As a biotech company in a thriving entrepreneurial ecosystem, we often face the challenge to explain what our business model is and how our company will succeed. However, differently from tech or IT (Information Technology) companies, biotechs have different KPIs (Key Performance Indicators) that guide the development process of these companies. In these series of posts entitled LizarBusiness we will lay out some of the key aspects that govern a biotech development mostly focusing on the business side. We feel that sharing our insights about the matter could help others thinking about this topic and also serve as conversation starter for many scientists in the field thinking about starting company.
As a first piece, we will focus on what we mean by biotech. Surely the term could encompass a great variety of areas as biotechnology have the potential to address problems in agriculture, meat production, cosmetics, therapeutics/vaccines and diagnostics. Some of our comments could be applied for most, maybe all, of the aforementioned areas, but as a therapeutic company, we will focus on what we have had first-hand experience with.
Generally speaking, the therapeutic arena is a heavily regulated field. This is a good thing as the idea of regulation serves to protect leigh consumers from bogus claims from companies interested in selling therapies with no proof of efficacy and safety. However, this adds considerable challenges to companies aiming to develop new therapies since revenue is only possible after formal registration of the product under the authorities. The immediate consequence of this is that biotech companies require more time to go to market and more funding before they are profitable. We can also say that investors looking at classical KPIs such as MRR/ARR (monthly and annual recurring revenues), CAC (Costumer Acquisition Cost), LTV (LifeTime Value) do not make much sense. Instead, the company needs to focus on their development pipeline showing constant progress towards regulatory approval.
Notably, there are applications of biotechnology products that are more permissive to commercialization and require little, if any, regulatory approval (research use applications, for example). However, market sizes tend to be smaller, more fragmented, more crowded and with smaller margins, therefore impacting on return on investment.
Next post we will focus on what are the general stages of development and how they relate to the business of developing therapies! See you soon 🙂