The biotech sector has faced significant hurdles in recent years. Between fewer funding rounds and limited IPOs, biotech companies are finding it harder to secure investment. While there are signs of a recovery in 2024, investors are favoring experienced teams and later-stage biotechs.
In 2023, 31% of biotech companies (excluding commercial leaders) had less than a year's worth of cash – as compared to 21% in 2020 – putting them at higher risk of failure. Since running out of cash is one of the top causes of startup failure, founders must prioritize efficiency and cost containment in 2024 and beyond.
In this article, we’ll explore five strategies to help manage research and development (R&D) and employee compensation costs—two areas that make up over 70% of your burn rate.
1. Watch Your Lab Setup Costs
Setting up a lab is one of the most significant milestones for any biotech startup—but it can also be a major expense. Fortunately, with strategic planning, you can keep costs under control and focus on advancing your research goals.
Setting up a lab is costly, but there are ways to reduce expenses. Consider purchasing second-hand equipment or leasing instead of buying outright. Always negotiate to get the best deal, and leverage industry associations like MassBio for member pricing.
2. Maximize Savings on Everyday Lab Supplies
It’s not just the prices of food and everyday necessities that have been rising. Inflation has also impacted lab supplies, making smart purchasing critical. Build strong vendor relationships, negotiate after establishing a purchase history, and join local industry associations for discounted pricing.
Inflation isn’t limited to consumer goods; it’s hitting lab supplies hard too. Establishing strong vendor relationships, negotiating for discounts based on purchase volume, and leveraging group buying through local industry associations can lead to meaningful savings. Conduct regular assessments of your supply contracts to identify cost-saving opportunities and ensure you’re getting the best value for essential lab materials.
3. Help Your Researchers Stay Focused on Hitting Milestones
Your researchers' time is too valuable to waste on administrative tasks like price comparisons, order tracking, or supplier follow-ups. Streamlining procurement processes eliminates these distractions, allowing teams to focus on meeting critical R&D milestones.
By automating order tracking, approvals, and supplier communications, you eliminate distractions and increase operational efficiency—accelerating scientific progress and driving innovative discoveries.
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4. Control Your Spend and Know Your Costs
Early-stage biotech startups often rely on ad-hoc order approvals (like email), which can lead to inefficiencies as your company scales. Transitioning to a centralized, digital procurement platform not only improves approval workflows but also provides real-time visibility into spending. Integrating procurement data with your ERP system creates a single source of truth, enhancing transparency and cost control.
Incorporating tools like PrendioPay can support this effort by simplifying payment processes and providing a clear overview of transactions. With better visibility into spending, you can identify cost-saving opportunities, optimize purchasing decisions, and ensure critical supplies are procured without unnecessary delays. Detailed spend reports can be useful for internal budgeting, as well as for demonstrating fiscal responsibility to investors, providing transparency and clarity around your financial health. This proactive approach to cost management empowers your team to maintain financial control while keeping R&D efforts moving forward.
Automated systems like paperless three-way matching help ensure you’re receiving exactly what you’re paying for, while robust reporting tools provide detailed spending insights to help manage budgets and strengthen your case with investors.
Automated processes, such as paperless three-way matching, guarantee that you receive what you pay for, while robust reporting tools provide instant visibility into spending. Detailed spend reports offer valuable insights for controlling budgets, sharing cost breakdowns with investors, and negotiating with suppliers, empowering startups to maintain financial clarity and operational efficiency.
5. Reduce Back-Office Headcount with Strategic Outsourcing
With employee salaries often consuming 50% of a company's burn rate, strategic outsourcing can offer a smart path to efficiency. By shifting back-office functions like accounts payable and administrative tasks—including credit applications, tax exemption filings, and establishing net terms—organizations can refocus internal resources on core business objectives. This approach optimizes operations, reduces overhead, and ensures critical tasks are expertly managed, driving both cost savings and enhanced productivity.