From Clinical Trials to Intellectual Property: Navigating the Top 5 Pitfalls of Health and Biotech Start-up Investing
Investing in health and biotech startups can be a high-risk, high-reward endeavour for investors. While these startups have the potential to revolutionise healthcare and generate significant returns, there are many pitfalls that investors must navigate. In this article, we will discuss some of the most common pitfalls that investors make when investing in health and biotech startups.
Ignoring regulatory hurdles: One of the biggest risks for health and biotech startups is regulatory approval. Many startups require approval from regulatory bodies such as the Medicines and Healthcare products Regulatory Agency (MHRA) or the European Medicines Agency (EMA) before they can bring their products to market. Investors who overlook the regulatory hurdles that startups must overcome can suffer significant losses. For example, if a startup fails to gain regulatory approval for its product, it may not be able to generate revenue, causing its share price to plummet. This was the case for the British biotech company Circassia Pharmaceuticals, which saw its share price drop by over 60% when its allergy drug failed to gain approval from the US Food and Drug Administration (FDA).
Focusing too much on clinical trials: Clinical trials are a crucial part of the drug development process, but they can be a poor indicator of a drug's commercial success. Investors who focus too much on the results of clinical trials can overlook other factors that can impact a drug's success, such as pricing, competition, and marketing. For example, in 2017, the British biotech company Adaptimmune Therapeutics saw its share price drop by over 50% when its cancer immunotherapy failed to demonstrate efficacy in a clinical trial. However, the company's management team had previously warned that the drug was a high-risk investment, and the failure of the trial was not unexpected.
Underestimating competition: Health and biotech startups face significant competition from established pharmaceutical companies and other startups. Investors who underestimate the competition can suffer significant losses if a startup fails to gain market share. For example, the British biotech company GW Pharmaceuticals saw its share price drop by over 30% in 2020 when it faced increasing competition in the market for cannabis-based medicines. The company's flagship drug, Epidiolex, was the first cannabis-based medicine to be approved by the FDA, but other companies soon entered the market with their own products, leading to increased competition and pricing pressure.
Overlooking intellectual property risks: Intellectual property (IP) is a crucial asset for health and biotech startups. However, investors who overlook IP risks can suffer significant losses if a startup's IP is challenged or invalidated. For example, in 2017, the British gene therapy company Oxford BioMedica saw its share price drop by over 30% when it lost a patent dispute with a competitor over a key gene therapy technology.
Failing to assess the management team: The management team of a health or biotech startup is critical to its success. Investors who fail to assess the management team can suffer significant losses if the team lacks the necessary experience or expertise. For example, in 2020, the British biotech company Synairgen saw its share price drop by over 40% when it announced that its CEO had sold over £5 million worth of shares in the company. The news raised concerns among investors about the management team's commitment to the company's long-term success.
In conclusion, investing in health and biotech startups can be a high-risk, high-reward endeavour for investors. However, by avoiding the pitfalls discussed in this article, investors can increase their chances of success and minimise their risks. It is essential for investors to conduct thorough due diligence before making any investment decisions.