Commercialization Street Smarts to Inform Your S-1 Business Sectionby Marnie Hoolahan and Jim Whalen, September 2020
Over the past several years, The NemetzGroup has worked with numerous clients to develop key aspects of their S-1 filings — coordinating with bankers, attorneys, internal staff, and many more attorneys, all with the goal of helping these companies achieve successful public offerings.
Within the S-1, effective crafting of the Business Section is critical. If you don’t do this well, your asset — along with all of the time, money, and sweat that has gone into it — may not be valued optimally by analysts. Your company, as a result, won’t be viewed as a favorable investment.
At its core, the Business Section is about persuasion. Yes, it is built on data, facts, research, science, finance, and any number of other objective measures. But those alone are not enough. If you want the novel science that you’ve developed to be highly valued by investors (hint: you do), you need to tell the story in a way that helps others see what you see and believe in the promise of your product.
The Business Section is comprehensive, and the commercial story is an effective element for sharing what the company does, how it does it (e.g., clinical data, intellectual property, government regulations, charitable involvement, legal proceedings), and how it anticipates generating revenue from it.
What Do You Have and Why Should They Care?
In marketing, it’s often said that the product is the story. When it comes to the Business Section, it’s the other way around — the story is the product. Stories are powerful persuasion tools in any and all scenarios.
Remember that the product is not yet fully developed at this point, and the full body of data is not known. Therefore, it’s essential to describe the problem, the unmet medical need(s), and how your drug or platform will contribute to solving (or minimizing) the patient burden or improving their outcome.
The story you tell must communicate competitive strengths and differentiation beyond the current standard of care (and any potential pipeline competitors). This problem-solving rationale is supported by the Target Product Profile (TPP), which serves to align the entire organization on the asset in development, as well as clearly establish potential competitive advantages relative to other products, based on targeted patient population, efficacy, safety, formulation, etc.
In other words, what have you got, and why should anyone care — let alone invest in you?
The Forecast Is the Thing
While the company doesn’t share actual forecast details in the S-1 (e.g., projected market share, assumed price), assumptions and sources are communicated so that investors can arrive, independently, at a valuation that is similar to what has been derived internally.
For the investor to see the opportunity as you do, you’ll need to convey key information, including:
The Target Population. Who are the patients that will use or benefit from your product? How many of these potential patients exist in the US, EU, and globally? Is there a segment of the population that could benefit more (e.g., genetically defined; mild, moderate, or severe segment; a patient who has failed other lines of therapy)?
The Prescriber. Who will prescribe or administer the therapy? Will any special requirements dictate where the drug is used?
For example, administration of a novel cell therapy will likely be limited to institutions with established bone marrow transplant capabilities (versus a community office or clinic). Contrast this with an oral breast cancer treatment that may be prescribed in the community. This gives the investor a sense of how large or small your target population is, its geographical distribution, and the ease with which you can achieve share of voice with the audience to drive adoption. It also provides clues about the size of the sales and marketing team needed to reach your targets, and the overall scale of the marketing effort required.
Current Treatment Options. Here, you describe the current standard of care (SOC) and define the limitations you seek to overcome with your therapy. Be sure to amplify the patient perspective of unmet need and desired benefit. This not only foreshadows your clinical advantage; it provides context regarding the pricing and reimbursement environment you will enter.
For example, if the standard of care for your target indication is a generic chemotherapy agent and you are introducing a novel monoclonal antibody, investors will understand the market access and reimbursement hurdles you will need to overcome and the impact such hurdles could have on rate of product adoption.
Competition. Define the competitive space and the position your product will occupy.
Pricing. At this stage, never share the potential price (or even what you are thinking) for your therapy. As Warren Buffet famously said, “Price is what you pay for, value is what you get.” When you have successfully convinced investors of the clinical advantages and improvement in treatment outcomes of your product, they will be able to make their own estimates of the economic benefits. Don’t share price until you have the full clinical data package and have conducted your pricing research (usually after Phase 3)!
- Utilize ranges. It is wise to present data such as patient numbers or current treatment costs as ranges, to avoid having to defend overly specific data points. For example, if your eligible patient population changes, or new information becomes available about disease prevalence (total population that has a disease), you don’t want to be in the position of justifying recalculations.
- Use well-established data sources. Industry audits, published studies, and rigorous epidemiologic information (e.g., NCI SEER) should be used to support message points since these are the sources the investment analysts will consult, too. (Your attorneys and auditors will require sourced content for any market claim, so make sure you keep an accurate source file and annotated references. This is a wise practice at all times.)
- Keep it simple. Make your case for value and commercial potential simple to understand — you want investors to see the world as you do. (As that famous S-1 Business Section writer Albert Einstein said, “Everything should be made as simple as possible, but no simpler.”)
- Walk before you run. The S-1 will be a primary source of information for news reports, analyst reports, and investor communications. So, practice before committing your commercial story to paper. Tell it to your C-Suite, Board, and trusted colleagues. Try it out in “testing the waters” meetings, analyst days, and the proverbial investor “roadshow.” Do everything you can to uncover weak spots and potential areas of objection and make sure your story resonates overall.
The IPO is a substantial milestone in the evolution of a biopharma company. (It is also a personal triumph to cross the finish line, albeit slightly sleep-deprived and with the desire never again to receive a phone call or read an email from auditors or attorneys.)
The S-1 — and its Business Section in particular — is your opportunity to help investors see and understand the significance and potential of what you intend to bring to market.
Your success in adequately communicating your product’s value will forever impact the way in which your company operates. To the degree that focusing on patients is part of your mission, developing medicines that serve them requires the financial resources that only investors can provide.