, but you can get this expertise by bringing on other team members. Beyond the CEO role, you’ll want to surround yourself with the best team possible, which can be made up of consultants, independent members of the board of directors, scientific advisory board members and other management team members. You want some super connectors, and that’s a skill set that could be advantageous for a new CEO. You also may not need, for example, a chief medical officer at the beginning. Yet, if you’re maintaining an academic affiliation, your institution may have guidelines that you can’t take on executive “C-level” roles. Thus, you need to ask the questions: Do you need a chief medical officer? Can the role be satisfied through other means as above? Can you as the founder serve the purpose, or do you prefer to actually not take that responsibility on yourself? One question you may ask yourself is, if you don’t take a C-level position or title associated with an operational role, are you indicating to outsiders that somehow you are less involved, when the opposite may actually be true? In some cases, a founder may choose to sacrifice giving themselves a title, such as Chief Medical Officer, because that title could be offered to someone else and would provide an opportunity to attract stronger team members.
Approaching the Discussion and Structure
Be realistic: Is this role necessarily full-time from the beginning, or can it be part-time? Part-time may be perfectly adequate as you balance the compensation structure. How fast will the program proceed, and when (not “if”) will it require a full-time position? And is this first person expected to become full time and lead it for the duration, or are they filling a needed role to transition the company to the next step, at which time someone else with perhaps other or additional skills (such as experience building a commercial sales team) would come in to move the program to the next level at the right strategic time?
You may not be able to pay someone a salary from the start and this is particularly true if you have yet to secure funding. Also, some new CEOs want to see the founder (you) have at least some skin in the game as a sign of commitment, even if it’s just a minimal monthly stipend. Whatever you choose, it’s neither right nor wrong, but could depend on if the potential CEO is open to being compensated initially in equity with no cash component up front, or if they need some form of salary. It helps though to have a CEO that will be willing to go the distance and show their commitment, because when it comes to cash flow, as early development typically never goes according to the original plan and budget, it helps to know if that person will defer compensation in order to prevent running out of cash. Set expectations early. We’ve seen conversations drag on when there was large gap in the approach to compensation up front that should have been quickly addressed one way or the other.
The early stage isn’t just about what the CEO will get for compensation, but it’s also an opportunity for the CEO candidate to assess the founder, as well. The CEO will be responsible for building the team and managing the evolving cap table. What are the views the CEO candidate has for how the you should be compensated or involved in the future direction of the company? There are cases in which there’s a significant gap between what the founder expects to maintain as their own share and what the new CEO may expect. It’s all a matter of aligning on your overall philosophy.
In conclusion, you may have spent years developing and planning this enterprise, and now you’re making the decision to bring someone in as CEO. There are different views on what type of person may be a good fit, and it’s all about what’s right for your project and its ability to get to a value inflection point as efficiently and rapidly as possible. A key skill set comprises decision-making, risk assessment and management, the ability to rapidly execute plans, and experience in taking calculated risks. Can the CEO candidate perform the analysis necessary to make tough decisions even with incomplete information and move the program forward? One of the top jobs of the CEO is to find capital. Will they be able to represent you and the company in the way you want and to raise the needed funds? Is the candidate a super connector that will find the right expertise to bring in, and turn over all the stones needed to find funding, and make use of their own connections?
At end of day, it’s a partnership. Bringing someone into a project on which you’ve focused for months or years is a key decision that needs to be well thought out in order to create an effective partnership in which you both work well together.
Mr. Chapin is a senior vice president of the Asset Development & Partnering Group at Ora. Ora offers drug, biologic and device consulting; preclinical and clinical research execution, regulatory, and development and business strategy to support its clients.
Input on this column was provided by Joseph B. Ciolino, MD, associate professor of ophthalmology at Massachusetts Eye and Ear Infirmary, and founder of two start-ups, Fontana Bio and Theroptix. The author welcomes your comments or questions regarding product development.