Danger in the Valley of Death: how the transition from preclinical research to clinical trials can impact valuations

Abstract

In drug development, a crucial step is the transition of a company from preclinical stages to human trials: the so-called 'Valley-of-Death' (VoD) that most efforts do not survive. Here, we analyzed how the valuations of biotech companies in the life science sector change as they cross this valley. Their average valuation increased significantly (87%) when crossing the VoD no later than their fourth funding round. However, companies that received more than four funding rounds saw significantly lower average valuations. Similarly, the volume of website traffic for companies that received no more than four preclinical funding rounds was significantly higher than companies receiving more than four preclinical funding rounds, whereas the number of patents was unrelated to the likelihood of a company of crossing the VoD.