Leadership in MedTech: Johannes K. Mühl talks Financial Strategy, Leadership, M&A in the Biotech and MedTech & Finance's Influence on Innovation

Stan: Hi Johannes, thanks a lot for your time, to shed light on answers on our series on Leadership in Life Sciences: What is a successful Financial Strategy in Biotech and MedTech space and how to implement it right?

Johannes: Hi Stan, thank you for the opportunity speaking with you today as this topic is immensely important.

Stan: Let’s dive straight in, how different are financial departments in large and medium sized organisations?

Johannes: I have experienced in both large and medium-sized organizations a commonality in their fundamental functions. Both types share core elements such as bookkeeping, taxation, treasury, and controlling. Both large and medium-sized organizations require effective financial management to ensure their financial health and success. But this is where the commonality ends.

Their divergence becomes evident in the scope, resource allocation, specialization, and decision-making, shaping their distinct operational dynamics. Specifically, larger firms naturally boast a broader scope with multiple subsidiaries, international operations, and a diverse array of products or services. This expansive landscape leads to more intricate financial structures and complexity. Yet, there tends to be more resources available for hiring specialized personnel and implementing advanced technology, financial systems, and processes. For instance, in medium-sized organizations, entity consolidation often remains at a high-level on the Financial Statements, while larger corporations may align internal chart of accounts down to even subaccount levels.

In sizable organizations, the segregation of duties is pronounced, resulting in a prevalence of highly specialized finance professionals rather than all-rounders. This specialization has its benefits but can lead to drawbacks, such as a lack of holistic thinking that may hinder organizational cohesion. Decision-making in larger entities tends to involve more layers compared to their medium-sized counterparts.

Furthermore, I observed that larger organizations at least in their headquarters tend to retain staff more easily, providing them with opportunities for multifaceted growth across various departments and roles both laterally and vertically. ?

Stan: How to make a positive impact as a Head of FP&A on business performance but not neglecting culture and people?

Johannes:?As the Head of FP&A, you hold a pivotal role where all financial data converges, making you the central point and a facilitator for informed decision-making.

Establishing contextual clarity for this data necessitates strong trust-based relationships with stakeholders. How to build that trust is not easy for more details I recommend to focus on trust dimensions as outlined in my book I wrote about: “Organizational Trust, Measurement, Impact, and the Role of Management Accountants” published in Springer Contribution to Management Sciences. This foundation then enables accurate financial assessments and strategic planning. Although systems and processes are often well-structured, gaps in information sharing can arise due to organizational dynamics, tensions, or evolving trust levels. My approach has always emphasized building personal and organizational trust relationships to enhance accountability, align business decisions with financial data, and, when enabled, provide valuable business insights.

The essence of FP&A's core task lies in setting goals based on sound contextualized data and aligning strategic formulation with effective execution. Achieving this generates an environment of purpose-driven commitment, fostered by trust, accountability, and a harmonious equilibrium.

While business performance is undoubtedly influenced by people and culture, it's not the sole driver. A proficient offering can persist or even succeed well without direct competition, even in the presence of a less-than-optimal management team and company culture. Yet, the synergy of a superior culture, an exceptional team, and an outstanding product offering is a potent recipe for enduring success. Companies seeking performance enhancement or retention should consider this holistic approach.

I advocate moving beyond mere corporate checkboxes. For instance, addressing employee well-being isn't about purely deploying trendy but poorly implemented mental health apps amidst a digital deluge. Instead, it involves fostering accountability, trust, empowerment, autonomy, collaboration, and most crucially, meaningful personal relationships and professional development.

Culture is an ever-evolving entity shaped by the actions of individuals. Effective leadership should exemplify authenticity rather than relying on superficial jargon. Culture isn't a static script; it thrives through lived experiences. A culture devoid of life is akin to a hollow prayer, well-intended but lacking genuine understanding. To make a culture resonate, it must be brought to life through actions and nurtured by every member of the organization. FP&A is at a focal point of leading the prayer as it co-determines what type of prayer is being sung. ?

Stan: How to make tough decisions and still create value for Investors?

Johannes: For me, a tough decision is one I must make because I couldn't prevent the situation from arising initially, and now as a result I have limited options as the outcomes unfold before me. I find that the question inadequately frames this topic and I struggle to answer. Firstly, decisions in a commercial business organization are always meant to generate long-term value for investors, so the word "still" doesn't resonate with me. In my view, the question should be, "How can decisions be made to create the optimal value for investors?" Secondly, determining what qualifies as a "tough" decision is quite challenging. Is a tough decision changing the strategy, leading a transformation, or operationally implementing software? Or is it a tough decision to terminate employees to achieve cost savings and enhance profitability? All decisions carry tough implications, to varying degrees. Often, challenging decisions are associated with strategic choices, but it's important to remember that 90% of success lies in execution. Even a mediocre strategy might succeed if executed well, while a brilliant strategy could fail if implementation falters.

I believe that the most effective approach for maximizing value for investors is to harmonize goals, strategy, and implementation, and always strive to stay ahead of the curve. Avoid putting yourself in a position where such difficult decisions become necessary in the first place. Opt for the best decisions early on to minimize the need for truly challenging choices. Thus, I consistently aim to follow contextualized data read outs or insights, acknowledge failure in a timely manner, and pivot when solid evidence is established.

Stan: What is it like to be the part of an pre- and post M&A deal and how to make it a success for all stakeholders?

Johannes: I've encountered situations both prior to and following deals as exceptionally dynamic and multifaceted experiences, involving a spectrum of challenges and opportunities. The triumph of an M&A deal hinges on meticulous planning, proficient execution, and the adept handling of diverse stakeholders' interests.

However, there isn't a one-size-fits-all solution for every scenario. The realm of M&A deals is replete with nuances. Is it an asset or share transaction? Does it entail a merger of equals or lean more towards a takeover? Could it be a SPAC being taken over for tax considerations? These contextual specifics play a pivotal role in discerning the factors that lead to success. An M&A deal should invariably emerge from a corporation's strategic goal-setting, wherein a precise and distinct objective must be established and subsequently put into action. Consequently, the query as to why a particular deal is imperative should be examined holistically. Striking the right balance exists between deliberating over a decision endlessly, evaluating countless scenarios for an impending choice, and summoning the courage to make an informed yet audacious decision. It involves a delicate equilibrium between betting the farm on a mere approximation or embarking on a comprehensive due diligence exercise where the finer details might be obscured by the broader context.

What holds paramount importance is securing the endorsement or at least buy-in of key investors and, where applicable, other stakeholders. Clearly articulating the objective, associated risks, and potential unknowns facilitates trust and assurance among investors that the board is providing them with ongoing updates. This purposed driven mission cascades through the organization, bolstered by substantiation.

The challenges are equally intricate and often contingent on the framework surrounding a given deal. Conducting Due Diligence entails probing for synergies and establishing a cogent rationale for an existing company's acquisition of another or its assets. What's in it for the buyer? What's the incentive for the seller? These motivations establish the framework for fruitful negotiations. Is the other party inclined towards opportunism, reciprocal tactics, or genuinely committed to steering the deal towards long-term success for both sides? An instrumental mechanism to ensure success involves milestone payments tied to specific metrics for former owners | shareholders, mitigating risks for the buyer and retaining the seller's support for ongoing activities. A seller who has faith in their own company or asset is more likely to be receptive to such an arrangement, provided they trust that the buyer won't simply tuck the assets away or allow them to dissipate for reasons of their own for example because it is a competing product.

Furthermore, identifying key drivers of productivity and maintaining the contentment of existing teams are pivotal. An array of other factors contribute to the success of an M&A deal, including the implementation and synchronization of processes, systems, and personnel. If a merger is supposed to be long term, then ensuring the feasibility of cross-organizational, cross-functional and cross-regional job rotations, though less common in contemporary times, remains pertinent, relevant and a hugely missed opportunity in most organizations.

Stan: How does finance influence and boost innovation in the Life Sciences sector?

Johannes: I divide finance into two main service offerings. The first one acts as a facilitator, handling operational finance tasks like bookkeeping, treasury, basic analytical controlling, internal and external auditing functions, and statutory reporting requirements. Without these foundational elements, no company in any industry can operate sustainably and no research will be really successful.

The second facet of financial service involves Finance acting as the primary interface to investors, ensuring both transparency and a rigorous alignment with goals. Particularly within the context of life sciences, Finance focuses on empowering businesses to support due diligence processes, business plans, and informed decision-making. Specifically, valuations and business cases based on clinical trial outcomes, market access plans, and reimbursement pathways require a knowledgeable finance professional with a deep understanding of the specific medical, market access, and reimbursement dynamics. Finance professionals often serve as the moral compass and economic conscience of the business, capable of discerning causal relationships. This role is often underestimated; in many ways, accountants are among the finest researchers due to their expertise in measuring cause and effect, especially when considering long-term implications.

It typically takes 5-7 years from the inception of an Intervention (API) or 3-7 years for a medical device to bring it through the ark and make it profitable, and accountants must diligently track the milestones they set for example for their arithmetic discounted cash flow analysis or other valuation tools. A skilled finance professional doesn't discount negative cash flows and de-risks valuations at least to the industry average. An exceptional finance professional comprehends the specific actual risks and uncertainties and calculates them accurately addresses the unknowns, thereby effectively managing risk mitigation and posing pertinent questions to facilitate early action.

Finance should base valuations closely on clinical data readouts, assess production cost efficiency, and the landscape of key opinion leaders, private and public payers amongst many other factors. This comprehensive perspective allows for the identification of opportunities and risks, enabling proactive measures to overcome challenges. It also allows an early pivot once evidence has been established that something doesn’t work. For example imagine a situation where the clinical trial shows very promising results in terms of safety and efficacy, but where you know that the intervention can never be produced cost effectively unless payers are willing to pay for it. This requires a decision, you got some choices: you can abort the clinical trial and pivot early to something else? Or heavily invest into market access and KOL networks to increase payer appetite to still compensate the intervention and / or focus more investments on reducing production cost to still make it possible. The earlier you have the data the faster you can make a decision on how to go about this problem.

Ultimately, this analytical but also interpersonal approach results in more funds being available for increased investments in research and development and with better outcomes. It builds trust. The collaboration between financial stakeholders and researchers is pivotal in fostering the creation of novel treatments, therapies, and technologies that hold significant potential for enhancing human health and well-being.

Particularly in biotech, finance also takes the lead in fundraising for both dilutive and non-dilutive capital through various avenues, such as secondary listings, secondary raises, IPOs, VC capital injections during phase 2a|b, or angel investments. In startup scenarios, finance investors seek an independent finance professional. Often, they place the CFO themselves to ensure their impartiality.

Numerous other dimensions exist in which Finance propels or facilitates innovation, though a comprehensive overview of these aspects would necessitate me to write an entire book to delve into. Maybe this could be a new project for me?

Stan: Thank you for these valuable insights!

Johannes: Thank you very much for your time and driving value in lifesciences with this platform!

Stan Kalinin draws on an extensive track record of more than 14 years of search and executive team-building expertise. He is the host of MedTech Opinion Leader supporting growth of MedTech industry and creating insightful stories with key market executives forging alternative narrative about the sector current and future trends.