Entrepreneurship: Types of Organizations & Innovation

• Entrepreneurship involves organization, innovation, and resources

Types of Entrepreneurial Organizations

• NewCo is a new for-profit company created to access or create new markets
• NewUnit is a new subunit within an existing for-profit company, also known as intrapreneurship
• NewOrg is a new not-for-profit organization

Four Types of Innovation

• Sustaining Innovation: Aims to improve an existing product to sustain its position in an existing market
• Disruptive Innovation: Involves technology or a new business model that disrupts the existing market
• Incremental Innovation: Involves gradual, continuous improvements to existing products/services.
• Radical Innovation: A technological breakthrough that transforms industries and often creates a new market
• High novelty and high market impact correspond to disruptive innovation
• Low novelty and low market impact correspond to incremental innovation
• High novelty and low market impact correspond to radical innovation
• Low novelty and high market impact correspond to sustaining innovation

Four Ingredients for a Successful Entrepreneurial Venture

• Opportunity
• Problem
• Solution
• Pivots/adjustments/evolution allows adaptation to internal and external environments

Experimentation Loop

• Begins with customer discovery
• Proceeds to creating a minimum viable product which is a prototype to address a need
• Followed by feedback
• Then pivot, adjust, and evolve, and repeat the process

Internal Stakeholders

• Team
• Family/support network
• Board of directors
• Scientific/clinical advisory boards
• Service providers like law firms, investment banks, accountants, and insurance brokers

External Stakeholders

• Patients and their support network
• Physicians
• Pharma companies
• Payors
• Patient advocacy foundations
• FDA
• Investors

Three Stages of Any Entrepreneurial Venture

• Inception
• Creation
• Scaling

Role of Proximate Founders and Leaders

• Possess firsthand knowledge of their customers and stakeholders

CEO Responsibilities

• Accountability
• Vision: purpose, values, goals (3-5 years), strategy
• Team
• Communication
• Decision making
• Financing

Financing Overview

• Grants provide funding without giving up equity or markets, often from government or non-profit foundations
• Investments provide funding in return for ownership (equity), from private or public sources
• Business development partnerships provide funding in return for markets and/or product ownership, through payments and fields

The Biopharmaceutical Ecosystem

Overview of the Biopharma Industry

• Biotech companies focus on treating more targeted patient populations, have lean global infrastructures, and focus on core competencies within specific therapeutic areas.
• Pharma companies are diversified, have global infrastructure, and are staffed with a large number of employees
• 71% of biopharma companies are startups.
• There has been a 2.5x increase in drug approvals from 2005 to 2024, mostly driven by biotech (not pharma).
• These approvals focus on oncology, immunology, rare diseases, and CNS, among others.
• Key locations include South SF (birthplace of biotech), SoCal, SF, Boston, NY/NJ, Europe, and China (with significant recent growth).
• There is rising competition from China.

Centerview Partners (Investment Bank)

• Assists in raising capital
• Provides mission-critical strategic advice and assists in M&A

Biotech Entrepreneurship & Financing

• The average cumulative probability of success is 10%

Cycle for Innovation

• Company formation involves creating new biotechs based on biological insight with VC funding
• Financings such as IPOs and equity offerings access additional capital to fund further R&D and regulatory expenses
• Business development involves partnership deal execution
• M&A involves large pharmas acquiring the most attractive companies
• Cash/Talent liberation involves returns and talent redeployed into the biopharma ecosystem
• The cycle then repeats

Funding

• All stages are accompanied by step-up in valuation as the company becomes more de-risked/valuable
• Founding involves seed funding
• VC firms raise larger tranches from VCs in rounds
• IPOs involve going public and accessing a larger capital pool from a broad investor base
• Execution involves continued raises from investors as needed
• Biopharma VC investment has dramatically expanded across total dollars raised, number of companies, and valuation
• Going public provides capital, publicity, and prestige
• It allows access to a larger pool of investors and capital, diversifies risk of ownership, lowers capital cost, and provides a liquidity event for early shareholders

IPOs

• Can signify reputational maturity
• Involve considering strategy, timing, leadership, and financial backing
• Boomed during the pandemic, then decreased

M&A in Biopharma

• M&A spending makes up approximately 50% of total R&D
• 8/10 top drugs in 2024 originated from M&A or licensing
• M&A is common to replace lost revenue from patent expiries and enhance/refill the pipeline.
• Drug discovery is difficult and expensive
• It allows to expand into new therapeutic areas
• Provides diversification and synergies by leveraging commercial infrastructure for existing drugs and becoming a preferred provider of important medicines for a key disease area

Patent Cliff of 2012

• One drug expiring may put a large percentage of revenue at risk
• Large pharma is typically in the best position to ensure the therapy reaches the maximum number of patients
• M&A removes all future risk off the table
• Locks in a significant premium to shareholders today.
• Commercializing is challenging for independents, and there are future risks for investors due to patent loss.

Small Molecule Therapeutics

Process of Developing New Medicines

• Identify a target (e.g., kinase)
• Initiate a discovery project by screening thousands of compounds
• Conduct clinical studies in phases to determine optimal safe dose, efficacy, and confirm statistical significance
• Present data to the FDA for approval

Timeline to Develop New Medicines

• Drug discovery phase takes 3-6 years, involving drug discovery, screening of 1000's of compounds and preclinical studies.
• Clinical trials take 6-7 years, involving phases 1-3, 5-10 compounds, and increasing numbers of volunteers
• FDA review and large-scale manufacturing take 0.5-2 years

Cancer Drugs as Examples

• Regorafenib sales (Onyx vs. Bayer)
• Vemurafenib and Plexxikon vs. Novartis are RAF kinase inhibitors for tumor metabolism blockage
• CSF1R (e.g., Pexidartinib) is a receptor tyrosine kinase whose proliferation causes TGCT tumor of joints

Targeting Master Regulators

• Differentiated BET inhibitor OPN-2853
• A drug for Myelofibrosis
• Best in class EP300 inhibitor OPN-6602
• FMRP enables tumors to evade immune destruction

Pulsatile Course of Therapy

• Involves high C-max and short half-life for continuous oral dosing

Critical Learnings

• For a small biotech company, partnerships are critical
• Precision medicine enables focused clinical benefit
• For key regulators with broad impact, optimizing PK may be critical
• Teamwork is essential