An explosion in the number of publicly listed biotech companies—in combination with these companies’ strong preference to hire almost exclusively from within the life sciences industry—has put intense pressure on the biotech CFO market. In short, the demand for CFOs with biotech companies’ ideal profile—high performers with a history of proven results and of sitting public CFO, IPO and biotech industry experience—simply outstrips supply.
And demand could be growing. From 2008 to 2018, the number of North American biotech companies valued between $500 million and $10 billion has grown 4.8 times, far outstripping growth in both smaller and larger companies (see Exhibit 1). Over the past five years alone, there has been a net increase of 126 public biotech companies (see Exhibit 2).
Exacerbating the supply shortage is an industry that has been starkly insular. Case in point: Biotech CFOs have racked up an average of 15.4 years of industry experience. By contrast, among their comparable peers in the S&P 500, the second-most insular industry is industrials, where CFOs have an average 8.3 years of industry experience.
Luring a CFO+
Increasingly, experienced CFOs are more likely to raise their hand for a COO role than for a lateral move to another CFO role. In fact, experienced CFOs are eager to explore expanded roles of many sorts. An expanded scope may include oversight of strategy, corporate development or some form of operational leadership. A broadened role can be an effective way to attract and recruit top CFOs who otherwise may not have the opportunity to own these functions in their current organizations.
While boards are often hesitant to hire a first-time CFO, especially when paired with a first-time public company CEO, current trends suggest this is becoming the norm. In fact, 62% of the CFOs at public biotech companies were first-time CFOs when they took their current job. Targeting senior finance leaders within large pharmaceutical companies known for developing their finance talent can be a good place to look. Additionally, prior experience within investor relations, investment banking or internal leadership roles that require selling ideas to senior executives and boards are strong foundational experiences.
While the investment banking community has long been considered a fertile hunting ground for biotech CFO roles, clients are increasingly open to considering equity research analysts and corporate development officers. When hiring CFOs with these backgrounds, it is important to support them with a strong corporate controller or chief accounting officer to offset their potential lack of operational and corporate experience.
With the proliferation of first-time CFOs, it is also often necessary to ensure a company’s audit chair brings sufficiently deep financial expertise and that a robust and productive relationship can be established between the CFO and the director to help mitigate any transition risk.
Talent from adjacent industries
Historically, biotech companies have hired almost exclusively from within the industry. Recently, however, some clients have shown a willingness to look beyond biotech for top finance talent. While not yet commonplace, this approach appears to work best when the industry is closely related to biotech, such as the medical devices and technology industries. In both, an understanding of a company’s intellectual property and ability to message its value to Wall Street are critical. Additionally, because these business models tend to be similar in that there is likely a heavy emphasis on R&D investment along with regulatory oversight, the underlying finance competencies are often clearly transferable. Lastly, strong financial planning and analysis experience garnered at a complex and low-margin industrial sector company can also be hugely additive to a commercial-stage biopharma company.
Robust succession planning
With biotech CFOs averaging 3.7 years in their role, boards and CEOs are wise to apply succession planning best practices to the top finance role. Elements of a strong strategic succession plan might include any combination of the following.
Some organizations may want to hire their would-be CFOs at a level beneath the top finance spot to facilitate a faster ascent up the learning curve before officially taking on the CFO mantle.
While more applicable to later-stage biotechs, organizations can create and offer rotational opportunities to ensure functional breadth across finance.
Recognizing the number of opportunities available to non-sitting CFOs, organizations can take bigger risks in developing internal finance functions and provide opportunities to broaden experience. This also serves as a key retention mechanism in a hot talent market.
Organizations can leverage both the experience of existing board members and their relationships with the banking community to provide a layer beneath the CFO that has exposure to capital markets and investor relations activities.
When selecting CFOs, CEOs and boards should pay particular attention to assessing candidates’ willingness to develop and track record in developing the finance team.
ROSE MISTRI-SOMERS is a leader in Russell Reynolds’ Financial Officers Practice, based out of New York. While she operates across sectors, her main area of focus lies within the life sciences and broader healthcare space. Rose works with a range of clients, spanning from large cap to micro cap, in addition to working with VCs and private equity in the pre- IPO landscape.
NICK ROBERTS is a member of the Financial Officers Practice at Russell Reynolds and is based in San Francisco. Nick specializes in helping his clients recruit CFOs and senior finance leaders in the life sciences space. His recent clients include venture-backed and pre-IPO companies, publicly listed clinical- and commercial-stage biotech companies, and large-cap pharmaceuticals.