By Ankit Mahadevia, serial biotech entrepreneur and former CEO of Spero Therapeutics, as part of the From The Trenches feature of LifeSciVC
I recently had an illuminating discussion with a seed-stage biotech Founder, who was reflecting after a hard and fruitless few months of fundraising. A common theme of feedback (a detailed version of “too early”) recommended additional investments in characterizing the lead molecule (PK/PD, key experiments to show competitive differentiation) and hires on the team. However, the founder felt a bit stuck as he had deferred some of these investments to preserve cash and keep his second program alive; now there might not be enough time to change course and to raise a round.
Tradeoffs between cash runway and progress can often feel impossible to adjudicate. In this spirit, I recently read Mullainathan and Shafir’s Scarcity. The authors explain how individuals can act against their longer-term self-interest when they over-prioritize short-term scarcity in decision-making. One illustration of the “scarcity mindset” (I neither confirm nor deny firsthand experience): a busy founder keeps postponing that one-hour refrigerator repair until it breaks down, requiring many more hours of remediation. While foolish in hindsight, it did seem rational to save that hour in the moment. This post highlights “scarcity mindset” moments from my experience as a Founder, investor, and board member, where saving incremental capital now can have implications for your next financing round or clinical study that are hard to mitigate.
Pipeline breadth vs. lead program depth: Advancing a lead program is expensive. Especially for platform companies, cutting from the lead to enable breadth can feel rational in the short term. New programs are often cheaper than required investments as a lead program advances (CMC, tox, NHP studies) and can look impressive on a pipeline chart. Further, drug development is risky, and each program feels like another chance to win. However, this tradeoff can have deeper implications. For example, I’ve seen teams hollow out the depth of the in vivo and PK/PD work on the lead to free up capital. Since your lead program will drive value creation for a company, an investment in that NHP study or a battery of mouse PK/PD work to justify your clinical dose and create permission to believe is far more likely to position you for success than a bevy of less justified pipeline programs. I’ve also seen teams slow-play backup molecule, CMC, and other investments that drive speed to clinic readiness. How fast your lead can get to the clinic is a far bigger driver of future financing and therapeutic relevance than the pipeline. Strategically, how comfortable you are with going deep on your lead speaks to how well you’ve analyzed the opportunity. Ironically, this type of thorough opportunity analysis is another domain in which it’s easy to under-invest under short-term capital pressures.
Clinical and commercial positioning for the lead program: In prior posts, I’ve argued about the importance of thinking early about positioning your drug clinically and commercially. Regardless of the technical merits, a drug is not worth advancing if doesn’t make a difference for patients. Tactically, though, if you are worried about how to pay for your next experiment, it does seem logical not to spend on mapping where your program is headed. These investments, however, are typically minor in comparison to the strategic clarity and external credibility they bring. For example, these investments could include the right dataset to map the size of a therapeutic market, or incremental time from a clinical advisor to help think about the treatment landscape and the right first-in-human trial. When these analyses are done well, they typically increase the probability of future financing by illustrating the opportunity and depth of the management team. Further, they enable you to work backward to think about what investments (CMC, tox coverage) are needed for a plan that maximizes your drug.
Depth of team experience: In the quest to stretch the budget, I’ve seen Founders downgrade the experience level they are looking for in key functions (chemistry, translational, CMC, etc.). While experience comes at a price, experienced hires make contributions across disciplines far beyond the incremental cost of hiring them. This includes a network of relationships, firsthand experience that accrues to the team’s collective judgment, and contributions beyond their discipline. Further, more experienced hires are more likely to scale as the company scales; even if a company saves incrementally now it will likely need to hire later. Importantly, other things equal, a team with deeper experience has a higher likelihood of attracting the next financing round. A bias towards experience comes with all the usual caveats – some hires are just too senior for a given stage; cultural fit and a willingness to roll up one’s sleeves are criteria that come before experience. If experienced hires aren’t right for a company, an alternative is to bring in the right consultants or advisors to complement the team.
Proceeding practically: I suggested to the Founder who regretted his capital allocation strategy not to be too hard on himself. If capital allocation were easy, everyone could do it. The tradeoffs founders need to make are challenging and whether a tradeoff was right can sometimes be unclear for months. Here, your Board and a good set of advisors can be helpful because they’ve owned many of these tradeoffs before. It also helps to remember why we build therapeutics companies in the first place. Investments that help accelerate the likelihood of getting a drug to patients (by extension the necessary next rounds of financing) are typically the right call.
My thanks to Zach Weinberg and Ben Auspitz for their input and review of this article
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