Guest Commentary

First-time CEOs must stop doing what made them successful: Guest Commentary

Practical advice for first-time biotech CEOs

Cowen’s Werber and Smith offer practical advice for first-time biotech CEOs based on interviews of their peers and colleagues.

First-time CEOs of biotechs must not fall in the trap of continuing to excel in the domain areas their career success has been built on. Effectively stepping up to the chief executive role requires getting uncomfortable.

That was one of the more surprising takeaways of research Cowen conducted that asked dozens of experienced and new CEOs, other C-suite executives, board members, venture capitalists and investors about what makes first-time CEOs successful.

The results were published in our October 1, 2020 Ahead of the Curve® Series report entitled: “The First-Time Biotech CEO: A High-Wire Act.”

The need for first-time CEOs remains high as new company formation continues to outpace the cultivation of experienced CEOs.

These new leaders bring a variety of strengths to the role that are invariably skewed in one direction or another based on their prior positions. What they have in common, according to the industry leaders interviewed by Cowen, is an urgent need to give up some control in precisely those areas – because being a CEO is about being a coach, not about being a star player.

Successful serial CEOs noted that first-time CEOs can be so afraid of making mistakes that they inadvertently micro-manage their teams and find themselves becoming a type of manager that they did not intend to become. The more experienced executives said learning to be more hands-off is key to creating the space that a first-time CEO needs to delve into more uncomfortable – but productive and necessary – territory.

What first-time CEOs need to be doing, they said, is spending much more time crafting strategy, focusing on execution, and promoting culture.

Thinking strategically

It may seem banal, but the importance of a strategy can’t be overstated — not every company has one.

While many executives are domain experts, a key point of differentiation is whether they can think strategically, meaning they can assess what the future will look like and plan based on different scenarios.

A CEO should dual-track the future. In other words, they should prepare for success but have a backup strategy in case clinical data or research results do not yield the anticipated results.

A sound strategy requires establishing a balanced and appropriately derisked pipeline, plus a financing plan that is integrated into the development plan.

Key to the short- and long-term success of any biotech company is its pipeline. Even the most highly respected scientific staff and unquestionably competent corporate executives are bound to face uncertainty and surprises as drugs move through clinical trials.

We argue that a minimum of two to three well-balanced assets are essential to derisking the pipeline, particularly in early-stage biotech companies. These programs should have clear differentiation over incumbent drugs or be market- or segment-building.

Successful CEOs recommend spreading risk by incorporating programs that target differently sized patient populations in different therapeutic spaces to provide optionality.

It’s critical that this development plan, and the timing of key milestones, be intertwined with the financing strategy.

Reliance on any single major catalyst as a key launching point for financing carries unnecessary risk. It is wiser to build in options, deliberately space out data readouts, and attempt to marry risky data releases with those from studies with a higher probability of success.

In our interviews, some first-time biotech CEOs viewed investors as a necessary evil: a clear misperception that creates missed opportunities.

The finance industry, both private and public, can be a resource and partner. It is staffed by highly sophisticated professionals who have in-depth experience analyzing which programs and strategies will work and which might come up short. They have a wealth of knowledge that is oftentimes not easily replicated within biotech companies, especially small ones.

Flexible execution

Each company will face a unique set of challenges and circumstances. Especially for platform and development-stage biotechs, the difference between success and failure is razor-thin. Oftentimes, the difference is in a single decision on which drug to prioritize, which manufacturing platform or vendor to choose, which technology to pursue, or which C-suite executive to hire.

We argue that a successful CEO must not only evaluate these challenges and communicate a clear plan to navigate them, but also define in concrete terms what success and failure look like at each step of the way.

Understanding when, where and how to raise capital, and what could constitute key value-driving milestones, are not always fully appreciated by new CEOs.

CEOs must be both tactical and opportunistic as they weigh their potential paths to success. In our interviews, successful first-time biotech CEOs highlighted the need for flexibility. One said that opportunity should always trump strategy, while another stressed that biology is not disposed to work in the way that you hoped.

What is perhaps the most important differentiator between success and failure is how options are evaluated and decisions are made. Successful CEOs effectively lead their teams to make the best decisions possible: those based on sound analysis and thought that are not knee-jerk reactions made under stress.

There are two conflicting schools of thought about where things go wrong in biotech.

The first blames paralysis by analysis, wherein no decision is made as analyses are done until projects die on the vine. In the other, teams are too comfortable making big decisions based on limited information, when a much better decision can be made with a more thoughtful approach.

The key difference between success and failure is having enough process and structure to ensure that decisions are made only after proper consideration, but without over-analyzing such that innovation is stifled.

From our conversations, we surmise that establishing a process for decision-making is easier said than done. Having the right culture of debate and commitment to excellence is crucial. 

Building culture

CEOs must invite honest feedback to avoid having filtered information bubble up to them that is aimed to please. Openly airing concerns and encouraging debate to stress test assumptions should allow the CEO to make more informed decisions.

Multiple executives we interviewed noted that successful companies have a culture where major areas of disagreement are probed.

Those that refrain from open debate or disagreement and ignore issues often find themselves facing huge elephants in the room. In our view, elephants tend to grow unless they are given attention and kept small. Successful CEOs must commit to building a culture that emphasizes the importance of making the right decisions.

Because company culture tends to be set from the top, creating a culture that values an open exchange must start with transparency on the part of the CEO when laying out the strategy and execution plan. Biotech CEOs should foster a working environment that welcomes debate, thoughtful analysis and planning to boost their chance for success.

While this seems trivial, it can be frustratingly difficult to implement as decisions are often made under pressure with limited information. At times, the people making the decisions do not fully grasp their implications for the broader company strategy.

The CEO must be able to articulate all parts of the strategy to all parts of the company and hold each team member accountable for his or her contribution.

Yaron Werber is a managing director and senior biotech analyst at Cowen and Company, and Brendan Smith is an associate in equity research at the firm.

Signed commentaries do not necessarily reflect the views of BioCentury.