Biotech boards burdened: Bridging the success gap
Based on our numerous conversations with board members and CEOs, we surmise that biotech boards are facing busy meeting agendas with a multitude of topics ranging from governance, financial audits, and budget reviews to compensation and board nomination work. While it is the job of the CEO to outline strategy and plans for the business, the board is tasked with pressure testing those proposals to ensure that they are sound. Often boards do not have ample time to review materials in advance, there is inadequate time for discussion or proper debate during the meeting, and members lend their support without having all the information in real time to assess underlying assumptions.
Filling The Success Gap
As biotech boards are faced with challenges given technical complexities and binary outcomes, overcoming the Success Gap requires expertise, transparency and debate, which are not easily accomplished.
The Success Gap is the chasm between the level of information, data, analytics and assessment that is presented to the board relative to the kind of analysis and depth of understanding that must be provided to the board when it is making decisions. This is the gap between well thought-out decisions and those that are made under time pressures or with imperfect information. In our conversations and based on our research on the topic, it is evident that many board members feel that they are not sufficiently knowledgeable about key drivers and are not able to get independent information about the company. In many ways, the board is largely educated on the business by the CEO and is reliant on the accuracy, insights and objectivity of the proposals that are presented.
Time To Take “SOCK” Seriously? Because Strategic Operational Items Can Be The Difference Between Success And Failure
We argue that having ample oversight on strategy may be the most likely determinant of future success or lack thereof. We advocate that a new Strategic Operations Coordination TasKforce (fondly named “SOCK” as a friendly form of SOX) should be required for each board. This will be a subset of the board that will examine in detail the merits of certain projects, strategic initiatives, potential deals or critical operational considerations such as major clinical/scientific decisions. This group will not handle these items in lieu of the board but would rather ensure that the board is well prepared to discuss these issues when they come up for a broader discussion. In essence, the role of SOCK is to vet these inputs ahead of time to bridge the Success Gap.
Unquestionably this idea will be controversial. But boards are already hiring external experts to help with audit and compensation among other items, and we advocate that the SOCK taskforce should also be able to hire external experts to help ensure that there is careful oversight of decisions that can translate into success or failure of the company.
Questions For Investors And Boards To Keep In Mind To Overcome Misconceptions
Investors in the biotech sector do not always have access to boards and many board members are not necessarily experienced with how investors attribute value to companies in the public market. Not surprisingly, this can lead to some misconceptions and confusion. There are several questions that may jump-start a conversation to build understanding between the two sides. Investors should consider how the board is structured, its level of independence, and its level of operational biotech expertise.
We propose that board members keep a keen eye on how investors evaluate their companies, what the value proposition is relative to competitive technologies or drugs and get a clear sense of the drivers of the value creation relative to what investors are looking for. In cases where there is a wide gap between the internal and external view, getting a deep understanding of why there is external skepticism may help the board and management fill in those gaps. In cases where it is not possible to fill the gaps, the board may want to consider what is missing from the internal view and whether key internal assumptions have been vetted adequately.