How To Establish A Biotech Start-Up In The Market
FierceBiotech recently held a discussion with three other experts on tips for the early-stand funding field. It was a move that should not have come as a surprise given the dwindling funding for seed-stage companies.
Most biotech companies are bagging a piece of the big Venture capital cake that is worth billions of dollar; however, much of the money goes toward the late-stage developers offering a better bet to investors that have promising returns within a shorter period. But things are not so rosy for most start-up, many are grappling with challenges of getting funding. According to an online post, early-stage funding deals dropped from 45% in 1995 to 26% in 2007. Some money for the early-stage developers did trickle in over a period of the previous two years, but much of the market is significantly undeserved.
Why the gap? For starters, most companies are going public within a shorter period after establishing themselves that was previously seen in most markets. As a result, investors have to offer such business entities support for a longer period. On the other hand, hostile market conditions play a huge role in the low valuation of the companies even when they do go public. The outcome of all this is a growing regard for early-stage investments as a high risk, especially among many VCs.
All these developments have not impeded the percentage of outstanding science coming out of early-stage companies, an issue that has caught the eyes of many Big pharmaceuticals as they seek to turn the tables around for their depleted pipelines. Thus, they are willing to inject more money just to achieve their targets.
So how can a start-up attract the kind of funding it needs? PureTech Ventures' founder and managing partner, Daphne Zohar and Barbara Schilberg the CEO and managing director of BioAdvance as well as the CEO and president of the Accelerator Corporation, Carl Weissman shared their tips on how start-ups can attract much-needed seed money.
Technology is at the core all everything. What investors are looking for in not a commonplace drug rather something unique. For all three, financing technology platforms that produce drug candidates is a more lucrative venture when it comes to offering financial support to technology platforms or drug candidates. They also added that early-stage investors eye investments with the ability to hit a set target with a period less than three years.
A momentous market potential should be present for the drug. Investors are more inclined to go for technologies that address a vital unmet need while having a significant impact on the market. Also, the market type is an influential element worth taking note of when trying to securing funding. It may be harder for a cancer drug company to acquire venture capital before completing its human trials because early-stage targets that fail to pan out were burned by VCs.
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Things may not look too gloomy for the Alzheimer's candidates when it comes to early-stage funding since Big pharmaceuticals acquire early stage drugs from that sector. Most investors will opt to run the other direction if the development atmosphere of a company's drug is overly crowded. With the fact that market a company eyes should justify the cost of development; then a start-up has to trend cautiously to strike a balance between finding a market potential and developing a drug that addresses the market's need.
Schilberg, Zohar and Weissman also touch on having a strong Intellectual property protection. They expressed the damage that would arise from publishing findings before ascertaining the commercially-driven Intellectual property (IP). They also added how an IP that fails to cover key areas such as the global market fails to be attractive to investors adding that is most likely will birth problems in the long run.
The best science will bear a less impact if a company fails to involve respected and recognized experts. Having a team of the best minds will attract the top cream of investors and management teams since they are viewed to offer validated scientific ideas and are a low risk. A lackluster management team lacking relevant experience only send a red flag to investors. Therefore, it is important for a company to have the right team of professionals in place a team that will validate productions.
Lastly, a start-up should have a backup plan. Such a plan will insulate the company against the risk of an idea or program failing to offer any significant fruits. Around 5,000 drugs transition from the discovery stage to their approval. As such, establishing different programs helps cement the survival of start-ups as they face latent snares in the process of drug development.