Tom Tillett has started two biotech companies. The result was two very different experiences.
“The first time, I started a biotech business at Rohm and Hass, a chemical company, and had lots of resources available to me,” Tillett says. “And we developed the technology very successfully until Rohm and Hass had a bad quarter.
“Then they said, ‘We need to exit and we need you to find someone to buy the business. And you have three months to do it.’”
He spun out RheoGene, which developed technology around gene therapy for human health, to the University of Pittsburgh Medical Center, which then funded it for a time.
But 12 years ago, “nobody cared about the gene therapy market,” Tillett says, so as RheoGene’s costs escalated, UPMC asked him to find a buyer or other investors.
“I was forced into a situation where we had to do an M&A because of the lack of capital,” he says. “And traditional investors — VCs — we're not interested at that time.”
The business was eventually merged with Intrexon Corp., a Virginia-based biotech company, and Tillett left a year later.
It wasn’t long before he had launched MBF Therapeutics, an animal health biotech company. But this time he designed a company for an exit from the start, with particular attention paid to the company’s financing sources and a clear path to paying those investors back.
At the ASPIRE Dealmakers Conference earlier this year in Philadelphia, Tillett talked about raising capital to fuel your organization’s growth and how to plan to pay back your investors. Here are some of the lessons he shared.
When Tillett started MBF Therapeutics, he created the company with the exit in mind.
“Investors always want to know, ‘How am I getting our money back?’ he says.
The traditional way of looking at this is being acquired, he says, which brings in questions of whether you can get a fair value for a biotech firm with an innovative technology.
Another option is an IPO, the thought of which makes CEO Tillett bristle.
“I don’t think any biotech CEO who is private wakes up in the morning and says, ‘Boy, I wish I was a public company CEO,’” he says. “But when you’re going life sciences and you need significant capital, it's one of the most obvious and one of the most often used vehicles by which you do it.”
The third way — Tillett’s way for MBF Therapeutics — is to stay private.
“We did the more traditional biotech angel investors that are friends, family, etc., to move forward, and we're back to sign a major round that will allow us to get to a potential exit,” he says.
“In the past few months, it's become apparent to us that we can potentially not have to go public, not have to do an M&A, but we can look at growing this company in a non-dilutive way, giving our investors a return by staying private because we have significant sales opportunities that are not far down the road,” he says.
Protecting against additional dilution is not just a factor in an exit. It’s also about retaining operational control of the company.
“Being able to better manage what your development programs are going to be and how you're going to implement them gives you the ability to retain the culture that you want within the organization,” Tillett says. “Any public company is going to be treated differently. If you're subject to an M&A, even if they keep you separate, being able to maintain your culture is a challenge as well. It also impacts how you attract and retain employees because if they think that you're going to be subject to an M&A in a year, they're going to be worried about, are they going to move their families when in a year or two they may be out of a job.”
However, full sales pipeline, generous investors or not, there will inevitably be a financial gap that newly formed companies need to bridge. And that was a mistake Tillett admits he made with his first company.
At RheoGene, major companies owed Tillett money, and the government, through a grant, was going to give the company a couple hundred thousand dollars.
“I had these great receivables,” he says. “And when I went to my bank and said, ‘I’ve got a cash flow problem and I need to bridge over a weekend for $30,000, they said, ‘No.’”
The lesson he learned: Start dating early. It’s short-sighted to wait until the moment you need a banker to suddenly say, ‘I need a banker.’
“It was my mistake because I was a relatively young CEO at the time and hadn’t experienced this,” Tillett says. “But I quickly realized I needed a better banking experience. I needed a better banker. I need someone who’s going to respond to me.”
In this case, rather than a bank bridging the gap, it was the RheoGene’s accounting firm that stepped up, fundamentally because of the relationship, which meant they knew the money was coming and his company was good for it.
“Again, I blame myself for putting us in that position,” Tillett says. “I should have been looking at establishing a credit line before that. But I hadn’t done that. And because of that relationship we got bailed out.”
His takeaway: Build relationships. “Because foundationally,” he says, “you're building trust.”