Oct 2007: The CEO's Balancing Act




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Video title: Oct 2007: The CEO's Balancing Act
Released on: October 01, 2007. © PharmaVentures Ltd
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In This Episode:
    A good CEO in biotech, like all CEOs, has to have the ability to build cash reserves to enable the company to grow and provide a return to investors.
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A good CEO in biotech, like all CEOs, has to have the ability to build cash reserves to enable the company to grow and provide a return to investors. The problem for most biotechs, however, is that they do not even generate revenues, never mind generate profits. A good biotech CEO then, as a primary skill, has to have the ability to raise significant amounts of cash through successive rounds of equity financing, and, if available, debit financing. His or her second skill is then to transform that investment through value creation, that is, through good research and development of products and technologies.

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In biotech, what makes a good CEO? No doubt CEOs need multiple skills, but which one is the most important? Usually, CEOs report to the Board of Directors, which, in turn, represents the interests of the shareholders. Those interests include returning value to the shareholders. In normal businesses, which run on a standard profit and loss regime, this means bringing revenues in and returning profits, thus providing cash to the company to enable it to grow and become successful. The problem for most biotechs is that they do not even generate revenues, never mind generate profits. So CEOs have to focus on other means of generating cash, namely, through successive rounds of equity and, if available, debit financing. In addition to financing considerations, CEOs have to lead the company through its drug research and development activities. These activities are the value-creating component of biotech, from which the shareholders will get their return. The skills required for this process are important, and often involve tough decision making. "… a good CEO in biotech, like all CEOs, has to have the ability to build cash reserves to enable the company to grow and provide a return to investors. … a good biotech CEO has the ability to raise significant amounts of cash through equity financing, and through multiple sequential financings. His or her second skill is then to transform that investment through value creation, that is, through good research and development of products and technologies." Whenever I meet CEOs of biotechs, they seem to spend a significant amount of time talking to shareholders, investors and financial analysts, both proactively and reactively. This can be a very demanding job. Does this activity distract the CEO from his or her other activities? Yes, but CEOs are dependent on their investors for future rounds of financing, and, consequently, they simply cannot ignore this activity. So what primary skills should a CEO have? In the end, a good CEO in biotech, like all CEOs, has to have the ability to build cash reserves to enable the company to grow and provide a return to investors. In my view, a good biotech CEO has the ability to raise significant amounts of cash through equity financing, and through multiple sequential financings. His or her second skill is then to transform that investment through value creation, that is, through good research and development of products and technologies. The really necessary skill set for a biotech CEO, then, is that of being able to raise sufficient cash to bring the company to the next key milestone, which will, in turn, enable the raising of more cash. -Fintan Walton, Chief Executive Officer, PharmaVentures Ltd.
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