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Managing Biotechnology by Glen Giovannetti, Francoise Simon

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Chapter 2Biotechnology Financing Strategies

The primary way that biotechnology companies create long-term value for society and their investors is through the development of innovative products that address significant unmet medical needs. This is an inherently high-risk, high-reward activity. The simple fact is that most drug development efforts do not result in a product approval [1]. Founders and funders must contend with a number of different types of uncertainty, including scientific risk, regulatory risk, financial risk, and, increasingly, payer risk. As a result, a core competency entrepreneurs must develop is the ability to market the company's story to investors, including addressing how inherent risks will be mitigated. Among these risks is how the product or technology under development will result in improved outcomes (and therefore differentiated value) for patients and increasingly value-conscious payers, even if that result is a decade or more away. As Ed Mathers, a partner at NEA Ventures, notes

“We still ask ‘will it work?’, but now we also ask ‘will it matter?’. If a new product or platform doesn't matter to payers and pharma companies, then we are unlikely to invest in it. Nowadays, the product must not only work clinically and provide some measurable benefit relative to the standard of care, it must also offer economic advantages in terms of impacting the overall cost of therapy” [2].

Further, the value of a product may only be fully realized through novel ...

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