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Examining today’s go-to options in landing a successful CFO as role evolves.
Finding the right talent to fill leadership positions is never easy. But when the market is flooded with opportunities and the coveted qualifications are specialized, the task becomes a real issue. This is a current concern for many biotech companies looking to fill chief financial officer (CFO) positions. The recent biotech explosion combined with a desired candidate skill set that includes life sciences and capital markets experience has created a
demand for a specific type of CFO that simply outstrips the supply.
According to investment banking firm Young & Partners, 2018 was a banner year for initial public offerings (IPOs), with 68 of them worth $7.4 billion. The first three quarters of 2019 followed with 38 IPOs worth $4.3 billion. This indicates a growing number of companies looking to fill CFO positions.
The problem is, traditional CFO skills often fall short when it comes to biotech. Holding the title of CFO at a company that has no earnings but rather spends money to develop potential revenue opportunities is quite different than being a CFO in many other industries. Beyond needing a nontraditional business mind, it requires an understanding of the science involved and an ability to explain that science to others.
“Life sciences is unlike a lot of other industries where you can walk in, figure out the P&L and how the company actually makes money, and communicate that to investors,” says Barbara Ryan, founder of Barbara Ryan Advisors and a Pharm Exec Editorial Advisory Board member. “At the end of the day, there are just not enough [qualified] people for these opportunities. The question becomes: What can companies do to fill that void?”
There are a variety of approaches organizations can take. One option is to lure a CFO from another successful biotech. Because these CFOs are in demand, however, making an attractive offer can be costly.
A CFO from a less successful biotech might be a better option. A company’s disappointing clinical trials or inability to gain more capital could make a CFO eager to find an opportunity with stronger prospects. Of course, the new CFO would need to be introduced to the stakeholders, including investors, analysts, and bankers, which takes time.
In cases where a biotech loses its CFO to another company, it’s important to have a strong succession plan so that people below can step in, either temporarily or permanently. This ring of aspiring CFOs can also be tapped for talent, whether they rise from within or outside the company. These first-time CFOs have a history in biotech and have a sense of the job.
Cross-sourcing between biotech and pharma is another possible recruiting route. As pharma has consolidated, aspiring pharma CFOs have had fewer opportunities than in the past. Therefore, these individuals may be more compelled to take a risk to secure the title of CFO. “The risk profiles [of pharma and biotech] are dramatically different, and that can be attractive or unattractive to certain individuals,” says Ryan. “Some people actually like the risk and want to take it, and some people shy away from it.”
Hiring a CFO from a different industry is another possibility, but it requires an investment in training and education for them to become comfortable enough with the science to communicate about it with investors.
For a candidate well-versed in the capital markets, some companies may look to Wall Street. A pharma or biotech analyst or banker would come with a deep knowledge of the science side and strong relationships with the Street and investors.
“If you hire someone from Wall Street, they may be a better-known entity to your stakeholders, but then you have to train them on the inside stuff,” says Ryan. “As first-time CFOs, they will have to learn all of the things they will be responsible for, and having a strong support staff in place can help.”
Finally, companies that are private but plan on going public may not want or need a full-time CFO just yet and might consider a virtual CFO company such as Danforth Advisors. Ideal for a transitional situation, these consulting firms provide a CFO who may be working for a handful of companies. After working with a virtual CFO, a company might even pursue that person to join the team full-time when the time comes.
While the competition may be fierce, these myriad options can help ensure an organization hires a successful CFO. All it takes is careful consideration to determine what exactly works best for each individual company.
Elaine Quilici is Pharm Exec’s Senior Editor. She can be reached at email@example.com