How to Plan your Startup Pharma/Biotech Company?
Biotech companies manufacture products from live organisms. In contrast, pharmaceutical produces drugs and other products using synthetic materials. And there are top companies engaged in both fields, such as Pfizer, Roche, and Johnson & Johnson.
If you are an entrepreneur planning a pharma/biotech startup, you should first perform due diligence, have enough industry know-how, and conduct in-depth research. You can either produce drugs for more prominent companies or distribute them yourself.
But what should you do before starting a pharma/biotech company? Let's discuss a list of crucial factors for pharma/biotech startups.
1. Portfolio of Products you will offer
Product diversification for a pharma/biotech company is critical. You cannot focus on one product or only a few of them. There is no assurance that a product will succeed before its market distribution. Some companies even make a point of distributing their products but were not well-accepted by the medical community and the public. You must diversify to cover losses for unsuccessful products.
2. What is the Success Probability of each Product?
Success probability is applied per product – the early in the development, the lowest probability. Those well-received products have a 100% success probability. Giving success probability per product will weigh in the risk per product and only project a certain percentage of revenue. Let's say a product is still in the first stage, and you assume a 20% success probability. It means that only 20% of its sales will be considered in projecting the total revenue.
3. Investment Needed for the Research and Development (R&D)
The most significant investment for a pharma/biotech company is for research and development. It is when the company is in the formulation stage of various products. For this, you need to hire competitive and brilliant scientists to do the job. The process for R&D can take years. But there is no assurance that the product will be a success.
Starting a pharma/biotech company is a huge risk but will be worth it once your product/products become a hit.
4. Different Sources of Revenues
A pharma/biotech company has various revenue sources such as revenues from product sales, licensing, and milestone payments.
Product sales involve hiring more people to do the marketing and distribution. The profit margin is also higher.
Licensing requires lesser work with a specific rate you can charge for the licensing fee. Mainly no costs incur on your part after production since the licensing company will do them for you.
Milestone payments come from buyers who will pay you for every milestone achieved for the product development. Usually, big companies hire small or startup companies to develop products and pay milestone payments.
5. Applying for Patents
Getting patents will give you exclusive rights to produce your patented drugs and vaccines for about 20 years. It will provide ample time for a biotech or pharmaceutical company to recover the investment in R&D. Patented products command higher prices than their equivalent generic drugs. Patents are incentives given by the government to cover up significant investments by pharma/biotech companies. After the patent years expire, your products' prices will decrease.
Producing generic drugs does not need as much investment. You can produce similar products with no patents, but the competition is higher.
Starting a pharma/biotech company is riskier than other ventures. Producing a portfolio of products and getting revenue from various source streams will help diversify the risk. Be prepared to source funds for the R&D and startup costs since developing products will typically take years. Applying for patents will give you enough time to recover your investment and gain profit as you have the exclusive rights to produce patented drugs, vaccines other products.