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Home › Topics › Stages of Starting a Biotech Business › Develop a Business Plan

Leslie Bowen

5: Financial Analysis and Projections

Topics Stages of Starting a Biotech Business Develop a Business Plan 5: Financial Analysis and Projections
Develop a Business Plan

1: Executive Summary, Company & Product Descriptions

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2: Business and Management Structure

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3: Seek Professional Assistance

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4: Market Research

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5: Financial Analysis and Projections

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6: SBIR/STTR and Other Seed Funding

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7: Venture Capital and Other Funding

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8: Product Development and Marketing Plan

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Financial Analysis and Projections

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A basic understanding of financial analysis and projection is important, even if you have a partner or someone you hire handling this aspect of your business. You need to understand their reports and recommendations and be able to evaluate their work.

Components of Financial Analysis and Projections for a Business Plan

  1. Establish a price for the product or service.
  2. Describe your order fulfillment strategy.
  3. Estimate financial costs for raw materials, salaries, activities (e.g., travel), rent, and equipment.
  4. Estimate the time it takes for product production.
  5. Make sales/revenue and other income projections.
  6. Analyze cash flow and balance statements.
  7. Estimate a year’s worth of costs, while raising money and have this much in savings. Include a plan to repay any loans.

To make sure your business is feasible, you need to use the above information to generate a financial projection, among other considerations. A worksheet for a Projected Financial Statement can be downloaded from the SCORE.org website. It takes you through several calculations and interpretations of the results, which help indicate whether your business is likely to succeed.

How long does it take to bring a product to market?

Developing diagnostics, medical devices, and molecular tests can take from 3 to 7 years and cost millions (Biolyze, 2018). Developing a new drug or biologic could cost around $2.5 billion and take 10-15 years (ULP, 2020; Biolyze, 2018). However, there are successful biotech companies that started rapidly with under $200,000 (ULP, 2020).

What is the success rate for biotech companies?

There are different ways of measuring a startup’s success, and it differs by industry. For example, success is sometimes defined as having an initial public offering (IPO) or being acquired by another company (Melchner et al., 2021). Using this definition plus achieving drug approval as a measure of success, the success rate for pharma startups is 18 to 37%. A study comparing biotech to non-biotech companies found that, although non-biotech companies created more net value, more biotech companies were acquired by established businesses than non-biotech companies, often before the initial public offering (Black, 2021). The startup success rate for Health Tech, which includes hospital management, health monitoring software, and telemedicine, is 20%, which is comparable to the overall success rate for all startups in the U.S. (SPD Load, 2022). The most common reasons for failure in health tech as not determining the business’s value proposition or choosing the wrong strategy to prove it.

Sources:

Biolyse. How To Start A Biotechnology Company Fast. Biolyse. August 21, 2018.

Black S. Are biotech companies really high-risk investments? ScienceBoard.net. January 7, 2021. Citing a study by the Bentley University Center for Integration of Science and Industry

Melchner von Dydiowa G, van Deventer S, Couto DS. How large pharma impacts biotechnology startup success. Nat Biotechnol. March 2021;39(3):266-269. doi:10.1038/s41587-021-00821-x.

SPDLOAD. Startup Success Rate in 2023 by Stage, Industry, Location. SpdLoad. Accessed 12/30/2022.

SCORE. Business Feasibility Analysis – SCOR# 4.15. July 29, 2021.

University Lab Partners. Finding Funding for Your Biotech Startup. June 8, 2020.

Tips:

To reduce initial costs as you start your business:

  • Join forces and share resources with other small businesses, rather than setting up your own laboratory.
  • Operate your office virtually.
Read More:

Entrepreneur Financial Skills and Resources

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Challenge:

Topic: Cost and time projections in the biomedical/biotechnology industry.

How long do you think it takes to develop a moderate to high risk (Class II-III) medical device?
Guess how much it costs to develop a moderate to high risk (Class II-III) medical device.

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Topic Home Expand All
Explore Motives & Skills Needed
3 Articles
Motivations for Starting a Business
Life Impact of Starting a Business
Skills Needed to Start a Business
Develop a Business Plan
12 Articles
1: Executive Summary, Company & Product Descriptions
2: Business and Management Structure
Part I: Business and Management Structure
Part II: Founding Team
3: Seek Professional Assistance
4: Market Research
5: Financial Analysis and Projections
6: SBIR/STTR and Other Seed Funding
Part I: SBIR/STTR & Other Seed Funding Overview and Getting Started
Part II: Writing and Submitting SBIR/STTR Grant Proposals
7: Venture Capital and Other Funding
8: Product Development and Marketing Plan
Set Up Your Business
4 Articles
Establish the Business
Registrations Required for Government Funding
Biotech/Biomed Industry Unique Requirements
Pitching Your Business
Return to Stages of Starting a Biotech Business

This project is funded by National Institute of General Medical Sciences (Grants 1R43 GM131458-01 & 2R GM131458-02)


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