Why Do So Many Biotech Startups Fail?



Money is flowing into biotech at an almost startling rate. In 1980, investments topped out at $2 billion. In 2012, that number was $48.5 billion.

One reason for this massive influx of cash is the seemingly endless number of opportunities in the biotech industry, where researchers continually find new uses for drugs and new fields of study. The industry has massive potential for profit, but it’s also a minefield for failure. The average cost of getting a single new drug to market is about $350 million, and that cost is rising steadily.

Failure is inevitable in the startup world — especially among biotech companies. These failures sometimes come back to science, but there are many common setbacks that can be avoided through careful study and stringent organization.

4 Completely Avoidable Reasons Biotech Startups Fail

While some circumstances are unforeseeable, there are a few common reasons biotech startups fail that can be avoided:

  1. Miscommunication: There are a lot of moving parts involved in developing a new drug, and different divisions of the company may have different visions for what they need to accomplish.

Minor miscommunications can often lead to problems with clinical trials, such as sending the wrong trial packages to a clinical procedure, or a doctor administering the trial without giving patients the correct information. These problems can stop a new drug from getting FDA approval, bringing everything to a grinding halt.

Every member of your team must have a complete understanding of the process and the science behind it to prevent minor misunderstandings from corrupting your research and costing your company millions.

  1. Procrastination: If you have confidence in your product, you need to act fast. Biotech is a brutally competitive field, with more players constantly entering the market.

The FDA approval process can take years, but if you believe your drug can get through all those hoops, you need to start preparing to go to market two years in advance. That means gathering funding to build a manufacturing facility so that you can start producing and shipping your product immediately.

  1. Dishonesty: It should go without saying that you need to be honest with your investors, but this isn’t always as easy as it sounds. Investors need to know everything about your product — not just the good it can do, but also the side effects and possible drawbacks. 

It’s tempting to gloss over potential pain points to secure investments, but that’s a huge mistake. Companies are willing to take risks, but failing to disclose the possible negative side effects of a product can lead to far-reaching consequences. Not only could you ruin your startup’s chances, but you could also ruin the lives of the people taking your drug.

  1. Cutting corners: Failing to perform one simple step in the long and complex FDA approval process may save you money in the short term, but it can also kill your startup’s chances if your product fails to get approval because of it. Spend whatever it costs to ensure that your product is safe and that all regulatory requirements are being met. If your product is approved, you’ll make that money back in no time.

Study the FDA guidelines, and learn the ins and outs of the approval process. Hire an FDA consultant, and grill him about everything you need to know. Remember: Minor mistakes can mean the difference between success and failure.

3 Tips for Staying Ahead in the Biotech Industry

If you can avoid these common pitfalls, you’ll be on the road to success. But biotech is still a risky industry, no matter how great your product might be. Entrepreneurs must be proactive about educating themselves on the industry to stay ahead of the competition.

  • Take a basic course on regulatory science. Plenty of reputable universities offer online courses that can give you a solid understanding of key legal and ethical issues that impact the biotech industry.
  • Attend drug development conventions and conferences. These events will keep you up-to-date on industry developments and allow you to see the how investors, regulators, and vendors view the industry.
  • Educate yourself on others’ mistakes. Read case studies and journals such as Health Policy to stay current on what’s going on in drug development and learn about mistakes other companies have made so you can avoid them yourself.

The biotech industry consists of a few big fish and a bevy of smaller fish. To avoid being eaten, you need to have a great product and move fast to get it to market. Most of all, your methodology has to be beyond reproach, and you must be motivated to take the steps necessary to get your product through all the regulatory hoops you will face.

Biotech is a challenging industry fraught with risk, but it’s one where your hard work can pay off in spades.

Image credit: CC by Jean-Etienne Minh-Duy Poirrier

About the author: Kevin Xu

Kevin Xu is the CEO of MEBO International, a California- and Beijing-based intellectual property management company specializing in applied health systems.

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