Why biomedical startups Fail. The case of Ambrilia Biopharma

Inhalt

Introduction

Why Ambrilia Biopharma Company failed

Conclusion

References

Introduction

Considering the increasing statistics of many new ventures, especially in the biomedical industry, failing to grow to become established as successful companies, a number of reasons have been cited for the reason why many biomedical startups fail. The reasons range poor leadership and management, funding issues, limited knowledge about the market, poor market penetration, business model problems, competition from established ventures, to lack of value prepositions, among other pertinent reasons. There are also reasons specific to biochemical industry such as miscommunication, cutting corners, dishonesty, and procrastination (Xu, 2014). This report is about why Ambrilia Biopharma, one of the biotechnology startups in recent times failed as a company. The report examines the underlying issues that forced the company’s management to file for bankruptcy and close business despite the milestones it had made in the 13 years it had been in operation. To arrive at the conclusion, the report starts by examining the historical background of the company and its management over the years it has been in existence.

Why Ambrilia Biopharma Company failed

Established in the year 1998, Ambrilia Biopharma has been operating in the biochemical industry up to April of 2011 when its management filed for bankruptcy. The firm was founded in Canada, with its headquarters in Montreal and branches spread in parts of the world. Ambrilia Biopharm specialized in the discovery and production of novel treatments for cancer and other viral diseases. It had initially strategized to take advantage of the founders’ original expertise in virology and its broad portfolio to develop it business. The product portfolio for Ambrilia included anti-Influenza a compounds, Hepatitis C virus inhibitors, HIV integrace and entry inhibitors, an HIV protease inhibitor program, a targeted delivery technology for cancer and antiviral and oncology assets such as the two new formulations of existing peptides for the treatment of cancer (Marketwire, 2011).

The initial years of the company were promising, especially when it secured a $215 million deal with Merck to facilitate its HIV drug development. However, its troubles began looming in the year 2008, when Merck decided to put the program on hold. As a determined company, the management continued with the pursuit of Phase III trials for an acromegaly treatment drug. An acromegaly is a disease that leads to facial deformity. In addition to the withdrawal by Merck, the company, just like many other firms and countries across the globe woke up to the reality of the economic recession of the 2008/9. The global economy faced a financial situation that made investment projects very expensive because the commercial banks were giving out loans at very high interest rates. During the economic crisis of the 2009 global recession, Canada’s economy was equally affected and the biotech companies, especially the startups that required intensive capital to operate such as the Ambrilia were badly hit (Zielinska, 2011).

Consequently, as austerity measures, Ambrilia Biopharma decided to trim down its workforce by terminating the services of some employees to remain with only 15 employees. The management also went further and sold off some of the company’s assets including the ambitious early-stage prostate cancer drug program. In the month of July 2009, the biotech company pursued a potential sale of merger and did away with the Phase III trial of octreotide acetate (C2L) in acromegalic patients. In the same month of July 2009, both the CEO and the Chief Finance Officer’s employment with the company were terminated. The end of 2009 also saw the shutting down of the company’s Montreal operations (Fiercebiotech, 2011).

Due to the economic crisis of 2009 and the financial challenges that Ambrilia was facing, its operation since July 31, 2009 was under the protection of the CCAA. By the close of market on March 4, 2011, the Toronto Stock Exchange (TSX) delisted the company’s common share for failure to meet the continued requirement for listing in the TSX. In April of 2011, the directors of the company approved a resolution to seek permission to terminate the CCAA protection granted by the Supreme Court, and upon the court granting the permission, the company would file for bankruptcy in accordance with the Bankruptcy and Insolvency Act. After this meeting and the announcement, all the directors of Ambrilia resigned with immediate effect from the company’s management. Consequently, Ambrilia filed for bankruptcy and Raymond Chabot inc. was designated as Trustee of the company (Marketwire, 2011).

Following the historical accounts of Ambrilia from its inception in 1998 to its downfall in 2011, a number of reason come out clearly indicating why the biotech company failed. From the story, there are three reasons why the company failed, namely, poor management, financial issues, and the global recession that rocked the world between 2008 and 2009. The creation of a new venture, especially in the biotechnology industry requires a strong leadership at the top with sound knowledge of the business and the industry to be able to communicate concisely and clearly to the investors, regulatory authorities and the customers the value proposition of the firm. The leadership is also supposed to develop a business model that can seize the business opportunities available in the market. However, according to Vuru (2016), Ambrilia failed to generate positive returns on its investment in equipment, projects and buildings, a situation attributed to poor management, the capital-intensive nature of the business, and lack of an economic defense mechanism. The firm was only able to lose $85.56 of cash for every $100 invested

When a new venture starts with a leadership breakdown at the top, it is definitely bound to fail. Leadership plays a critical role for a new venture to thrive because it involves making critical decisions on the utilization of the limited resources to meet the needs of the customers. It also involves carrying out of the managerial functions such as organizing, coordinating, controlling, supervising, monitoring and evaluation of the processes and activities of the new venture. The leadership is also supposed to develop proactive strategies that exploit opportunities in the business environment as well as taking precautionary measures to address the prevailing threats (Mark, 2015).

Another aspect that signals to poor management was the fact that the company shown an inability to deliver results for shareholders, as it only managed to generate a $251.84 loss for every $100 of Shareholders’ Equity. This implies that the management did not consider the competitive nature of the biotech industry they were operating in to create a value proposition for the business or build a strong business that could have a competitive advantage and remain profitable amid stiff competition (Zerner, 2015).

The second reason for the failure of Ambrilia was the financial issues. According to Vuru (2016), it was a major concern that the company was unable to produce positive free cash flow for most of the past ten years in operation; instead, the company had been losing shareholders money for almost the entire period it existed. One of the significant elements in the process of creating a new venture is the funding aspect. Some of the new ventures, especially in the biotechnology industry require extensive initial capital to be able to remain a float in the market as revenue flow begins to shape up from the developed products. However, Ambrilia began facing financial challenges because it could not generate positive cash flow from its inception. When its partners Merck decided to put the funding of its program on hold in 2008, the company began stumbling down, as it could not raise enough capital to implement its capital-intensive programs. Finally, Ambrilia faced operational challenges due to the global recession that affected Canada and many parts of the world. This financial meant that there was no money available in the economy to be borrowed for investment making the cost of capital very expensive for startups to borrow for their projects.

Conclusion

The statistics are worrying about the rate at which new business venture, especially in the biotechnology industry is failing. Ambrilia is among the promising biochemical companies that failed just when they were beginning to penetrate the market. Among the reasons why Ambrilia failed, include poor management, financial issues, and the global recession that rocked the world in the year 2008. They were unable to fund and manage their operation, thus forced out of business.

References

Fiercebiotech (2011). Ambrilia Biopharma - The 2011 Biotech Graveyard. Retrieved from http://www.fiercebiotech.com/special-report/ambrilia-biopharma-2011-biotech-graveyar

Mack, S. (2015). The Implications of Environmental Analysis on Strategic Plan. Retrieved from http://yourbusiness.azcentral.com/implications-environmental-analysis-strategic-plan-16738.html

Marketwire (2011). Ambrilia Biopharma Announces That it Will Seek Permission to Terminate CCAA Protection and File for Bankruptcy. MONTREAL, QUEBEC. Retrieved from http://www.marketwired.com/press-release/ambrilia-biopharma-announces-that-it-will-seek-permission-terminate-ccaa-protection-tsx-venture-amb-1500156.htm

Vuru (2016). AMB.TO Ambrilia Biopharma Inc Management. Retrieved from http://www.vuru.co/analysis/AMB.TO/management

Xu, K. (2014). Why Do So Many Biotech Startups Fail? Retrieved from http://www.alleywatch.com/2014/09/why-do-so-many-biotech-startups-fail/

Zerner, A. (2015). Case Study of a Failed Startup. Retrieved from https://medium.com/startup-autopsies/case-study-of-a-failed-startup-37db342df2bf

Zielinska, E. (2011). The Companies that Failed: A roundup of eight biotech companies that didn’t make it through this year's continuing tough economic times. Retrieved from http://www.the-scientist.com/?articles.view/articleNo/31527/title/The-Companies-that-Failed/