Jason Burke | June 19, 2023
Can life sciences organizations continue their amazing growth trajectories?
With 2022 demonstrating $90B of deal values in play, the health and life sciences ecosystem has proven relatively resistant to recessionary forces. But market headwinds such as rising inflation, the war in Ukraine, banking sector volatility, rising energy prices, and increased geopolitical tension with China are exerting their influence on investment priorities in 2023.
To meet fund objectives in this market context, investors such as private equity firms are increasingly pursuing a combination of tuck-in acquisitions and asset operational improvements that offer a balance of top-line growth and sustainable performance. To maximize value for these deals, many life sciences companies are engaging growth partners to help them develop and execute strategies and business plans that support their investment theses.
Partners in Life Sciences Value Creation
A life sciences growth partner works in deep collaboration with an organization’s C-suite, investors, and board members to develop and execute a program of value creation and enhancement. An effective partner brings proven disciplines in areas like strategic planning, organizational development, change management, information technology planning, and executive coaching in an integrated program that helps leaders achieve their growth goals and realize each investment thesis.
Both executives and investors benefit from this partnering approach. Senior business leaders gain both additional capacity and deep expertise to help them “on the business” while their operational teams are focusing “in the business.” Investors benefit from having additional advisors in their network that can help drive value creation and reduce risks.
Below are five ways an effective partner can help life sciences organizations grow.
1. Aligning Leadership Teams
Capitalization events are often a trigger for adding a growth partner. These events don’t just introduce new capital – they mark the beginning of a new growth phase. As leaders begin to collectively orient to the new future, there is a lot of work to be done in clarifying “how” the organization will get there:
- How will we build out the capabilities needed to deliver the future state of the business?
- What are the most important issues we need to address in the next 90 days?
- How will we orchestrate and manage culture and change?
When leadership teams align on the vital few things with the greatest impact, organizational growth accelerates. A growth partner that can bring proven approaches to strategic planning and leadership team development that help leaders and their investors develop and execute that aligned plan of action.
2. Driving the Investment Thesis
One of the areas in which leadership teams need strong alignment is the investment thesis. Life sciences businesses are complex, and business leaders are constantly balancing between pursuing longer-term goals and addressing current state challenges. Despite that complexity, the hypothesis for how an organization can increase its value is usually based on less than five strategic imperatives. That hypothesis must be proven, so life sciences growth partners help organizational leaders align and execute plans aligned to the investment thesis. They also help re-assess and adapt strategies and tactics based on what the company learns.
3. Prioritizing Growth Investments
There are always more opportunities for growth and improvement than there are people, time, and money to pursue them. So how does the team decide where to place their bets? Some leaders will sensibly gravitate towards whatever opportunity is connected to more revenue. But many experienced growth leaders recognize that operational improvements – increasing the efficiency, effectiveness, and scalability of functions like clinical research, sales, marketing, manufacturing, client delivery, IT, HR, and finance – are not only required for growth but are often an attractive path to value creation. This work can be initiated at any point in a company’s growth journey, though it can be accelerated when assessed during due diligence.
4. Managing Cultural Change
One of the biggest challenges that company leaders of recently capitalized companies and their investors face is culture. When businesses get (re-)capitalized, a flurry of cultural forces get unleashed: new investors, new leadership teams, new M&A opportunities, and new performance expectations. Yet at the heart of all that activity resides the company’s people, many of whom contributed significantly to the value creation to date. In short, they know how to make it all work. And they are very hard to replace. It is critical to bring them along into the new, bright future. Engaging and enrolling the workforce – and preventing value erosion due to change – must be a top-of-mind concern for any responsible board and leadership team.
5. Cultivating the Management Operating System
As companies grow, their approaches to business management and oversight must evolve. Leaders invariably find that management tactics that worked well for a company of 50-75 people don’t work as well for a company of 200-300. Issues such as investment prioritization, aligned planning, meeting cadences, governance models, performance tracking, and communications require thoughtful design and orchestrated processes to effectively scale up and support the company’s needs. A central aspect of making this work resides with the management team itself. How will they operate as a team? How do they maintain alignment as issues emerge? Defining and implementing a clear management operating system – one that is right-sized for the organization and strikes the right balance of strategic and operational concerns – helps management team members operate most effectively as leaders.
Finding a Great Growth Partner
So what makes a great life sciences growth partner? Here are 4 qualities to consider:
Seasoned Industry Operators. Leadership teams often engage external advisors with the expectation that their project team will be staffed by industry veterans with decades of operational experience. Unfortunately, the team that often shows up looks more like consultants trying to think like operators rather than proven operators serving as valued advisors and implementers. When it comes to driving value creation in complex business situations, there is no substitute for operational experience.
M&A Experience. Regardless of whether inorganic growth is planned, there is a lot of value in leveraging the expertise of a partner with due diligence and post-merger integration experience. Partners that have successfully navigated M&A opportunities are more likely to be fluent in the issues associated with operational and cultural alignment. They are better positioned to spot and mitigate emerging risks, and they likely have experience communicating effectively with investors and boards. Importantly, they also know how to drive towards a value thesis, focusing on the right opportunities for unlocking adjacencies, capturing efficiencies, and developing economies of scale that contribute to sustainable value creation.
Multi-disciplinary Competencies. Life sciences organizations today are characterized by a complex, rapidly evolving mix of scientific advancements, regulatory changes, and technological innovations. For example, consider the field of oncology clinical research. Industry developments such as the Food and Drug Omnibus Reform Act of 2022, Project Optimus, and Project Frontrunner are redefining the way the industry is developing and manufacturing drugs and therapies. If you want to be a future market leader in clinical research, your organization will need an effective roadmap for developing the scientific, regulatory, software, security, and data capabilities required. More importantly, you need to see and understand the interdependencies between those disciplines. Partners that can bring multi-disciplinary perspectives together and “connect the dots” in that roadmap will noticeably accelerate value creation.
High-Velocity Engagement Models. Issues emerging from capitalization events are time sensitive. When leaders are not aligned, problems multiply. When unaddressed cultural issues evoke negative employee sentiment, that sentiment can become viral. Every transaction has a shelf life with a “use by” date. If you are within the shelf lifetime window, the investors, executives, and employees are usually pretty understanding about problems. No one usually expects all the issues to be solved overnight. But as the “use by” date approaches, patience can quickly turn to frustration and loss of confidence. The best value creation partners move fast: they have proven methodologies and can deploy them immediately. That speed translates into lower business risks and faster time to value realization.
Every growing life sciences company should consider engaging a proven growth partner. Management teams that are highly aligned in how they operate and where they focus are in the best position to accelerate value creation. Investors, executives, and employees – they all win.
