La Biotechnologie : de la science au médicament (1) - Jean-Paul Clozel (2006-2007)

Hello, listen, so it's you. I was thinking of the people. The first course, the chair of technological innovation. Before starting this first course, I wanted to briefly summarize what will happen throughout this teaching. So the idea is simple: many people do not know or have not experienced the creation of a biotech company, and my attention is to try to explain to you how it is possible, starting from an idea, from a small group, to create a company. In fact, I will take the example of what we did, that is, we started Actelion in Lyon with four people nine years ago, and now we are 1,400 people and we are the largest biotech company in Europe. So it is possible to create such a company. When we created this company nine years ago, being scientists, we had no idea, I must say, no idea what this adventure of creating a company was. And we were very lucky because we had the chance to have as a colleague someone who joined us, the fifth person who created this company, whose name was Andre Muller. Andre had experience creating Biogen and being the first CFO of Biogen, and it was he who explained all the mechanisms that I will try to explain to you. And I must say that without this help, I think we would never have been able to create Actelion. So that's what I'm going to try to do: I tried to give you all the things, explain all the things that are necessary if you really want to have success. So it will start with these first two courses which will describe the problems and what needs to be done to start creating a company. That is, we start with three or four founders, start from the idea, and then slowly progress toward the creation of this company. Today we'll start with about three or four people, the idea, there will be financing, the creation of the company, then in the second part of the course, the beginning of the company's operation. And then a second course, in the second hour, the company will this time go public. We'll consider that it has the chance to be among the perhaps 20 or 30% of companies that will be able to do an IPO, and thus we'll go up to the level of a company that starts functioning, and I would say a nearly complete company. That will be the first two hours of the course. In the following courses, we will move on to the functioning of the company: how one discovers a product, begins to develop a product, and then we will move on to how it is possible, thanks to these products, these new products, to have a functional company, i.e., the marketing part, the part of bringing a new drug to market. And at the end of these courses, I think it will be interesting to think about all the problems that will arise and all the general problems that biotechnology will have to face in the future. Everyone talks about the cost problem, everyone knows the problems that communication has, since many people unfortunately know the problems of biotechnology, the risks, and perhaps less everything that biotechnology can bring. So I will try to finish the course with more general notions on the future of biotechnology. I think you can maybe leave a few seconds for the newcomers to sit down.

So, I wanted to start with the innovative concept. The first thing to know is: what is the motivation of the people who decided, or the founders who decided, to create a biotech company? And here I want to clarify something right away: I think that one can only create a biotech company when one has, in my opinion, a scientific idea or a scientific vision of a problem or a subject. I believe that this field, and you will understand why in my courses, this field is so difficult and there are such difficulties that if someone intends to create a biotech company for a commercial idea or to make money, let's be clear, I think he has practically no chance of succeeding. There are such difficulties, this profession is so difficult, there will be such obstacles, it lasts so long, that you need a completely different motivation, you need an interest that is, in my opinion, close to science, to a scientific challenge. So I think that's the first thing: everyone must remember, if you want to make money, it's not by doing biotechnology; you'll make money more easily and you certainly have less chance of doing it here, because you should know that nine out of ten companies, or almost more than nine out of ten companies, do not succeed like Actelion or many other companies. So I will start with the innovative concept. Then we will talk about the founding team, what is called the business plan (there is no French translation), so the action plan of the company. I will come back to that. Financing, something very important: the board of directors. You will see that this board of directors plays a fundamental role in the creation of the company and later. Then really the beginnings of the company: what to do, mistakes to avoid, and especially what is essential to put in place at the start of a company. So the first thing: these innovative concepts. As I said, it is absolutely essential. One cannot create a biotech company if one does not have, at the beginning, an idea, a vision. This idea is not necessarily correct, it will not necessarily be the idea that will lead all the way, but you must have an idea. And I will explain why. This idea, obviously, must constitute a true innovation. And I believe that there is a lot of competition, a lot of economic difficulties, and without having something that can make a difference, you have no chance of being able to create a company. So when the founders meet and decide to create this company, you really have to ask the question: do we have an idea that is truly new, and that can meet certain characteristics? This idea must obviously be first, so have available intellectual property. And that is absolutely essential, because we have seen many companies that started in domains, people started working for a few years and suddenly realized that the idea they were working on was already patented. You should know that today, there are many patent firms, many systems on the internet that allow you to review all available patents, but it is absolutely essential to ask yourself whether this idea is truly original. You must know that the majority of ideas that we think are original, that we think we have, have already appeared somewhere in the world. Second point: the scientific bases must be solid. Everyone knows that even when the scientific bases are solid, many things at the biology level remain unknown. In fact, we know very little about how the human body functions, so there are many unknowns, many things that will remain to be discovered. Therefore, you must start from an idea, or let's say from scientific facts that are very solid. And that also requires a fairly strong level of self-criticism. Clearly, the idea must be original. And here also you must know that in the field of biotechnology, we have seen around some ideas, and it's very dangerous. There are some areas, for example, if one compares in a certain... because it was the level of recombinant proteins, certain antibody formats, where there are thousands of patents, where the conditions of intellectual property are, so to speak, impossible to formally evaluate. Even patent lawyers are unable to say today whether it is possible to work in such and such an area because patents overlap, many companies have worked for ten or fifteen years. So you must be very careful not to put yourself in that type of area, because the risk at that point of starting your company or starting the work and not being able to continue is very important. I think one must obviously think, without being too down-to-earth, one must obviously think about applications. And what is very important is not to create a company with a single application, because you can always have a problem. You must try to find an idea that will allow for applications from a medical point of view or a technological point of view. I think one should try to identify the medical need. Often difficult, you will see that at the beginning it is difficult to know the exact application, but in its concept, if it is possible to identify this medical need, I think that is something very, very important. Not only for financing, but also for the motivation of researchers. When we created Actelion, when we were able to address certain orphan diseases where there was absolutely no treatment, that was a fantastic motivation for the team. And clearly, the last thing, and you will see that it is almost the most important element for the people who will finance this company, is the notion of competitive position. You must know that if the company is several years behind other competitors, it is very unlikely that by creating the company, that is, with all the delays, all the difficulties of company creation, you can catch up, because you must know that you have to add several years before a company is really functional. So if another company has already established a position of intellectual property in this area, it is very difficult to be competitive.

So, I will cite some examples of innovative concepts that have really led to successes, and fantastic successes. And obviously the first three biotech companies that were created, which were Genentech, Amgen, Biogen, were created thanks to recombinant protein techniques. And they were created about 30 years ago. So today, one must especially remember that when we talk about the success of a company like Genentech, it is a success that came after 30 years. And the notion of time must always be important for you: it is much longer and much more difficult than one thinks. Many people seeing companies like Genentech forget that they started working 30 years ago. And what is quite extraordinary is that, for example, the CEO of Genentech was there and it has been 30 years. Many people in big companies, in successful companies, have continued to stay in these companies and have not moved from one company to another. So these three companies were created thanks to the possibilities of synthesizing proteins using recombinant techniques. Obviously, a whole range of applications opened up before them. For example, the synthesis of growth hormone, synthesis of TPA, synthesis of proteins that no technique allowed to synthesize in large quantities. The second type of innovative idea is the notion of producing antibodies for certain diseases, certain applications. And obviously with all the evolution that was possible at the level of these antibodies: starting from polyclonal antibodies to monoclonal antibodies to humanized monoclonal antibodies, meaning that today it is possible to manufacture in what I would call an artificial way antibodies that are comparable to antibodies that the human body would produce. So these companies were, for example, Centocor, which started working on certain types of antibodies against TNF (Remicade), and worked on other types of antibodies. That company was bought by Johnson & Johnson because at one point it had difficulties. You have to remember that the entire generation of companies that started working with these antibodies for ten years, so to speak, had no success. These successes arrived very late, and so many companies couldn't survive. Another was also bought by a big pharma. Centocor also was bought. Medarex had worked on anti-TNF antibodies. ImClone worked on antibodies in the field of cancer, anti-EGF. Protein Design Labs, PDL, truly described the founders of PDL described the method that is applied almost universally today of humanizing antibodies. And companies like Cambridge Antibody Technology also developed other techniques for forming human antibodies. So the idea of these companies was obviously the production, the generation of antibodies for certain diseases. Genzyme, which is the third or fourth biotech company in the world currently, was created on the idea of treating certain orphan diseases, particularly Gaucher disease, thanks to the synthesis (at that time it was purification of the missing enzyme). Now this missing enzyme is manufactured recombinantly, but Genzyme continues to synthesize the enzymes that are missing for these metabolic diseases. Other companies were created thinking that the deciphering of the human genome would allow the creation and discovery of many drugs. That was the case of three companies: Millennium, Celera, and Incyte. When we look in hindsight at the fate of these companies, we realize that they completely underestimated certain problems. The first being obviously that the human genome would be something universal and something available to all scientists because of the work done in universities. So in fact, this position was much less competitive than they thought. Secondly, the discovery of a gene is far from being synonymous with the discovery of a drug. There is still much to do from the gene to the discovery of a drug. And that is the reason why these companies, for example in the case of Celera, have a valuation that was up to 20 times higher than their valuations today. And I must say that these companies still have a lot of difficulty, which underlines the importance of reflecting on the competitive position or not of the innovative idea. Other ideas: combinatorial chemistry. Chemists thought that rather than making molecules one by one of new products to block an enzyme or block a receptor, companies thought it was possible to use automated techniques of combinatorial chemistry where chemical reactions happened somewhat at random, guided by chemists, but this randomness allowed the synthesis of thousands of drugs in a day, whereas before a chemist produced one or two products every two or three days, or one product every two or three days on average. Unfortunately for these companies, it was quickly realized that with these combinatorial chemistry techniques, you could produce thousands of products, but in fact generally thousands of inactive products, because nothing could replace the intuition of the chemist who could really know what modifications, what changes on the molecule would truly allow the synthesis of an active product. So these companies still exist more or less, and they orient themselves towards a mix of combinatorial chemistry and classical chemistry, because these combinatorial chemistry techniques are more or less used to create databases, banks of chemical products, but in general have not allowed the synthesis of new drugs. Companies were created on technologies: for example, Aurora was created thanks to advances in San Diego, thanks to the work of Chalfie who had used the green fluorescent protein, so certain proteins, certain fluorescent markers. And thanks to this knowledge of fluorescent markers, they developed a company concentrated on all techniques that allowed the detection of the activity of certain drugs at the cellular level using these fluorescent markers. Affymetrix was created because of techniques where certain genes could be combined and applied on microchips and could be used for detection of certain changes in the DNA and modifications of genes, for example when giving certain products or in certain pathological conditions. That technique can be used today to characterize certain genomes or certain genetic modifications in patients. A very interesting idea was that of Exelixis, which tried, precisely because of the difficulties I mentioned, to transform genome knowledge into drug discoveries. Exelixis tried to validate therapeutic targets using different technologies that allowed knowing what types of genes, what types of proteins to target to discover new drugs. Gene therapy: some companies were created around gene therapy. Obviously, there too, we underestimated the difficulty. I think even those involved would agree. But obviously it is a fantastic adventure that is far from over. I am convinced it will one day be used routinely in patients, but there are difficulties, risks, and these difficulties and risks must be resolved one after the other, and it has taken a lot of time. The use of stem cells: obviously many companies have been created around the use of stem cells. And the same thing around the use of interfering RNA. Companies have been created, we mentioned earlier, but there are several that are trying to use the properties of interfering RNA to make real drugs. So, some examples of innovative concepts. Alongside these concepts that I would call more technological, some companies were created starting from knowledge in certain domains to use all available techniques to create drugs. For example, in virology: the company Gilead, which discovered Tamiflu, which discovered certain antivirals in the field of AIDS. Gilead was created thanks to its knowledge of virology. And the same for Agouron, which has since been bought by Pfizer, which also started working in the field of AIDS to discover new antiviral products. Knowledge of kinases was the basis for the creation of Sugen, also bought by... I think it was bought by Warner Lambert, which was bought by Pfizer. But Sugen had the idea of starting from the knowledge of certain scientists of kinases to discover drugs, in particular anticancer drugs. Knowledge of the cardiovascular field: Scios Therapeutics in California decided to dedicate itself only to cardiovascular applications. Neurology: Nurax, which was created thanks to three scientists from Stanford, and was created around the use of certain calcium channel blockers, certain toxins that could block toxins, for example conotoxin. That knowledge of toxins mechanisms was the basis for the creation of Nurax, which decided to devote itself to the use, the production or discovery of products in the neurological field. That was bought by Elan, but you might have seen the so-called anti-Alzheimer vaccines come from that research done at Nurax and then transferred to Elan. Diabetes: the company Amylin dedicated itself solely to the discovery of anti-diabetic products. Antibiotics: three companies, I rank them... but many more obviously dedicated themselves, especially after the stop of antibiotic research in many large companies, to the discovery of new antibiotics: Cubist, Basilea, Arpida. Immunology: I cited Vertex. Vertex obviously changed, but at the beginning, and I encourage you to read a book called 'The Billion Dollar Molecule', which described quite precisely the creation of a biotech company and described the creation of Vertex. The idea of Joshua Boger was to create, thanks to the understanding of the mechanism of action of certain calcineurin and cyclosporine, to create new immunosuppressants. I think Vertex was created 20 years ago, there are still no immunosuppressants at Vertex. But Vertex recently discovered new antivirals very active in the field of hepatitis C. And this company is promised, I think, a great success if these antivirals can fulfill their promises. A company like Scios, before being acquired by... technology, focused on the use in the cardiovascular field of certain proteins and the natriuretic factor.

So, these ideas, some examples. Once you have the idea, the serious stuff begins. Then you must obviously have a founding team. And I think it's quite important to describe what the characteristics of this team are. Clearly, everyone agrees that this team must be competent. That's very important, it seems obvious. I know a few examples in the field of people who decided to do biotechnology without knowing anything about biotechnology. That is, they decided because it's something attractive, companies can have great successes, and it seems to many that it's easy, it seems quite fast, and people decide to create a biotech company without having any notion of the field. I think that's absolutely impossible. I know, I will cite the example of someone in the last company, a tennis shoe company, who decided to create a biotech company. And at this moment they are learning the difficulties, they are learning the profession. I think it's practically impossible, and you must know the field. Obviously, for biotechnology, I think when I talk about a team, there are often companies created by one person. That becomes more and more difficult. I think a team of three or four people is about ideal, because it allows from the start to have different aspects, different opinions. And obviously when you are three or four people, if one person is wrong, you can discuss it. If the founding team or if there is only one founder, he will always necessarily be right. So I encourage people to get together with two or three friends, people who obviously get along well, to create this team and not to set out alone. So experience is obviously indispensable. What is obviously important is that people get along, that there is no rivalry. Because the majority, and I will be very clear, the majority of failures in the first years of biotech companies are due to rivalries between people. If you look a little, I obviously cannot cite cases, but you will see, ask people who have followed many companies, venture capitalists, they will all tell you that problems of rivalry between people are the problems that kill companies in the initial phases. A biotech company is like a boat. When you are on a boat, there are so many possible phases; you want to kill someone or you manage to kill your friends. You have to live with ten or fifteen people inside a confined environment, and that creates a lot of tensions, creates a lot of difficulties. You must know that there are moments that are really very hard in a company: when a study is negative, when suddenly you have the impression that everything you want to do will not work. At those moments, if the team is not united, if there are rivalries, the company will face great difficulties. So motivation: I talked about it, motivation cannot and must certainly not be financial motivation. It's too difficult. I think what is important is the availability of the founders. You cannot create a biotech company and be a professor at a university at the same time. You cannot create a company part-time under the weight of a table. It is a 100% activity. You must think about this company 100% of your time. You must act, everything kept, all your time available for this company. And when from time to time I see founders who try to keep an activity, for example to be on the boards of two or three other companies, I think that's a huge mistake. You must devote yourself to this new company full-time. I think the team should be multicultural. You must especially not have four people who are exactly identical, because obviously they will make the same mistakes, they will have the same vision of things. The notion of being able to have different aspects, different views, different characters, is absolutely essential. And finally, even though motivation is not financial, the notion of a compensation system that is clear and fair is very important. For example, at Actelion, we chose to have exactly the same salary among all founders for the entire period of creation of the company, whether six or eight people. There was no possibility of difference. And I think that is something very important. It's very transparent; no one can have any doubt. And it allows you to really focus on the real problems. You must know that often money obviously cannot be a motivation, but it can be a source of demotivation. It is very clear that if founders, for example, if the company succeeds or is close to success, and if the benefit for people is completely different from one founder to another, that creates big problems.

So then, we have the founding team, the innovative concept, and then comes what is called the creation of a business plan. It's very important. I will try to describe what it is. I haven't found a French translation, but anyway. A business plan is a document that I consider about twenty pages long that will describe different aspects of the company. It will describe the strategy, will describe the implementation, that is, you must imagine what you will need to create this company. It is a plan that will be a guide that will allow tracking the progress of the company. For example, we will say: we have decided to create company X and Y, and after one year the laboratories will be installed, after two years the first products will be synthesized, after three years we will have a first active product, and after four years we will select our product to go into toxicology, into humans. You can, thanks to this follow-through, know if you are late or early compared to your plans, and if these plans are realistic. So it is absolutely essential to put on paper before starting what the evolution of the company will be. And this business plan will also be the document that will allow obtaining financing. So many people consider that in fact this business plan is the document to get financing: you show this document to financiers, and once the financiers say okay, we invest in your company, you forget the plan and then work however you want. Obviously, that is a huge mistake not to make, because all the benchmarks are lost, everyone will lose confidence, and the business plan loses its utility. And I often consider that it is the soul of the company. If you look at the first business plan, the first document we made at Actelion, you can see that our ideas, what we had decided to do ten years later, are applied. Obviously many realizations, we were able to grow much faster than we thought. We also had luck, but globally our ideas did not change much. And I think that was absolutely essential for the creation of this company. So what will the plan of this document be? The innovative principle is obviously the main idea, the first chapter. The description of the team: you must describe the key capabilities, who does what. Describe obviously the organization of the company, its functioning. At the beginning, these four or five people, meaning their CVs are described. The competitive situation of the idea. The evolution, as I mentioned, of the company over the first five years, with scientific progress, costs, how much we will spend, how much money we need, the personnel. You can see very well that by trying to think about all these problems, you evolve in the establishment of needs, the establishment of organization. If you see, for example, that you need too much money to reach a certain level, that allows avoiding certain paths. So it is absolutely indispensable to calculate month by month the money that will be essential for the functioning of the company, and the number of people that will be necessary to recruit, and the size of the premises that will be necessary to establish. In this business plan you will also have to describe the economic strategy: does the company live on its own, does it need agreements with other companies, is it a company that can remain independent, whose vision is to remain like us we decided to do at Actelion, completely independent, or is it a company that knows (and I think that's the case for many American companies) that anyway, in two or six or seven years, they will be bought? That is the choice.

The company will be bought because it works in a field where it is impossible to establish itself while remaining independent. So I spoke about intellectual property: you need to review the patents, your patent situation, describe the risks, the problems that will arise, and obviously the opportunities, what can happen, what positive things could come. This business plan must be honest. Sometimes when someone asks my opinion on a business plan, I look frankly at whether the scientific facts are valid. It must be realistic and ambitious. I believe that we should not think we will create a company that will not grow, that will not bring something. There must be a long-term vision, and we must address the real problems. I think it is much more productive to be very conservative in this business plan. You have to know that it is often much more difficult than you think to carry out a project in high-tech, so you need to plan for more money and more time than you think necessary. And then this business plan must be adapted. Today at Actelion, there is a group of two or three people who only work on a strategic plan. But ultimately, the company is created, and every year we try to adapt this business plan, knowing that once we have made such and such progress, what will happen in the future, what can we change, what can we improve to have a vision. I believe the minimum vision is five years, and a ten-year vision is quite important.

So, you have the innovative concept, you have a team, and you have a business plan. Now you find financing. That is the part that is often, I mean, many people think it is the hardest part. I believe that if you have a good concept, a good team, and a good business plan, you can find the money. So the greatest difficulty is really the idea. Today, there are all these pension funds. For example, in the United States, all these teachers give 15 to 20% of their salary to these pension funds, which have considerable sums to invest. In fact, there is much more money to invest than investment opportunities. So the money is there. The problem is that these investors, and they are absolutely right, are true professionals with a lot of experience, and they are facing founding teams that are not true professionals because they have never created a company, or it is their first company. So there is immediately an asymmetry of expertise between these two parties. That is what explains the difficulty of many financings. The investors must understand what the founding team wants to do. So this financing is essential because you have to know that the team that will start working must spend its time working on discovering drugs, not spending its time looking for money. However, this financing activity takes a lot of time at the beginning. And many companies have not succeeded because their team continued to travel around the world trying to find the next month's financing and could not make the company evolve. We were very lucky because our first investors clearly told us, you need two years of financing, and for two years you don't have to look for money. That allowed us to evolve very quickly. You have to know that many investors try to give the minimum amount of money because the risk is lower. Obviously, the whole problem lies in the founding team, which must continue to find the next money. I don't want to go into details, but for the initial investor, it allows them to have a much larger percentage of shares in the first company. But I think that comes at the expense of the company and at the expense of success. So if you decide to create a company, either you do it with enough money, but if you don't have enough money for example for two years, don't do it, because then the problems will be very serious.

This financing allows the creation of the company. It defines the basis because we will have investors who will own a portion of the company. And if these investors are true professionals, the company will start on a good footing. If these investors are amateurs, people who have never been in the field but want to make money quickly, then we are heading straight for disaster. I really encourage you to address real pros, people who have already created companies, who have that experience, and who will help you. An investor must be a partner, not someone who is there only to try to get profits as quickly as possible. These investors will be involved in the company's operations every day. They will call you every month and ask, 'How is it going?' If you don't get along with these investors, don't start. I must say that financing is very long. At Actelion, it took more than two years between the time we made our first business plan, which was shown to the first investors, and the time we got the financing. It's a long two years. You need to know some figures: the day we sign what we call the document (I still use the English word), the document that allows the creation of the company is a thousand pages, a book like that, where everything will be described. There are legal difficulties that are not to be neglected. So it takes even longer between the moment you agree with an investor or two investors and the moment you have the money in the bank. It takes six months even if you are in complete agreement. So never underestimate the time and duration of financing.

It is absolutely necessary that the investors share the same vision of the company. They must have been exposed to the problems so that a few months or years after the creation of the company, they do not decide to get impatient or withdraw their financing. They must have confidence in the management team, a common appreciation of the risks, a vision of the company for at least five years, and an ethics towards the company. But there is an ethical problem. You have to know that these investors, unlike the management team or the founding team, when you create your company, you work 100% for it. But the venture capitalists, private investors, all the people who are ready to put money into a technology company have several companies. So they will not hesitate to cut the financing of a company if they feel their money is better invested in another company. So you need to know that. Sometimes it's also a duty because they are investing the money of pension funds. It is their duty sometimes to stop financing a company if they think it cannot work. So, financing is done.

Now you need to create the company. A company has a board of directors. That may seem rather banal, something administrative and legally necessary, but the board of directors has an essential role in a biotechnology company. Unlike many other companies, it has a very difficult role because obviously the board of directors is composed of financiers and investors who will be confronted with scientific problems. It is really difficult, I think, having dealt with some financiers, to explain that we have decided to make a drug that will block a hormone, and when the banker or investor asks you what this hormone is for, you say, 'We don't really know, but we think...' Obviously, for someone used to making loans or investing in the construction of a building, that is hard to imagine. So that is why I want to discuss that biotechnology is different, a different industry. We don't know all the problems, we don't know the material we are working on. There are many difficult concepts to grasp. So this board of directors, which will decide the major options of the company, must be in line with management.

So, let's look at several aspects of this board of directors: its role, its composition, and its organization. The board of directors has a fundamental role: it supervises the strategy. It is the one that will say that the strategy is good and will accept that investments and major decisions go in one direction or another. It will follow the company's progress. In fact, it represents the investors on one side and also represents the interests of the employees and the company. It has this dual role, which is often difficult to assume. It follows the company's progress and has the duty to change the management team or the founders if necessary, if the team does not work. So if you create a biotechnology company, you must know that once there is a board of directors, they can tell you goodbye overnight if you are not doing your job. I personally think that is healthy, and it shows the difference that can exist between some companies that are family-owned or private and a modern biotechnology company where there is a duty of efficiency and competence of the executives.

The fundamental role of the board of directors is to help the CEO and management make the decisions, obtain financing, and for example, we will talk later about going public. So obviously the composition of this board of directors is essential. You should not have a monstrous board. I think a maximum of eight or nine people is enough. There must be a balance within the board. At most one person with scientific knowledge, because in fact scientific problems should be solved by the team that will lead the company. It is not the role of the board to make scientific decisions. There must certainly be two or three people with financial skills; that is absolutely essential because it is often not the strong point of the founders in biotechnology. They must have industrial experience. And at the beginning, the investors, i.e., the venture capitalists, are represented. If someone has 20% of the company, they will want to be represented on the board. You have to know that it is completely normal in the initial phase of a company's operation. It is abnormal that after four or five years, certain investors are more present than others. I think there is another role. But at the beginning of the company, no investor should invest a significant amount of money without having a role to play on the board. I think that is very important. Many people think that many members of management should be on the board. I think that is a mistake. I think the maximum at the beginning is two people from management on the board. It is not management's role to be a board member because then the two roles get mixed. In general, we consider that one person, in my opinion, is sufficient to represent management and explain. But that absolutely does not mean that all members of the company do not present their results and discuss with the board. But the composition, in my opinion, should not include more than two members of management.

Obviously, there are ethical notions that are important. You absolutely must not have a board member who starts to think only of his investors or of himself, rather than the company itself. They must be competent and experienced. The problem of conflicts of interest is huge today. You have to know that it is difficult to find these board members, and you must especially avoid people I call 'professional board members'—people who sit on eight or nine different boards. Conflicts of interest arise immediately in the field of biotechnology. If you present a result of a new drug, and the board member also sits on four other competing companies, there will be obvious conflicts of interest. So you must ask them to leave the room during the board meeting. You see, we are in a situation where half of the members have possible conflicts of interest, half of the meetings are held with a third of the people. So you must avoid that. You must ask these board members to limit themselves to non-competitive companies and different types of companies. Obviously, someone can very well participate in a technology company that makes pacemakers, and if his initial company makes drugs, it is perfectly possible to find non-competitive areas of interest. But you must avoid these conflicts of interest because they can have very serious repercussions. They can also create doubts. If by chance the competing company where a board member works discovers the same product or the same field, questions can always be raised. So it is really something very important to check. And these board members must be available. You must be able to explain things to them constantly, to call them for advice. I want to cite a few examples. Once or twice I was asked to go find new people, and I found someone who told me, 'I would be glad to be on the board of Actelion, but you should know that I am on ten boards, and I think I have 79 board meetings a year. So you will have to find slots in my schedule.' Things like that really exist. I encourage you to be very vigilant in finding a board of directors that is available.

So at the beginning, the company will start and have a board of directors. Initially, these meetings will take place quite frequently, every month or month and a half. Then gradually, these board meetings will become less frequent because the need for meetings is less important. But you must know that in the early days, there must be very frequent meetings. In these board meetings, there are always three committees that will have an important role and that should be created as soon as possible: a committee responsible for finances, i.e., the financiers. You must absolutely have a former CFO of a company on the board because he knows what needs to be done. So there is a finance committee of two or three people that will monitor the accounts and give advice. A committee responsible for compensation and salaries. And a committee responsible for what we call governance in English (I use the English word, but in French it's 'gouvernance'), which will be responsible for everything legal and ethical in the company's behavior. Because we have seen many problems, often they seem trivial but can lead to serious issues, especially when the company becomes public later. So you need a group of people who watch whether the company and its board behave reasonably. And there must be a secretary. At the beginning, the secretary of the board is generally not from the company. I recommend that once the company becomes public, the secretary of the board should be a secretary employed by the company.

So we have seen the concept, the team, the plan, the financing, and the board of directors. Now you need to start working. The company is on its way, and you need to start. How do you begin? You obviously need an initial organization. You are five or six people, and you need to divide the tasks. That is why if there is only one founder, it poses a real problem. So if you have a team of three or four people, you can divide the tasks. You need to recruit people, set up laboratories, and create an organization that is truly functional and makes sense. For example, at Actelion, we had four founders. We asked Thomas Widmann to be the CEO because he was the most organized among us and had the most sense of company structure. He became CEO. So we started to organize ourselves. At that time, Walter Fischli, a molecular biologist and chemist, set up the chemistry and biology labs. Martin Clozel set up the pharmacology labs and started working on in vivo tests. Thomas Widmann, in addition to his CEO role, set up the first clinical development trials of the products we were able to license. And I personally took care of preclinical development, toxicology of the products, and also tried to help with what we call business development, i.e., trying to make license agreements, which we did at that time with Roche and Genentech. What is needed is to separate the tasks, especially not to step on each other's toes. All areas of the company's life must be covered, and you must especially avoid that all decisions are made by committee. It's incredible to see companies with twenty people that are more bureaucratic than companies with two thousand. Often the founders are so obsessed, so afraid of making mistakes, that they don't make decisions. No, you must absolutely trust the managers, let them make decisions and let them act.

At the beginning, the CEO also has an essential role because he will have contacts with the board of directors, communicate with investors. He must be someone who is well perceived, has a sense of organization, is respected, and accepted by the founders. At the beginning of Actelion, our board of directors first told us, 'You must absolutely name a CEO.' Because at the start, you have a team of friends, and you tend to say, 'We don't need a CEO, why do we need one?' And you realize that it is really an important role because there is someone who represents the company to the outside world. I spoke about the compensation system. You need to put in place a compensation system that is absolutely fair. You must know that when you leave a large company, as was the case for all the founders of Actelion, and you come to a startup, generally the salary is cut in half. So for those who are motivated by money, that is completely normal. The money given by investors must be there to do experiments, to test products, to set up laboratories. It is not money that should go into the pockets of the founders. So it is perfectly understandable that investors voluntarily decide to reduce salaries, to make this sacrifice, and to live for a few years not in the same conditions as if they had stayed in a large company.

The organizational chart must obviously be as flat as possible. You cannot have a Mexican army with a hierarchy of four people and three levels of hierarchy. You also need to know that at the cultural level, from the very beginning, the way you organize the compensation system will imprint a mark on the culture. For example, at Actelion, we decided that everyone, even the 100th employee, had what we call stock options. In France, stock options are considered taboo, but you must know that in a biotechnology company, you don't have the money upfront. So the only way to pay someone is to give them a little hypothetical money, which we call stock options. Stock options mean that they have no value if the company does not work, and they have value if the company works. It is the best means, and it is something indispensable. If people want to eliminate stock options in this company, you cannot do biotechnology and attract scientists without this way of paying with hypothetical money that will only materialize five or six years later. So for us, everyone from the secretary to the CEO had stock options, and after the success of the company, it benefited everyone. That was completely normal. It allowed all the people in the company to be aligned. Every time there was good news, it was good news for everyone. If there was bad news, it was also bad news for everyone. It gave a very special culture. You must know that in the United States, often the CEO has 40% or 50% of the stock options. I think that a more European system, with a more democratic notion, is really very beneficial, and it was very important for the success of our company.

Then you need to establish priorities. First, you must ensure that financing is always there because if there is no money, everything stops. That is really something to watch: that costs are in line with what you planned, and that revenues are in line. You need to set up an organization, I talked about it. You need to define the tasks, the essential tasks, and start really working. On the premises: if I talk about premises, you must absolutely plan for expandable premises. For ten years, every day at Actelion we had problems finding space. So if you decide to locate somewhere, you must know that you risk outgrowing it. We started with 400 square meters, and we ended up at 20,000 or 30,000 square meters. Each time we had to find something. It is very important that all people are geographically very close, as it fosters interaction. You cannot have researchers working on the same subject in two different parts of the city. So if you think about premises, try to think about expansion. So you need to set up the laboratories and recruit the first employees. The first employees, right after the founders, are a real challenge. You must be very, very careful because those first employees are almost like founders. They come into a company that does not exist yet, with very hypothetical financing. So you need to understand their motivations. You must be sure not to take someone who comes to you because they cannot go anywhere else. It is really very difficult. I can say that the first 20 or 30 employees are absolutely the most difficult to recruit, and they will make the success or failure of the company.

So you need an infrastructure. We think of scientists, but we don't think enough about the infrastructure needed in a company. Administration: you need people to pay the bills, ensure that revenues come in, make sure there are no errors at the bank. You need IT. And I can tell you that we started learning. When we had 13 or 14 employees, an IT person came with a server. Today we have more than 2,000 computers. The company has never had a day when IT didn't work. So we went from one server to 2,000. So you need to think about it, and know that today without IT, a company is paralyzed. So find someone who is flexible, because at the beginning it requires a lot of adaptation. Especially not a theoretical engineer who will draw concepts. You need someone who makes IT work. It needs to run. Often, ten years earlier, the profile is rather the young IT fanatic who will solve all the problems at the beginning and will have an essential role. So you need to have someone fairly quickly to handle personnel and financial issues, accounting obviously.

So when you start operating, you need financial rigor. At the beginning, you don't have scientific results. But what someone, a board member or an investor, can see is whether you are spending what you said you would spend, and whether you have the revenues you said you would have. That is easy to measure. So you need an absolutely rigorous accounting system set up from the start. Our CFO André always said from the beginning of the company, 'You need to set up on the first day a system that can be continued until the company has 100,000 people.' Often people underestimate this problem. But when the company becomes public, which means in the second part of the course, at the moment a company becomes public, all the accounting becomes absolutely transparent. It is public, everyone can see it. It is described in the documents. If for four or five years the accounting has not been done rigorously, the slightest invoice not recorded correctly can cast doubt on someone in the company profiting unduly from that money. The slightest accounting problem can really kill the company. I must say that many companies have died from accounting problems. Because if investors have the slightest doubt that the management of the company is using their money for personal purposes, they will absolutely stop all investment in that company overnight. So from the first day, accounting must be rigorous, done professionally, and of the same quality as the accounting of a public company.

You need to monitor the financing, control costs. The CFO, whom you must recruit fairly quickly, has an essential role. But it must not be a theoretical CFO who is into macroeconomics. Our CFO André Müller, although he had been the CFO of Biogen, was the one who paid every single invoice day by day, who took care of absolutely everything in the company's operation from the first day. At the beginning, there is only one person handling finances for five or six people. So I talked about the first employees. I can cite a few examples. These are people who like risk. They will join a company that is being created in a rather interesting way. When we were at Actelion, the company was in Basel, so we had many people coming from large companies. Some adapt very easily. Some people cannot make the transition from a large company to a small company. You have to know that when you have a small company, you don't have all the advantages that are important, like companies like Roche or Novartis have had for over a hundred years. They are perfectly organized with systems for thousands of employees. You lose all that overnight. You also lose all your bearings, all your notions of organization, whether IT or many levels. So you need people who can love the unknown and different things. Often we had several people who, after a month or two, said, 'I can't work in a small company.' Everyone wants to be in a small company, but when they are there, often there is a problem because they actually like having someone to distribute their mail. When you start a company, you have to go get the envelopes from the mailbox yourself. There is no one to distribute your mail to your desk. You also need people with team spirit, which I mentioned.

I think I have already talked about the compensation system. So after these different notions, we have covered almost everything necessary to know for the creation and initial phase of the company. You have seen the innovative concept, the required team, the business plan, the financing, the board of directors, and I have described in a few words the beginnings of the company. I think now we are at a company with about 10 or 20 people that starts to function and start research. In the second part of the course, I will try to talk about the second part of the creation of these companies, that is, when the company starts to become public, a company of between 20 and 100 people. That is the second phase, which is quite different, and there are certain problems that I will try to describe to you. Thank you.