Life science companies are known to be one of the most expensive and difficult to start up. We look for an answer as to why in an excellent article by Steve Blank that discusses the need to reinvent how start ups operate. It isn’t enough to just have a good idea, but it needs strong scientific basis, an expert team of scientists and leaders, and – most difficult to find – plenty of money! The biggest issues facing start ups in the pharmaceutical industry are listed below:
The biggest issue for any company is funding. In the past 60 years, the cost of FDA drug approval has increased 80 fold, which makes it much more difficult for small companies to succeed. The fact that “75% or more of all the funds… will be spent on clinical trials and regulatory approval” means that companies are required to secure enough cash for manpower and longevity – the clinical trial process can take up to 10+ years! In addition, Blank found that a “vast majority of Life Science exits remain below $125M,” while industries such as web-based companies offer much more upside and attract more investors. Why would an investor gamble on a risky and expensive venture that promises lower profit?
The cost of drug discovery is increasing because drug safety has become more important. Past complications with popular drugs in the past couple decades have led to tougher rules and longer trial times. It’s become critical to ensure that the first pass through trials is a success or the company will fail. Some start ups will sell to Big Pharma to transfer risk to a more financially stable company (that is also seeking more items for their pipeline).
Effective preclinical research and lead screening will produce the best candidates for a new drug. Strategic outsourcing can help reduce costs and introduce new experts to help with drug development. Outsourcing also enables start ups to have access to cutting edge technology without having to own it, further improving odds. It is worth the investment early on to synthesize the best drug possible and try to reduce risk and uncertainty before throwing millions into trials. As Blank points out, “the belief was that once a new target was found, finding a drug was a technology execution problem.” Many start ups may just have an issue of access to the right technology.
We look forward to reading Blank’s next parts of his series where he will discuss challenges and new approaches to drug discovery.
- Blank S. Reinventing Life Science Startups – Therapuetics and Diagnostics http://steveblank.com/2013/08/19/reinventing-life-science-startups-evidence-based-entrepreneurship/