Success Rates of Venture Capital Investment in Biopharmaceutical Development

BACKGROUND: Large biopharmaceutical companies increasingly outsource early research and development (R&D) to startups funded by venture capital (VC). Yet little is known about how effective VC funding is at advancing new drugs to market. OBJECTIVES: To examine the outcomes of clinical trials conducted by VC-backed startups and identify factors associated with their progression. RESEARCH DESIGN: Retrospective cohort study of VC-backed biopharmaceutical clinical trials. SUBJECTS: Index phase 1 trials initiated between January 2006 and December 2015, tracked through April 2024. MEASURES: Progression to phase 2, phase 3, and US Food and Drug Administration (FDA) approval. Associations between trial characteristics and progression were estimated using multinomial logistic regression. RESULTS: Among 1357 VC-backed phase 1 trials, 10.9% failed to complete phase 1, 13.3% completed phase 1 and stopped, 42.5% progressed only to phase 2, 19.2% only to phase 3, and 14.1% ultimately received FDA approval. Cancer-related trials achieved FDA approval in 8.7% of cases. Compared with small-molecule trials, biological trials were less likely to progress to phase 3 [-11.3 percentage points (pp), P<0.001] or receive FDA approval (-14.1 pp, P<0.001). Greater initial investment in phase 1 was associated with higher progression, including a 6.2 pp higher probability of FDA approval (P<0.001). CONCLUSIONS: Clinical trial success rates among VC-backed startups were within the range of approval rates previously reported for large manufacturers. Progression varied substantially by drug modality, therapeutic focus, and initial investment size, underscoring how capital allocation and development strategy shape R&D outcomes.