Growing an R&D-intensive life science business

Yogan A Patel, Head of Life Sciences/Pharma/MedTec and Kanika Mishra Pathak, Tax Director at MHA, the UK member of the global Baker Tilly network discuss some of the key financial and business planning matters essential to fast-track your business.

Research takes place in each of the four sectors of the economy: government, higher education, not-for-profit organisations and commercial businesses and it drives innovation of new technologies that save lives and bring economic growth.

A strong research environment is dependent on high quality academic institutions, collaboration between the four sectors of the economy and the ease with which research such as laboratory and clinical trials can be conducted. Clustering and collaboration between the sectors can accelerate innovation. This view was also recently endorsed by Pam Garside, Chair of Cambridge Angels who said "There are a few extraordinary ecosystems clustering universities, entrepreneurs and investors, and not just in the golden triangle of Oxford, Cambridge and London, but throughout the UK – we must nurture them.”

As if to underline the above point further, the early phases of a company’s or project’s life cycle encompasses everything from ideation to prototyping and patenting. Sometimes this also happens even before company formation and very often all within the confines of university incubators before a decision is taken to commercialise through possibly a spinout or license a technology.

At MHA, we have seen first-hand the importance of incubating and nurturing founders of early-stage companies. We have worked with leading universities Imperial College and UCL to support start-ups and help the entrepeneurs understand the complex financial environment they find themselves in. In particular, the move away from an incubator can present a significant and challenging change from the supportive atmosphere of an incubator to an external world where costs can quickly build up and valuable R&D time might need to be devoted to wider management activities.

The key to growth is very much about balancing the need to keep up the momentum on R&D while also focusing on commercialisation and this is where many founders and management teams find the transition difficult. MHA has helped start-ups and early-stage R&D-intensive businesses to plan for and achieve their growth ambitions and a key starting point is often about assigning roles to the right people. If a person’s expertise and soft skills are strongly skewed towards intensive research and not people management or commercial negotiation, it is important to identify another person within the team or externally, who can manage stakeholders, especially investors and other external collaborators. Bringing someone from outside the initial team with the right skills can fast-track the company!

So, let’s highlight some of the key considerations involved in planning for growth that are relevant to those scaling a life science business including matters around people management.

Ideation to commercialisation

As mentioned, a challenge that R&D-intensive companies struggle with is taking transformative innovations to market and commercialising the underlying IP.

This is understandable as commercialisation requires a different skillset and early-stage companies are often missing the commercially experienced staff and advisors necessary to help guide them on their growth journey. In line with this, recognising people’s strengths and weaknesses is best cleared at an early stage, even more so when talking to investors who are buying into the team as much as the IP. Having the right commercial people on board will also help to navigate the financial landscape and exploit the various funding opportunities including R&D tax credits, making the most of the tax-efficient SEIS/EIS investor schemes and potentially even M&A activity. On this last point, this is more a reference to what some people refer to as ‘big brother’ investors; larger established life science businesses, private equity houses etc that want to invest in the IP and already have the commercial resources to exploit the IP as it develops over an extended period that can typically be around 10 years or so.

Whether or not a spin-out becomes part of a larger entity at an early stage, another important move is to ensure that the business can plug into a wider eco-system similar in many ways to an incubator, but containing more established scale-ups and larger businesses that are open to collaboration and the sharing of resources. Professional advisors like MHA can help to make introductions to these ecosystems or clusters.

Going back to our earlier point regarding the expectations of investors and what they are buying into, they typically want to see evidence of robust financial plans that cross-refer to new product development and key milestones. Bringing in an experienced, knowledgeable advisor or a director to help advise and guide a management team on this is a wise investment that pays dividends in the long run. In some cases, they may also “open doors” to funders etc.

Internationalisation as a growth plan

We have been working with many of our clients since they were start-ups or early-stage SMEs. Many were attracted by the breadth of expertise within our team and the global connectivity we have through the Baker Tilly network. We have been able to make introductions and connections through our global network across key Life Sciences and MedTech markets including the United States, France and Germany. As well as opening doors to valuable connections and collaborations, particularly for those companies working on matters like gene sequencing and the application of AI to diagnostic challenges, we have also been able to help businesses accelerate market entry via private health systems in overseas markets that whilst are smaller than the single NHS market, have proven to have a less lengthy adoption and approval process.