Guardant
Health: A Biotech Exploring Strategies
to Capture External Innovation
Project
Background
In the biotech diagnostic arena, innovation is a cornerstone of progress and increasingly
accelerated by advancement of life sciences, AI and
growing healthcare spending. Established companies face crucial strategic
decisions of how to best tap into external innovations in their field and drive
long-term growth.
Corporate venture capital
(CVC), Accelerators, Incubators, and M&A have emerged as strategic tools
allowing pharma and biotech firms to tap into the burgeoning innovation
landscape. These mechanisms, with varying degrees of autonomy, serve dual
purposes: generating financial returns and accelerating strategic goals. Leading
biotech and pharma companies are leveraging these approaches to bridge the gap
between traditional R&D and external innovation. Through this strategic
engagement in the biotech diagnostic sector, we dissected the conditions of
success for CVC, Incubator, Accelerator, and M&A strategies to guide our
client in navigating this transformative era of innovation and accelerate their
growth.
Project Objective
Our client was a
biotech company that
develops proprietary blood testing platforms for cancer screening and
diagnosis. They have been experiencing fast growth and expect to have positive
cash flow in 5 years. The company requested a recommendation on how to best capture
external innovation in their field among 4 strategic options: 1) a Corporate
Venture Capital (CVC) fund, 2) an accelerator, 3) an incubator, or 4) increase
investment in R&D and conduct M&A as opportunities arise. Of the choice that will be recommended, our client was interested
in understanding the conditions that are needed to set up and sustain a
successful strategy.
We carried out this project to
respond to the fundamental question: Should they establish a CVC,
Accelerator, or Incubator program and, if so, what are the keys to success?
Project Approach
Our team - comprising students
from Columbia’s Business School and Medical Campus - kept weekly meetings with our client point
of contact, the Senior Vice President of Corporate Development. We shared our
findings and updates to ensure alignment and how the organization could benefit
from the project’s ultimate output.
We organized our
project into four stages:
1.
Understand the value proposition and success metric of
the 4 options with focuses on CVC, Accelerator, and Incubator through expert
calls and online research:
○ Mapping out the CVC landscape based on a HBR framework of
financial vs. strategic and tight vs. loose connection with the company’s own
operational capabilities.
○ Key features of CVCs, Accelerators, and Incubators
○ Differences between Accelerators
and Incubators
○ Case studies for CVCs, Accelerators, and Incubators;
common pitfalls
2. Identify
Choices
○ Using
the consulting choice structuring, created choice decision tree
○ From the
combination of choices, created tangible and mutually exclusive strategic
options
○ Conditions
necessary for success in each strategic option
○ Recommendations
on capital availability and operational involvement
○ Fit of
recommendation within the company’s overall strategy
○ Next steps needed
for execution of strategic recommendation
○ Timeline for
revisiting other strategic options
To build our case studies, we
utilized information on corporate websites as well as secondary data available
on platforms like Pitchbook and Crunchbase to summarize information on deal
flow, valuation, exits, revenue multiples, fund sizes, acquisitions, and
competitor outlook. We also conducted interviews with experts at VC, CVC funds,
accelerators, incubators and studied reputable articles on these subjects. This gave us an
overall understanding of the ecosystem and success stories.
Through interviews, literature
reviews, and historical data on CVCs, accelerators, incubators, and M&A, we
laid out the conditions for success of each strategic option. We then identified
the one condition for each strategic option that poses the greatest barrier for
the client and conducted focused analysis against this condition. If the
analysis confirmed that the barrier was insurmountable for the client at their
current stage, that strategic option was eliminated. For example, our client experiencing
operating losses eliminated the CVC option. Ultimately, this left us with one
viable option for the client that is feasible, attainable, and addresses their
goals, which was the option we ultimately recommended.
Lastly, we identified next steps
for each of the strategic options including additional resources such as
personnel and funding, including projected timelines when relevant.
Key goals and strategic choices
Our goal was to identify the strategic option that best
capitalizes on our client’s
resources, including cash, industry
expertise, data and samples that will lead to the greatest long-term
return to the business.
While we have identified many choices to formulate actionable
strategic options, the two key choices that we used to map out the 4 strategic
options are the size of financial investment and extent of operational
commitment.
Create a dedicated
CVC fund of up to $50M (can be increased if justified) to
invest in companies that align with the client’s strategic
initiatives in cancer screening and diagnosis.
3.
Start an
accelerator program with 1 cohort each year that is 6 months long for
5-10 companies with MVP in diagnostic testing / AI modeling with
a $50k-150k investment in each company.
Start an incubator with
access to the client’s labs, mentorship, and business
development coaching for very early-stage companies to transform
ideas into products that runs up to 2 years to grow precision oncology
ecosystem.
Continue internal R&D and
drive strategic M&A with players with
adjacent technologies in cancer screening and diagnostics. This is their
status quo.
Recommendation
Using the elimination approach
described previously, we arrived at our final recommendation to start an incubator
program, the low financial investment and low operational commitment option
that we think is best suited for their current stage. This strategy allows them
to utilize existing corporate structure and capitalize on their non-cash
resources to tap into external innovation. In addition, the strategy allows
them to conserve cash to 1) expand sales force to cross the chasm for fast revenue
growth and accelerate the path to positive cashflow, 2) conduct M&A when golden
opportunity arises for them to expand or consolidate with competitors.
Final Thoughts
Our healthcare consulting project provided
invaluable real-world context to our academic learning. Each team member’s
diverse backgrounds and skills cultivated an innovative environment for solutions.
Our client provided clear directions and committed to providing us with the
necessary time and resources to enable our mutual success. The many industry
leaders we interviewed helped broaden our understanding of venture capital, accelerators,
and incubators, ensuring we provided practical recommendations to our sponsor.
Lastly, the guidance from our Columbia professors helped expand our strategic
options and refine our solutions. With the support of this class, our team utilized
strategic consulting frameworks to offer recommendations for our sponsor to capture
external innovations in healthcare.
Contributors: Ken
Culbertson, Raavi Gupta, Tanya Prabhakar, Junshu Zhao