Phase I clinical trials are a critical step in drug development, but they come with a high failure rate. The overall probability of success for drugs to advance from phase I to phase II is 66.4%, primarily due to safety concerns, unexpected adverse effects and issues with drug tolerability. Despite these challenges, the potential rewards of successful trials are huge, both financially and for human health.
Investment in clinical trials remains robust, driven by the significant returns of successful pharmaceuticals. Key funding sources include:
Pharmaceutical innovators and entrepreneurs often face a critical funding dilemma: securing venture capital (VC) funding at the cost of relinquishing ownership and control versus exploring alternative financing options that allow them to retain autonomy. VC firms provide substantial financial backing, offering the resources needed for research, clinical trials and regulatory approvals, but their investment typically comes with demands for equity, board seats and strategic influence over company direction. This can lead to pressure for rapid commercialization or market-driven decisions that may not align with the founder’s long-term vision.
On the other hand, alternative funding sources such as grants, government funding, strategic partnerships or revenue-based financing can provide capital without forcing entrepreneurs to dilute ownership. However, these methods often come with limitations in scale, competitive application processes or slower access to funds, making them less attractive to startups racing to develop life-changing therapies.
Choosing between VC funding and other sources requires careful consideration of financial needs, growth strategies and the company’s core mission to ensure sustainable success without compromising its vision.
The insurance market is evolving to address the risks associated with clinical trial investments. New insurance products are being developed to focus on financing and clinical trial failure, rather than bodily injury coverage alone. These innovative products offer a new pathway for funding and loss recovery, providing options that don’t require equity from the initial investment group or the originator of the novel pharmaceutical compound.
Clinical trial funding insurance is designed to provide financial protection for biotech companies conducting clinical trials. When paired with a suitable lender, this coverage can maintain ownership of the firm in the hands of the pharmaceutical innovators and entrepreneurs versus transferring that ownership to a third party.
The insurance premium is determined by multiple factors, including the therapeutic area, trial phase, prior clinical history of the drug asset, trial type, the insured’s experience, protocol design and partnerships with clinical research organizations and contract manufacturers. The policyholder is typically the biotech company. Coverage is available primarily for phase I and phase II trials, with phase III included if the trial meets certain criteria such as budget and duration restrictions. Not all classes of drugs will qualify for this insurance in today’s marketplace. Opioids, gene and cell therapy and high-likability drugs are generally declined by the current marketplace.
As of the date of this article, the maximum indemnity limit available is currently $25 million, with the potential to expand it to $35 to $40 million in the future. Ideally, coverage is secured before patient recruitment begins, as adjustments become more challenging once trials are underway with a maximum duration of trial capped at 48 months.
WTW's Life Science Industry Vertical is uniquely positioned to navigate the complexities of emerging insurance products related to clinical trial funding and failure. Contact your WTW representative or the contacts below for more information.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
