These have been difficult times for business lately and by all accounts the difficulties may continue for a while.
A number of my customers have attended tense meetings and/or received stern letters from their investors and VCs. The details and specifics vary, but across the board, the three main take-aways seem to be:
- Don't expect to raise additional funds for at least another year.
- Figure out a way to survive well into 2010. If that means painful cutbacks, so be it.
- Over the next year, find a way to create value. When the money starts flowing again, investors are going to be looking for the "sure" thing.
As critical as the first two points are, I don't have a lot of wisdom to add. I'd like to dig into the third point a bit. How do you build value while you're cutting budgets?
It's not a simple question and a detailed answer would need to tailored to the particular situation. So let's deal with some general principles here.
The most obvious way to create value is to gain a regulatory approval or clearance. For some companies, this is exactly the type of expensive project that will remain out of reach for the next couple years. For others, this type of project might be the one thing they can't afford to cut. At the risk of being overly general, odds are pretty good that approval projects are going to get delayed if they aren't already substantially underway. That's a shame, because the smaller crop of applications next year might create exactly the right conditions to be asking FDA for a little bit of flexibility.
So let's say approvals and clearances aren't on the agenda for a while. What are some less expensive ways to create value?
The next best thing to an approval may be to build your value as an acquisition or licensor. When the money starts flowing again, those with high-profile clearances might be first in line... but companies strong enough to acquire or license technology aren't going to be far behind them.
I can't play out all the possible scenarios here, so let's just pick one. Let's say I'm the CEO of a CLIA lab. Because I only sell results from LDTs, I'm (currently) exempt from most FDA regulation. I know I could start preparing for IVD MIA, but it's tough to justify allocating scarce resources on a regulation that isn't finalized. What would I do to build value?
I should be taking a good look at my underlying assets. Most likely, what I have is some IP. I have a test kit, probably an algorithm and some signatures. In my possession, they're the basis of a decent lab business. The longer those assets remain devoted to that purpose, the more I expose them to risk from IVD MIA. In the hands of a larger player, perhaps these same assets could be the components of a much larger or broader business. Maybe I can't afford a full approval/clearance process, but I'd like to be able to do business with companies who can.
Now I've got something I can work with. I don't need design control to sell LDTs, but my future licensee or purchaser does need to show design control. When they evaluate me as a potential partner, that's one of the first things they're going to ask about. If I don't have design control, I'm a less attractive partner or acquisition. Working on design control gives me a leg up on those who don't have it and therefore increases the sale/license price of my assets.
That's just one of many possible examples. The bottom line is that regulatory strategy can increase value even when a full application process isn't in the cards.
Tags: Design Control, IVDMIA, QSR
