10 Possible Risks Faced by Biotech Startups Today
Biotech is now an area that seemingly offers ambitious startup founders and investors unlimited opportunities. In 2022, the global biotechnology technology industry was valued at USD 859.94 billion with its estimated compound annual growth rate (CAGR) pegged at 8.7%. This would give the industry an estimated worth of USD 1,683.52 billion by 2030.
But for all the optimism about the industry’s growth, particularly in Silicon Valley and in booming Asian innovation hubs like Singapore, biotech may be one of the riskiest technology spaces founders and investors can enter.
Biotech startups today face many serious existential threats, owing to unique external forces and the inherent nature of biotechnology. Below are some of the typical risks faced by biotech startups today.
1. High Capitalisation Costs
Getting into biotech at any level is an exceedingly expensive venture. The facilities, equipment, specialized labor, contract services, and consumables required by a typical biotech venture aren’t cheap and are often sensitive to inflation and market volatility.
Additionally, there should also be enough working capital to keep the venture going until it produces patents or market-ready products, which may take years. These massive costs limit the number of willing investors, complicating biotech startup launches.
2. Funding
While funding is an issue for all startups, it’s especially difficult for biotechs. Immense costs and long project pipelines combine to make it very difficult to secure the first round of investment. Timing the next series of funding or completing an initial public offering can also be a fraught process. Startup founders may have to make compromises in funding simply to ensure that research can continue.
3. High-Cost Facilities
Most biotech startups require a well-equipped laboratory to conduct research. Biotechs that do research related to pharmaceutical or agricultural applications often require a lab with at least a Biosafety Level 2 (BSL-2) certification, which is often expensive to acquire or set up.
Fortunately, biotechs will limited needs or short project timelines can usually rent BSL 2 lab space and equipment in established biotech hubs like Singapore. Outside of biotech hubs, however, setting up the right facilities can be prohibitively expensive, if not impossible.
4. Long Project Pipelines
Biotechs have among the longest project pipelines in tech. It can take months or years for research to bear patentable innovations or marketable products. This leaves biotech startups at the relative mercy of their investors while also making it challenging to pursue emerging opportunities.
5. Ethical Issues
More than most other industries, biotech is beset by ethical issues. The protection of human subjects, animal rights, profit motives in healthcare, research using human embryos, and biotechnology’s potential in warfare are just some of the many ethical subjects and quandaries that biotechnologists need to grapple with.
How these issues are addressed can impact a startup’s ability to get funding as well as its legal and regulatory risks.
6. The Fast Pace of Biotech Development
The biotech industry is moving at such a rapid pace that it’s difficult to stay on top of all the risks and opportunities present in the market. Startup founders should be prepared to pivot and take calculated risks to make the most of fleeting opportunities and avoid potential losses.
7. IP Protection
Biotechnology is such a hotly contested space that both IP theft and unintentional parallel development are commonplace. These situations make it especially important for biotech startups to be hyper-vigilant about protecting their innovations and future profitability.
8. Cybersecurity
Biotech companies are coming under increasing threat from cybercriminals, risking the identities of patients and human test subjects while also putting sensitive intellectual property at risk.
The need to boost cybersecurity will, consequently, increase the overhead costs of biotechs, making it more difficult than ever to enter the industry.
9. Logistics and Supply Chain Challenges
Biotechs have very complex logistics and supply chain requirements as they require highly specialized equipment, esoteric consumables, and sensitive biological materials from all over the world.
Additionally, biotech labs need materials that may be potentially hazardous or volatile, requiring special storage facilities. Also, the prices of these various inputs can vary immensely according to the vendor, order quantity, and current market conditions.
This makes it important for biotech startups to hire lab managers who understand the ins and outs of laboratory supply chain management.
10. Long Approval Times
Because of all the safety and ethical questions that need to be addressed, approval times for new biotech products are extremely long in most markets.
For example, in the United States, one of the world’s biggest markets for biotech products, it usually takes regulators 7-12 years to approve biotech products upon the receipt of application.
While other countries may take shorter or longer to do the same, it still typically takes years, which can be severely disadvantageous to a new biotech firm with a limited product and patent portfolio.
Biotech is a classic “high-risk, high-reward” type of venture. Biotechnology startups have to contend with a unique set of risks that do not apply to other tech startups.
The health, safety, ethical, market, and practice aspects of the industry make it so that biotech startups can be extremely vulnerable in their first few years of operation.
However, the few biotechs that do navigate these risks successfully can gain a foothold in what is set to be one of the most valuable and globally important industries to date.
Expert Bio:
Germaine Ignacio is a freelance writer. As a Psychology major, she is interested in how investing in personal growth and happiness can improve professional productivity. She is also an avid baker who lives with two cats.
