Are small biotechs in trouble?

It’s not only getting harder for small biotechs to find funding; too many have scaled up operations by adding employees too quickly, forcing them to lay off people as the path to new drug approvals gets more complicated.

With two of its prized gene therapies on clinical hold, Bluebird, a small biotech company in Cambridge, is going through some hard times. The once-promising company has seen the departure of some key executives, including their CFO. The company’s future rests on the approval of new treatments, including Beti-cel for the blood disorder beta thalassemias, while eli-cel treats the rare metabolic disorder cerebral adrenoleukodystrophy (CALD).

Right now, it’s hard not to read stories about biotech companies laying off people as the FDA takes a stricter stance on new drug therapies. In reviewing some of these companies, a couple of mistakes seem common.

First, they have been overly optimistic in press releases about their drug therapies even as they go through clinical trials. Public relations can be a valuable tool to raise awareness among the medical and financial community. Still, they have to be balanced with the realities of getting approval for the indications THEY want and need.

Second, they added too many people too quickly. Some were lured with the promise of cashing in stock options other thought working for a small company would be more advantageous than the big world of big pharma. Some VCs require small biotechs to have lower expenses, including employee payrolls.

Finally, too many small biotechs don’t have adequate leadership in critical positions like CEO and CFO. CEOs have to be able to lead while balancing expectations. CFOs have to be well connected to secure VC funding as needed. CFOs also have to balance the needs of VCs with the needs of the company. Cutting staff might be a way to reduce expenses, but it may slow down the development and launch of drugs.

Perhaps the biggest issue that’s being missed by the business media is that every time small biotechs run into trouble, the real losers are patients looking to the drug industry for new treatments for a wide range of health issues. Unfortunately, it costs a LOT of money to launch a new drug even if a company successfully gets FDA approval. Big pharma is also not that interested in small medications that don’t contribute significantly to a company’s bottom line.

There was a time when small biotech companies were the darling of investors and Wall Street, but that, like everything, is changing. The FDA is looking at expensive therapies more closely and asking some hard questions after the Biogen disaster forced politicians and the medical community to look harder at the drug approval process.

Like everything, the pendulum will swing back. All it takes is one small biotech company to launch a new drug that captures headlines, and investors will be back looking to get in before it’s too late. I hope patients can wait.