How to Avoid Becoming a Biotech Zombie Part 1

Applying Proven Industry Business Principles
Jan 01, 2008
Volume 21, Issue 1

Carmen Medina, M.P.H.

Joseph Villafranca, PhD
The annals of biotech include far too many stories of scientific breakthroughs followed by business breakdowns. For every spectacularly successful company, there are numerous others that fail. And then there are the companies that achieve neither failure nor success. In an article entitled "It's Alive! Meet One of Biotech's Zombies," the New York Times recently recounted the history of one such company, which in its 26-year existence had never earned a profit or marketed a drug of its own while going through more than $700 million of investor money. It is not alone. A number of other unprofitable biotech companies have hung on nearly as long and with similarly disappointing business results.

In our work with biotech companies and investors, we have found that, while there is no one-size-fits-all solution for avoiding becoming a biotech zombie, there are several proven business principles that are specific to the biotech industry. If put into practice, they can greatly increase your chances of creating a healthy, vital company, instead of a non-profitable entity limping grimly along.


Conventional wisdom suggests that all companies should be poised for growth—the faster, the better. The growth curve for biotechs, however, differs sharply from that of companies in other industries, as well as traditional pharmaceutical companies. Neither suddenly bursting forth like supernovas nor scratching their way meagerly forward like the zombies of the industry, successful biotechs are much more likely to grow slowly and steadily. They methodically meet development milestones, each of which may require several years to achieve. They systematically and carefully satisfy regulators every step of the way, and they are prepared to absorb the almost inevitable scientific and regulatory setbacks.

Quick Recap
Company executives and investors who try to impose an artificially rapid pace for growth on a biotech are making a grave mistake. Such pressure can result in slipshod science, a lack of strategic flexibility in product development, and disillusioned investors who prematurely pull the plug on funding. Formerly, many biotech investors, dazzled by the possibilities of blockbuster drugs and stunning breakthroughs like the mapping of the human genome, saw biotechs as having spectacular possibilities for growth. More recently, however, investors have begun to understand the much slower and more uniform growth curve that characterizes biotechs. For biotechs seeking funding, it is important to know if your potential investors harbor unreasonable expectations for growth. If they do, you must try to educate them about the challenges that biotechs face: the fact that you are trying to do something that's never been done before, that you face regulatory burdens at every turn, and that the path from proof-of-concept to efficacy in humans is long and arduous.

Further, because of the almost linear and accretive nature of drug development, biotech companies have few opportunities to expand outside of the scope of their core business until very late stages of development. Make it clear that everyone faces these hurdles and competitive conditions, and that the winner is likely to be the company that addresses them comprehensively from the first, maps out a viable strategic path, and proceeds with deliberate speed rather than undue haste. Gradual growth is a smart and reasonable expectation for all stakeholders for achieving the company's ultimate goals.

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