company life stages

5/22/2018 Company Life Stages

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MODULE 1:

COMPANYS LIFE STAGES

The complex process of taking a biotech product to market requires a general counsel or lead

outside business lawyer who takes the long view to product development and understands the need for

different types of legal expertise along that path. With this focus on expertise, the biotech life cycle can

be divided into four phases:

start-up, early development later-stage development and product approval, and maturity.

Start-up phase:

The start-up phase has two distinct elements: idea inception and company formation. Ideas drive

biotech companies, which convert scientific discoveries into products. Significant investment is

necessary to grow and protect the intellectual property.

IP Protection Failure to protect IP creates great risk and can foreclose future business opportunities. It

is important to find IP counsel with appropriate expertise (patent, trademark, and

copyright) and involve them early in both product development and strategic business

planning. IP planning involves more than just the specific product. Early involvement

helps to find gaps and protect related products and applications.

Company Formation and Investment Capital Strategic biotech company formation is critical to keeping the company, its key

executives, and its scientific brain power together for the entire life cycle from idea

formation to market, which can take more than ten years. Counsel must think ahead in

setting up and planning adjustments to corporate form in order to anticipate the future

business issues. Pick outside counsel who offer sophisticated advice in technology and

capital markets, and in the legal risks associated with new investors. The challenge is toform a company that protects the founders interests while also remaining flexible and

attractive to essential investors.

Management Outside counsel often can assist in finding senior management candidates and selecting

a strong board of directors and science advisory board. The right combination of


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business and scientific Management Outside counsel often can assist in finding senior

management candidates and selecting a strong board of directors and science advisory

board. The right combination of business and scientific management will help guide the

company during the tumultuous early years and create a business dtente between

investors and inventors.

Early development phase:

Phase II is marked by the start of the regulatory process, the all-important search for development

partners and investment, and the transition from an informal effort to a complex organization.

The Regulatory Path Regulatory approval usually requires years of testing and trials. Missteps in developing

agency relationships or complying with regulatory protocols can cause serious delays

that strain the time/money critical path (the companys ability to maintain its schedule

and meet its funding deadlines in time to satisfy its developmental and regulatory

obligations). A Food and Drug Administration legal expert can help the company plan for

this process and appropriately place the product within FDA guidelines.

Business Growth and Complexity Once the fledging biotech company grows beyond the founders, it becomes a more

complex business organization, complete with employees and consultants with their

own agendas. Employee and consultant agreements that reward success, as well as

protect IP and avoid competition, are critical. Courts generally dis-favor non compete

agreements, so it is important to tailor such agreements narrowly to the companysspecific needs. These preventive efforts may not stop the departure of brain power but

might prevent loss of critical IP.

Phase III- Development and product Approval

The earlier phases of the process are a mere warm-up for the all-crucial clinical trialsand agency approval. Navigating clinical trials requires legal proficiency in various

regulatory disciplines and a great deal of money. In addition to FDA approval (and

European Medicines Agency approval, where needed), the company often must satisfy

other agency requirements and ensure that the product is thoroughly vetted for

reimbursement approval with Medicare, Medicaid, etc. FDA approval requires the

company to satisfy research protocols, product testing, clinical trials, record keeping,

marketing, labelling, and packaging. Business counsel will need support from additional

lawyers in these specialties.


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Phase IV- Mature companychallenges facing

Successful completion of clinical trials is not the last regulatory hurdle to market entrance. Postapproval regimens require extensive monitoring, record keeping, and reporting of trends in

treatment. In addition, marketing usually requires partnership with local distributors or

combination treatments with other products.

Commercialization An approved product makes a company more attractive to outside investors and other

large established biotech corporations. This is the point at which many biotech

companies investigate strategic alternatives, such as a merger or initial public offering.

In addition, the international marketplace requires compliance with separate regulatory

schemes in each new jurisdiction. Since the companys exclusive IP right to produce and

market its product is limited to a term of years, stand still and die should be a warning

for every biotech company. The company must leverage that limited monopoly through

marketing licenses, additional product applications, and new follow-on products.

Achieving these objectives requires a legal team effort.

Litigation In addition to typical civil litigation, biotech companies often face claims relating to IP

rights, licensing or marketing rights, and the safety of the products. The commercially

successful product may entice infringers. A strong IP enforcement program can deter

infringement and increase company value. Likewise, continuous monitoring of product

performance coupled with responsible action can deflect potentially crippling product

liability suits, protect the brand, and ensure customer and investor confidence.

Conclusion

Biotech has expanded from the largely exclusive realm of a few major corporations and researchorganizations to include a multitude of new biotech entities looking for a stake in this boom.

Biotech legal practice involves specialized subject matter and regulatory schemes that are not

part of most counsels repertoire. Knowing when to consult other legal experts is critical to the

long-term success of the biotech company.


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Seed:

The seed stage of your business life cycle is when your business is just a thought or an idea. This is

the very conception or birth of a new business.

Challenge:Most seed stage companies will have to overcome the challenge of marketacceptance and pursue one niche opportunity. Do not spread money and time resources toothin.

Focus:At this stage of the business the focus is on matching the business opportunity with yourskills, experience and passions. Other focal points include: deciding on a business ownership

structure, finding professional advisors, and business planning.

Money Sources:Early in the business life cycle with no proven market or customers thebusiness will rely on cash from owners, friends and family. Other potential sources include

suppliers, customers, government grants and banks.

Start-up phase:

Your business is born and now exists legally. Products or services are in production and you have

your first customers.

Challenge:If your business is in the start-up life cycle stage, it is likely you have overestimatedmoney needs and the time to market. The main challenge is not to burn through what little cash

you have. You need to learn what profitable needs your clients have and do a reality check to

see if your business is on the right track.

Focus:Start-ups require establishing a customer base and market presence along with trackingand conserving cash flow.

Money Sources:Owner, friends, family, suppliers, customers, grants, and banks.Growth phase:

Your business has made it through the toddler years and is now a child. Revenues and customers are

increasing with many new opportunities and issues. Profits are strong, but competition is surfacing.

Challenge:The biggest challenge growth companies face is dealing with the constant range ofissues bidding for more time and money. Effective management is required and a possible new

business plan. Learn how to train and delegate to conquer this stage of development.

Focus:Growth life cycle businesses are focused on running the business in a more formalfashion to deal with the increased sales and customers. Better accounting and management

systems will have to be set-up. New employees will have to be hired to deal with the influx of

business.


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Money Sources:Banks, profits, partnerships, grants and leasing options.Established:

Your business has now matured into a thriving company with a place in the market and loyal

customers. Sales growth is not explosive but manageable. Business life has become more routine.

Challenge:It is far too easy to rest on your laurels during this life stage. You have worked hardand have earned a rest but the marketplace is relentless and competitive. Stay focused on the

bigger picture. Issues like the economy, competitors or changing customer tastes can quickly

end all you have work for.

Focus:An established life cycle company will be focused on improvement and productivity. Tocompete in an established market, you will require better business practices along with

automation and outsourcing to improve productivity.

Money Sources:Profits, banks, investors and government.Expansion:

This life cycle is characterized by a new period of growth into new markets and distribution

channels. This stage is often the choice of the business owner to gain a larger market share and find

new revenue and profit channels.

Challenge: Moving into new markets requires the planning and research of a seed or start-upstage business. Focus should be on businesses that complement your existing experience and

capabilities. Moving into unrelated businesses can be disastrous.

Focus:Add new products or services to existing markets or expand existing business into newmarkets and customer types.

Money Sources:Joint ventures, banks, licensing, new investors and partners.Mature:

Year over year sales and profits tend to be stable, however competition remains fierce. Eventually sales

start to fall off and a decision is needed whether to expand or exit the company.

Challenge: Businesses in the mature stage of the life cycle will be challenged with droppingsales, profits, and negative cash flow. The biggest issue is how long the business can support a

negative cash flow. Ask is it time to move back to the expansion stage or move on to the final

life cycle stage...exit.

Focus:Search for new opportunities and business ventures. Cutting costs and finding ways tosustain cash flow are vital for the mature stage.


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Money Sources:Suppliers, customers, owners, and banks.Exit:

This is the big opportunity for your business to cash out on all the effort and years of hard work. Or it

can mean shutting down the business.

Challenge:Selling a business requires your realistic valuation. It may have been years of hardwork to build the company, but what is its real value in the current market place. If you decide

to close your business, the challenge is to deal with the financial and psychological aspects of a

business loss.

Focus:Get a proper valuation on your company. Look at your business operations, managementand competitive barriers to make the company worth more to the buyer. Set-up legal buy-sell

agreements along with a business transition plan.

Money Sources:Find a business valuation partner. Consult with your accountant and financialadvisors for the best tax strategy to sell or close-out down business.

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