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start-up challenges

Top 25 insights: start-up challenges

Eight leaders of the Top 25 Science Meets Business R&D spin-off companies answer the question: What major challenge did you face as you were moving to market and how did you tackle it?


iCETANA PTY LTD

As we understood more about the market, we believed our product was most differentiated and better suited to very large enterprise customers.

But understandably, such large customers are not inclined to buy off an unproven, unknown start-up. So we spent a lot of time trialling our product with smaller early adopters and leveraging the results to win over increasingly bigger customers.

– Gary Pennefather, Chief Executive Officer


PHARMAXIS LTD

“In the biotechnology/pharmaceutical space the major challenge that is often outside our control is the time taken to get the regulatory and pricing approvals necessary to enter markets where the only purchasers are governments.

We faced significant delays and hold-ups that required a different set of competencies to tackle than the scientific and clinical experience that had got us to that point.

Your business model has to be robust enough to withstand delays in time to market and increasing regulatory costs. Having a plan that only works if everything goes well is asking for trouble.

venture capital

– Gary J Phillips, Chief Executive Officer


CATAPULT GROUP INTERNATIONAL LTD

An ongoing challenge when moving into new markets is educating the value of the technology based on experiences in other regions, and trying to keep down the cost of individual sales with a complex technology.

We’ve alleviated this challenge with staff based around the world and by setting up established offices in Chicago (USA) and Leeds (UK), but you still need to get creative in penetrating new markets and generating revenue right away while demonstrating value.

Shaun_intext

– Shaun Holthouse, Chief Executive Officer


ADMEDUS

With two platform technologies and an extensive number of possible R&D programs, determining the right projects to progress forward and balancing capital allocation are key. Detailed program and market understanding is also essential.

We’ve overcome this by maintaining regular and consistent communication with our investors and working closely with our customers to understand their needs.

venture capital

– Dr Julian Chick, Chief Operating Officer


SMARTCAP TECHNOLOGIES PTY LTD

The most difficult challenge ended up being establishing the right management team for the business – it is difficult to identify and parachute in the skilled, motivated management team a start-up needs; one that is able to operate effectively with researchers, investors, and so on.

For this to happen, CRCMining, as the major shareholder, first ensured the company had an independent governance arrangement in place by establishing a board for SmartCap with significant successful commercial experience – one that we felt was very competent, able to ask hard questions, and make difficult decisions. 

The board led the process of putting in place a management team that has resulted in the company reaching the point of being a very well-run organisation.

– Kevin Greenwood, Chief Operating Officer


ACRUX DDS PTY LTD

“We chose to partner our lead product with a strong international pharmaceutical company rather than working through alternative go-to-market strategies. On that basis, selecting and negotiating a good commercial deal is critical.

Not all partners are created equal. On that basis, there are other challenges prior to this step that must be appropriately addressed.

The quality of the commercialisation partner and the strength of your position in a negotiation with that partner are the result of good outcomes in the pivotal steps prior to your licensing negotiations.”

Michael Kotsanis_intext

– Michael Kotsanis, Chief Executive Officer


SPINIFEX PHARAMCEUTICALS PTY LTD

“Once clinical proof-of-concept was successfully announced by Spinifex in August 2012– that is, the Phase 2a clinical trial in patients with postherpetic neuralgia, which is a type of peripheral neuropathic pain that is often intractable – the Spinifex Board again needed to raise capital to progress from Phase 2a to Phase 2b clinical trials.

However, these funds were not available in Australia and so the company had to move to the USA in early 2014. Soon after, they successfully raised $45M in the USA to progress the clinical development program.”

– Professor Maree Smith, Executive Director of the Centre for Integrated Preclinical Drug Development and Head of the Pain Research Group at The University of Queensland


REDFLOW

Identifying early adopters.

Stuart Smith_intext

– Stuart Smith, Chief Executive Officer

Click here to see the full list of Top 25 Science Meets Business R&D spin-off companies, or for further insights from the Top 25 leaders, read their interviews on attracting venture capital, learning from overseas markets and overcoming the valley of death.

valley of death

Top 25 insights: valley of death

There are two potential ‘valleys of death’ for R&D spin-off companies. One is in translating their research concepts into prototype products. The other is in maturing from prototype to full commercialisation.

Here, leaders of the Top 25 Science Meets Business R&D spin-off companies answer the question: Which valley of death was most difficult for your company, and what was key to getting over the hurdle?


ADMEDUS

Taking the prototype through to full commercialisation was probably more difficult for us due to the complexities involved.

This included high-tech scale-up manufacturing, which we do at our bio-manufacturing facility in Malaga. Today, we have the ability to expand production as necessary, as well as refine and develop our processes in-house to accommodate new products and product improvements.

There was also a focus on generating sales once CardioCel was commercialised. Just because a product is approved doesn’t necessarily mean that it will be used straight away by the intended customers.

We’ve focused on educating the market about the benefits of CardioCel, such as its biocompatibility and lack of calcification (hardening) at the site of surgery. We’ve also built a strong global sales and marketing team who work closely with our customers to understand their needs.

As a result, we’ve seen continued quarter-on-quarter growth in CardioCel sales, and the product is now used in over 135 heart centres globally.

venture capital

– Dr Julian Chick, Chief Operating Officer


PHARMAXIS LTD

“For pharmaceuticals the so called ‘second valley of death’ is by far the most significant.

Lack of funding often prevents companies from attempting to cross this valley and causes them to license their technology at an earlier stage and to realise rewards as the licensor takes their innovation to market.

For a small company with limited resources, the key to success here is to understand the commercialisation risks, link the higher-risk projects with partners and try to make that step themselves for markets with lower entry costs and higher clinical need.

If done well, they should end up with a portfolio approach with the risks mitigated but still significant opportunity for value appreciation.”

venture capital

– Gary J Phillips, Chief Executive Officer


SMARTCAP TECHNOLOGIES PTY LTD

SmartCap Technologies had substantial industry support to develop the prototype products, however even with this it was a very challenging process to deliver working prototypes. 

SmartCap was exceedingly fortunate in that CRCMining provided substantially more financial support for SmartCap than originally envisaged, enabling it to finally deploy the prototype products. Those prototypes were sufficiently effective to generate commercial interest from some large mining companies.

So despite having robust plans in place, it always helps to have access to further funding, via investors or other stakeholders with a high level of commitment as well as deep pockets, to overcome unforeseen eventualities.”

– Kevin Greenwood, Chief Operating Officer


CATAPULT GROUP INTERNATIONAL LTD

“The biggest hurdle may be the combination of the two – translating research concepts (i.e. technical information associated with the technology) following commercialisation into an immature market.

Catapult‘s technology is not a consumer product and therefore is very high touch in terms of its service and client support. Due to the perceived complexity of the information obtained from the technology, part of the trick is to simplify the underlying research concepts to new markets that need a low touch product.”

Shaun_intext

– Shaun Holthouse, Chief Executive Officer


iCETANA PTY LTD

“I would argue that you should have a prototype – before any spin-off. That way you can at least prove technical viability of your concept. Ideally you would also have done some level of customer validation.

The next step of full commercialisation is definitely the hardest.

In our case it was a matter of finding early customers that were willing to spend time assessing the product and its benefits – even though it was too early to commit to a purchase and full roll-out. This phase was key to understanding the market and adjusting our path.”

– Gary Pennefather, Chief Executive Officer


ACRUX DDS PTY LTD

“The first phase is the most difficult – a poor prototype will show its deficiencies later in development. A prototype needs to demonstrate a safe and efficacious profile, and that it will meet the need you have defined in the target market.”

Michael Kotsanis_intext

– Michael Kotsanis, Chief Executive Officer


SPINIFEX PHARAMCEUTICALS PTY LTD

“Translating research concepts into clinical proof-of-concept [was the most difficult] due to the dearth of venture capital available in Australia at that time.”

– Professor Maree Smith, Executive Director of the Centre for Integrated Preclinical Drug Development and Head of the Pain Research Group at The University of Queensland


ENGENEIC LTD

“We are in the middle of our valley of death translating our platform into the clinic and we have not yet overcome it. Data is key, but one needs the funds to produce the results! So, we are seeking investors wherever we can find them and buddying up to big pharmaceuticals who have the muscle to progress our technology.”

HimanshuandJennifer_intext

– Dr Jennifer Macdiarmid, pictured above with Dr. Himanshu Brahmbhatt, joint Chief Executive Officers and Directors 


REDFLOW LIMITED

“Both were as difficult – but they had different hurdles. Key for both was having the right staff and people to address each hurdle.”

Stuart Smith_intext

– Stuart Smith, Chief Executive Officer


Click here to see the full list of Top 25 Science Meets Business R&D spin-off companies.

Top 25: international insights

Top 25: international insights

Some argue that Australian start-ups are more vulnerable to the “valley of death” than businesses in other countries, with only 3.2% becoming high-growth companies. 

Here, leaders of the Top 25 Science Meets Business R&D spin-off companies answer the question: What lessons have you taken from R&D spin-offs in overseas markets as to how to navigate the difficult journey from prototype to commercial product? 


CATAPULT GROUP INTERNATIONAL LTD

“A key point here is that the journey from prototype to commercial product is much more difficult if you’re trying to penetrate overseas markets at the same time.

When Catapult became a commercial product in 2006, the company’s focus was on the Australian market – specifically Australian football.

Within a couple years the technology reached saturation point in the Australian Football League (AFL), the product was stable and developed based on local feedback, and then we started to attempt a new market in the United Kingdom through a local distributor.”

Shaun_intext

– Shaun Holthouse, Chief Executive Officer


SMARTCAP TECHNOLOGIES PTY LTD

“Firstly, I don’t think it makes sense to classify all start-ups as being the same, in my view it depends on the attitudes of the early markets a particular start-up is targeting.  

CRCMining carries out research primarily into new technologies and mining equipment, which would be used within the mining sector. Australia has traditionally been an early adopter of new mining technologies, and the mining industry generally recognises the importance of innovation and is supportive of the development of new technologies. This assists tremendously in mining technology companies successfully negotiating the valley of death. 

Mining is, however, a relatively small, niche market for new technologies, so mining technology start-up companies do need to have a plan to become global providers very rapidly.

Secondly, I believe there are a number of factors that need to be solved adequately for a spin-off to have a chance of being successful:

  1. Is there a viable, readily accessible market that is sufficiently large to support a spin-off company?
  2. Is there innovation capability within the spin-off – in particular, do the inventors want to transfer to the spin-off?
  3. Is there competent management and sales capability to direct the business, and generate revenue for the company? (Typically different from the researchers.)
  4. Is there appropriate funding available to get the company through to a viable revenue stream?

If all of the above can be answered appropriately, then a spin-off has a good chance of getting through to the commercial product phase and becoming an operating business.” 

– Kevin Greenwood, Chief Operating Officer


PHARMAXIS LTD

“Developing new pharmaceutical products is a very long process that requires access to a lot of capital.

I observe in the USA, and to a lesser extent in Europe and Asia, that R&D spin-offs tend to have access to greater amounts of venture capital (VC), allowing them to get to clinical proof of concept before undertaking an initial public offering (IPO). The IPO then tends to be substantial and provides the necessary cash to get all the way to the market.

In Australia it is difficult to get enough VC funding to reach proof of concept, so companies are often forced to IPO prematurely and for much smaller amounts.

At Pharmaxis, we are actively looking for opportunities in Australia that haven’t yet reached proof of concept, where we can provide alternatives to an early IPO by collaborating and incubating the technology to a significant value step.

venture capital

– Gary J Phillips, Chief Executive Officer


ADMEDUS

I think it is a balance and companies need to remain flexible in their strategy so they can adapt to market conditions.

Having some revenue does help underpin the business. Getting an initial program to commercial returns helps to get over the ‘Valley of Death’.  

You should avoid laying single bets, as one-program companies are binary and this can make raising capital difficult.

venture capital

– Dr Julian Chick, Chief Operating Officer


ENGENEIC LTD

“It is very difficult to take too many lessons from overseas since, for example, investors in the USA would invest enough money to allow you to be a high-growth company; even getting from concept to clinic. Many European countries like Denmark also invest heavily in start-ups.

None of this applies to Australia since we neither have a deep and knowledgeable biotechnology investment community, nor successive governments which advocate evolution from start-up to high-growth company.

While there were some government investment programs in years past, they have only applied to early-stage companies, and biotechnology takes a long time.”

HimanshuandJennifer_intext

– Dr Jennifer Macdiarmid, pictured above with Dr. Himanshu Brahmbhatt, joint Chief Executive Officers and Directors 


REDFLOW

“Making sure the product that is developed suits the market that is available. Ensuring the target market is the best for new technology and has a compelling business case to current incumbents.”

Stuart Smith_intext

– Stuart Smith, Chief Executive Officer


ACRUX DDS PTY LTD

“You need to develop a strong strategy. This involves mitigating inevitable risks through solid and rigorous planning. Developing a well-defined target product profile is key as this will guide your planning and risk mitigation strategies.”

Michael Kotsanis_intext

– Michael Kotsanis, Chief Executive Officer


SPINIFEX PHARAMCEUTICALS PTY LTD

“In overseas markets such as the USA, the scale of Series A capital is about tenfold higher than it is in Australia and the venture capital firms making these Series A investments typically have very large funds at their disposal. Hence, these firms have the capital needed to make subsequent Series B and C investments for progressing from prototype to commercial product.”

– Professor Maree Smith, Executive Director of the Centre for Integrated Preclinical Drug Development and Head of the Pain Research Group at The University of Queensland


iCETANA PTY LTD

“A key point for any new venture is to prove there is a market for the product. So we focused on getting product into customers hands as soon as possible.”

– Gary Pennefather, Chief Executive Officer


Click here to see the full list of Top 25 Science Meets Business R&D spin-off companies.