Do New Biotechs Have Compliance Baked Into Their Business & Capital-Raising Plans?

By Darren Jones

Do New Biotechs Have Compliance Baked Into Their Business & Capital-Raising Plans?

New equity investments are flowing into the life sciences sector at an accelerated pace. There is a resurgent boom in start-up biotech firms as well as smaller biopharma companies initiating IPOs, fueled by VC firms who have seen an increase in innovative treatments coming to market. Much of this was sparked by the Human Genome mapping project funded by the federal government a couple of years back, which is now starting to bear fruit. Similarly, many private equity investors who entered the market during the mid-2000s are now looking for a return, which is contributing to some of the recent deal making.

According to a recent article in The Economist, in 2013 biotechs launching IPOs raising the most money since 2000. Additionally, over the last 12 months, biotech company shares have surged nearly three times as much as overall shares on the S&P 500 Index. In early February, eight biotech companies alone launched IPOs raising more than $500 million.

The article goes on to point out key reasons why this biotech boom will not turn into a bust like others in past years, including the Human Genome mapping acting as a catalyst, smaller firms building annuity revenue streams by forming research partnerships with bigger pharma companies, and overall drug R&D costs being lowered due to smaller clinical trials as result of advances in genomics.

The opportunities, however, both for small biotechs and their investors alike, for long-term, sustainable business growth, are really predicated on how raised capital is invested within these companies. In previous booms, VC investments were not managed or channeled well into the firms they had stakes in, but this time around there’s a lot more rationale for investors to be extra vigilant about how smaller-cap biotechs spend their money.

The regulatory environment for the life sciences sector looks a lot different now than it did in the past and many of the activities funded to bring a drug to market must be captured meticulously by organizations so they do not violate compliance requirements.

These newer biotech firms will need to create the business rules and technology infrastructures that can ensure they stay compliant with global, U.S. Federal and state compliance rules. VCs and other large equity stakeholders should maintain strict oversight over how their funding is earmarked for this purpose.

Everything from how academic, pre-clinical and clinical research is financed through third parties to how joint R&D and commercial activities between biotechs and their larger pharma company sponsors for bringing new treatments to market are valued needs to be captured, tracked and reported on to global regulatory entities.

Biotechs will continue to have enough to worry about getting their new treatments through FDA approvals as well as getting private and public payers to cover them on patient insurance plans, should they receive approval. One headache they could avoid now is to work closely with their investors to map out how a compliance process and technology platform can be built cost-effectively. Not making this a critical part of the investment plan could bring a biotech sector that is now firing on all cylinders to yet another abrupt and screeching halt.