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Biotech Entrepreneurship Part One: What and How Not?

Editor: This article is the first of a two-part series. Check out Part Two here.

This primer provides an overview of the biotech entrepreneurship landscape. It discusses common challenges through the lens of starting up a biotech company. The primer also touches on the far-reaching strategic and ethical decisions that founders have to navigate through during their entrepreneurial journey.

What am I reading about?

Entrepreneurship is the process of building something unique, trying to sell it, and continuing to refine what was built. Literally, everything you consume or use - whether it's your morning coffee, your t-shirt, or your toothbrush - all started out from a brand that was once a start-up.

Biotech entrepreneurship is the pursuit of translating novel science from a laboratory bench to a buyer’s shelf. Unlike generic entrepreneurship, biotech entrepreneurs must manage not only their customer’s needs, funder expectations, and product development but also far more intensive research and development (R&D) and stringent legal procedures. As such, biotech entrepreneurs face all the challenges of ‘regular’ entrepreneurship on top of many more that are unique to the biotechnology space.

In essence, if entrepreneurship is all about facing high risk-high reward scenarios, then both risks and rewards are greatly amplified for the biotech entrepreneur.

The unicorn survivorship bias

A unicorn is defined as a private entity with a valuation of over US$1 billion. As of December 2020, there are over 500 unicorns worldwide with a combined valuation of ~$1,588 billion. Despite the pandemic, in 2020 alone 21 new biotech start-ups also entered this exclusive circle and the top 3 most valuable unicorns of 2020 include Biocon Biologics, founded in India by Kiran Mazumdar-Shaw.

These staggering ≥10 digit numbers may give the impression that building a start-up is a sure-shot lucrative opportunity. However, the sobering reality is that for every start-up that breaches the $1 billion mark, there is a graveyard of start-ups that failed.

Across Forbes, Fortune, and other news media, it is commonly cited that 90% of all start-ups fail. Notably, the 90% failure rate is calculated for ‘start-ups’ with 1 to 500 employees, so the statistic only includes enterprises that had at least one employee. As start-up founders typically only spend on hire after some measure of success, the actual failure rate is likely to be considerably higher for anyone who is just starting out with a waffly idea!

The Valley of Death (no exaggeration here!)

Okay, maybe it is a little dramatic, but it's totally true.

All start-ups are a risky endeavour. As matter of fact, there are numerous additional challenges that are specific to a biotech start-up. A part of this is known as the Valley of Death (Figure 1), whereby most start-ups never actually make it from the lab bench to the prototyping stage.

The minimum skill set needed in order to build a biotech start-up is deemed to be highly specialised and is not necessarily as easy to pick up in comparison to just getting a crash course in coding. This, therefore, creates additional challenges for entrepreneurs to conceptualise and execute a biotech idea.

Meanwhile, biotech start-ups require much more investment than a typical start-up just to develop the initial prototype. This is due to various reasons. Lab space, chemicals, and advanced equipment all are very costly. Also, science, by its very nature, fails a lot. This in turn increases the product development time as well as the costs associated with the process.

Figure 1: A simplified illustration of the Valley of Death, which is the lack of funding available to translate interesting science from the laboratory to the private sector. This dip in available funds kills a vast proportion of start-ups translating otherwise promising science.

Initially, the funding for this process comes from grants, universities, and governments. Once the technology has been demonstrated to be feasible and there is a strong indication of commercial potential, for-profit private sector funding (such as high net worth individuals and venture capitalists) predominates in the start-up fundraising scene.

The Valley of Death arises in between these phases. This is when protracted R&D with no definite promise of either scientific or commercial feasibility leads to the start-up consuming millions in resources without turning a profit.

The long development times as well as the low assurance of an idea that sounds good on paper to actually be scientifically demonstrated, discourage many traditional sources of funding from dipping their toes in this pond. On top of that, the know-how needed to evaluate such pitches, help a start-up team navigate the problems they are facing, and understand why the science is not working creates another barrier to entry for the remaining funders who may otherwise have a bigger appetite for risk.

Nevertheless, it is not all doom and despair, as there is still a breed of institutional grants as well as of private sector incubators, accelerators, and collaborators who are encouraging science among entrepreneurs. Some prominent examples of these organisations include IndieBio, Petri, Y Combinator, Entrepreneur First, The Pioneer Fund, Wellcome Trust Translation Fund, and countless other academic-industrial partnerships.

Do you dream of unicorns, zebras, or camels?

The term “unicorn” is appropriately coined, for they are highly valuable and extremely rare. Unlike unicorns, zebras are much more realistic and way more common. In particular, the term ‘zebra’ was coined by the entrepreneur Jennifer Brandel to describe start-ups that return far less profit than a unicorn but do so at great speed. Zebras cooperate with each other and thrive if the right conditions are available. Essentially, they are black and white, so they are profitable and strive to create social impact rather than sacrificing one for the other.

Figure 2: Unicorns, zebras, and camels are alternate start-up analogies.

On the other hand, some critics argue that both unicorns and zebras are coddled by highly supportive infrastructure in global entrepreneurial hubs like London or Silicon Valley. Hence, they advocate for camels, which are start-ups that thrive not only in good conditions but also during droughts. Basically, camels reflect start-ups that arise whenever funding and start-up support is scarce, making the risks and challenges even greater. But the silver lining in the cloud is that - camels are better equipped to survive the Valley of Death than others.

Notably, these analogies represent strategies for investors just as much as they do for founders. The million-dollar question would be - should the biotech founder dream of unicorns, zebras, or camels?

Do consider checking out the articles on Medium, Entrepreneur, Forbes, and Harvard Business Review evaluating these diverse start-up breeds.

Quite literally.

Elizabeth Holmes, once believed to be a revolutionary innovator, was charged with fraud for deceiving investors to raise $700 million. That's $700,000,000!

She claimed that her product could measure many disease biomarkers simultaneously from just a single drop of blood. It took over a decade for everyone to realise that there was no such miracle technology. As a result, oblivious patients sent a finger-prick blood sample to Holmes’ start-up giant Theranos (previously valued at $9 Billion), where their blood drop was diluted and sent to various pre-existing commercial labs for testing. The results were then relayed back to the patients as if they came from Theranos’ proprietary tech.

Obviously, this is wrong on multiple levels. Apart from being plainly deceitful by misrepresenting what the biotechnology was capable of through diluting blood samples to keep up the charade, Thaneros deliberately provided unreliable medical diagnostic data to potentially millions of patients. That’s just deeply unethical.

Figure 3 (Right): Elizabeth Holmes, formerly Founder & CEO of biotechnology firm Theranos, committed fraud. Click here to see the image credits for the photo of Elizabeth Holmes.

What of education?

Elizabeth Holmes was just 19 years old when she founded Theranos. She dropped out of an advanced degree in Chemical Engineering but was still widely trusted when she claimed to have invented this technology. Perhaps some of it was rooted in the romanticism of entrepreneurs dropping out of competitive degrees, like Bill Gates and Mark Zuckerberg, both of whom come from non-biotech majors.

As a direct fallout of how that gamble turned out, the biotechnology ecosystem has learned to be very cautious of ambitious claims. That wariness is great for patients and investors but has also created additional hula-hoops that hopeful new biotech entrepreneurs need to jump through.

A Ph.D. degree has long been regarded to be the most advanced scientific qualification as well as the minimum paper qualification that a researcher needs in order to advance into senior research positions. This is likely to have been reinforced by the Thaneros fiasco. However, other qualifications (and non-qualification routes) are also available, even if some of them may be an uphill climb. To learn more about them, check out this article, which involves Praveen Tipirneni, MD, and a biotech CEO evaluating some of these educational pathways.

For a bonus reading material: What does breakthrough innovation look like today? This is basically a concise exploration of the role of university research and high impact solutions in pioneers. It is also a portal into one of the most high profile annual conferences in Europe for early-stage biotechs.

How not to start-up

To sum up, here are some basic pitfalls to avoid while starting up:

  • Don’t assume that unicorns are the holy grail

Start-ups, by definition, are high risk-high rewards. While it's alluring to visualise being the famous, lucrative, and evasive unicorn, other beasts also hold valuable lessons for the discerning biotech entrepreneur. For instance, zebras build sustainable momentum and balance profitability with social impact, while camels know how to survive a drought.

  • Don’t be shady

If something isn’t quite optimal yet, openly admit that and talk about what you are doing to improve it. If you don’t know something, admit that. Share your data and don’t try to circumvent independent clinical testing.

  • Don’t have shaky knowledge about your science

Read up on all the science that is relevant to your idea. Taking the example of cardiovascular disease (CVD), you will need to have a basic understanding of the biology of CVD and how your start-up is scientifically feasible. This applies to any industry and whether you are on the science or the business side of things. If you don’t know the science (i.e. the terminologies sound like a foreign concept to you), let your co-founder break it down for you until you can do the same for others if needed. Also, it can be easier to leapfrog such problems with the appropriate educational and/or professional background.

  • Don't be unscientific

You need to be a good scientist in order to have a good science business. This means being skeptical of your own data, collecting lots of data, thinking innovatively, and seeking to disprove. Yet, skepticism must also be balanced with a healthy dose of can-do optimism in order to survive the abysmal chances of a start-up making it. Managing this risk, without sacrificing the scientific method, is at the core of entrepreneurship. The Part Two article describes the nitty-gritty science of starting up.

  • Don’t be clueless about your industry

For instance, if you are pitching a CVD diagnostic, you need to know about the other CVD diagnostics that worked, failed, and are still in development. Besides that, you may also need to know everything about CVD drugs. And on top of all of that, you will also need to educate yourself on any diseases that are remotely similar to CVD or a technology initially built for another disease but could be easily tweaked and applied to treat CVD. Additionally, it is definitely a good idea to learn about the key disease incidence statistics. Clearly, there is a lot of work to be done. Do check out the Part Two article that can help you to know where to start.

In conclusion

There are many hurdles to starting a new company and even more to building a biotech start-up.

Yet, there are success stories of trailblazing teams that continue to inspire generations of young entrepreneurs to build something exciting within the field of biotechnology. For example, Multus Media is a team of recently graduated Biologists and Biochemists who raised >£5,000 within a year of starting up, whereas Ginkgo Bioworks can be traced back to undergraduate iGEM projects and is now a titan of the industry, where they recently secured a mammoth $1.1 billion loan from the US government for their pandemic effort.

In other words, if they can, maybe the rest of us can too. You simply won’t know unless you try. And take it from me, you will learn a lot by just trying.


Hansa Shree

DPhil in Chemical Biology

University of Oxford

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