Startup City Magazine

Problems Faced By Startups in Biotech- The U.S. versus China

Founder and Chief Executive Officer of Acorda Therapeutics, Ron Cohen was awed by China and its ambition in the field of biotechnology. The following are thus his observations on the measures that place China in a better position of overcoming problems in this field, especially the problem of finding investors.

America is not exactly facing its best years in the business of biotechnology. Crushing regulatory and financial burdens, the rising costs of drugs and the ever increasing competition for venture capitalists that however belong to a small group are some of the usual hassles that the 2500 biotech businesses of America need to come across. Also, funding is something that can be easily kept pace with when it comes to Big Pharma, but here, this is biotech, which is different.

With cycles of drug development, the cost of drugs has been on the rise with the average cost per drug being $1 billion. To make things worse, the scene of investments made in life sciences is not a good one, having fallen by 19 percent in the first three quarters of this year.

This problem faced by the businesses of biotechnology is not something found just in the U.S.  The Dow Jones Venture Source reports that China too, with its ambitions in the field of biotechnology has seen a fall in venture funding for its health related startups over the last six months. China is in fact, only next to the U.S when it comes to spending on Research and Development, as reported by the OECD. The latest five year plans in China have resulted in $300 billion kept aside for science and technology, especially in the fields of biomanufacturing, bioagriculture, bioengineering and biopharmacy. Having extended its encouragement to various biomedical scientists, physicians and business people,, China is a home to various top drug companies that have decided to set their operations here. Also with its staff of 54,600 academics, it has the largest organization for research and development in the world. Even then, it is not prevented from problems In this field.

What Venture Capitalists mainly worry about are the limited exit opportunities and regulatory red tape. However, the lack of venture capitalists may not be that big a problem for China with its hefty surplus in trade and a myriad other ways of overcoming this loss. Also, Science and Technology companies in China are offered a deduction and exemption in its taxes. But this is not true in the case of the U.S.

So what are the measures that the U.S has to take?

1 Tax Rules Need to Be Adjusted- This can keep investors from running away. Section 382 of the U.S’s tax code should be designed in order to prevent the acquiring of companies by corporations and thus prevent the blocking of biotech companies from using the NOL asset. Also biotech companies need to raise their successive financing rounds. This can attract investors and help raise M and A partners.

2 Set a good timing for Biotech investments- Venture capitalists are cautious and hesitant about biotech companies that are in the early stages of development. They prefer to use their funds on companies that can be reviewed by the administration for food and drug. However, when investors sell their shares to companies that are small and held by them for more than five years, they can get half their gains excluded. So a biotech startup needs to find its investors when it is below the qualifying limit in its amount of money raised through financing and value of its intellectual property.

3 Follow the rules of getting a biotech startup acquired- The intangible assets like copyrights, trade secrets and patents of the acquired company are purchased along with the company’s acquisition, shortening the period of amortization to maybe five years can be helpful since investments can be made early.

To conclude, we can say that with the various burdens that it faces unlike other industries, biotech startups are considered the most disadvantaged of all the industries. This does not mean they are the least important, with their life altering products. They can in fact be considered the most promising engines of growth in the future of our economy.

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Ravi S Singh,Founder,eazyhire


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