4 ms·

You think software VC's are bad? Two of the last biotech IPOs I followed in 2019 were pre-revenue companies: Frequency Therapeutics and Aprea Therapeutics. And

You think software VC's are bad? Two of the last biotech IPOs I followed in 2019 were pre-revenue companies: Frequency Therapeutics and Aprea Therapeutics. And this has been going on for decades as pharmaceutical companies steadily ran out of small molecule targets and started to shift drug discovery risk to biotech VCs and the public. I'm not talking about just losing money - they don't even have a product yet because it's still in clinical trials. Anywhere from 25% to 75% of biotech IPOs in any given year are pre-revenue or unprofitable, depending on how the market is doing. That's obviously a small piece of the healthcare market in total but until the crisis, most other high growth healthcare company were moving in the same unicorn direction because of the easy access to capital. The problem isn't the startups, its the investors who are advising and incentivizing everyone to grow out of control because they're sitting on too much money and can't find anywhere else that gives decent returns.

hardtke 7y ago
A difference between drug discovery and technology is that in the case of drug discovery product-market fit is not as much of an unknown. If your drug works, there will be a market, it is pretty easy to estimate the size of the market, and you have market exclusivity for a period of time. In the case of technology, you need for both the product to work and for the market to materialize.
- akiselev 7y ago
  How many tech companies have IPOd without product market fit? Their main problem seems to be reigning in the unrealistic growth they've been chasing. Billion dollar biotech companies can evaporate almost overnight, especially during a fiscal crisis. All it takes is a clinical trial gone wrong (or a competitor's gone right) and most will not be able to find enough capital to keep going. Without revenue, their survival depends entirely on the FDA and investors. It's a binary result without many options like downsizing, hunkering down, renegotiating debt, or seeking a bailout except a massive down round acquisition (or government intervention).
brandonb 7y ago
It makes sense that biotech startups are pre-revenue: it is illegal to charge money for a drug until it's gone through FDA clearance. That usually requires a Phase III clinical trial. After FDA, you're not done: the company must then convince doctors to prescribe the drug, and health insurance to cover it. All takes years, and requires investment. The estimate is that it now costs $1B+ to develop a new drug and bring it to market.
- akiselev 7y ago
  Oh absolutely. Usually they're at least past phase 1 trials so at least investors know that the FDA has at least spoken to the safety. I've worked in startups in both fields so it's just fun to watch software people salivate over the impact of biotech while the biotech people salivate over the easy money and sky high valuations of software.
- luckydata 7y ago
  That seems the problem in itself. We should, as a society, figure out how to do that more cheaply and without the incentive of profit. Too much chance of someone telling a bunch of lies or misrepresenting in order to make a buck.

hardtke 7y ago

A difference between drug discovery and technology is that in the case of drug discovery product-market fit is not as much of an unknown. If your drug works, there will be a market, it is pretty easy to estimate the size of the market, and you have market exclusivity for a period of time. In the case of technology, you need for both the product to work and for the market to materialize.

akiselev 7y ago
How many tech companies have IPOd without product market fit? Their main problem seems to be reigning in the unrealistic growth they've been chasing. Billion dollar biotech companies can evaporate almost overnight, especially during a fiscal crisis. All it takes is a clinical trial gone wrong (or a competitor's gone right) and most will not be able to find enough capital to keep going. Without revenue, their survival depends entirely on the FDA and investors. It's a binary result without many options like downsizing, hunkering down, renegotiating debt, or seeking a bailout except a massive down round acquisition (or government intervention).

brandonb 7y ago

It makes sense that biotech startups are pre-revenue: it is illegal to charge money for a drug until it's gone through FDA clearance. That usually requires a Phase III clinical trial. After FDA, you're not done: the company must then convince doctors to prescribe the drug, and health insurance to cover it. All takes years, and requires investment. The estimate is that it now costs $1B+ to develop a new drug and bring it to market.

akiselev 7y ago
Oh absolutely. Usually they're at least past phase 1 trials so at least investors know that the FDA has at least spoken to the safety. I've worked in startups in both fields so it's just fun to watch software people salivate over the impact of biotech while the biotech people salivate over the easy money and sky high valuations of software.
luckydata 7y ago
That seems the problem in itself. We should, as a society, figure out how to do that more cheaply and without the incentive of profit. Too much chance of someone telling a bunch of lies or misrepresenting in order to make a buck.