Every life science company has its own life cycle. From an initial idea, to a startup, to testing, to production, the company will grow and mature. That growth expresses itself in many ways—whether that’s the number of employees, the boxes on the organizational chart or the square feet of facilities needed—but one of the most important is the least visible.
With each stage of the life cycle, the company’s risks change. The risks the company faced as a startup are entirely different from those associated with moving into production. If your team isn’t cognizant of the risks at each stage and taking steps to address and mitigate them, your company’s life cycle could end prematurely.
For example, companies in their early stages are statistically less likely to face claims. Those they do encounter typically fall into categories such as vehicles, workers’ compensation, supply chain problems, cyberattacks and employee theft, so they need to obtain coverage for those risks. Often, they’ll turn to a local insurance agent to help them find the right carriers.
As the company grows into mid-market size, it’s dealing with the FDA and other regulators. Management has grown into a team, and that team is negotiating with hospitals and suppliers, creating complex agreements with challenging requirements and hefty penalties for falling short. Production is underway, creating new risks from potential business interruption, supply chain issues, to opening facilities in other countries. Each level of growth carries new and higher levels of risk.
Life science companies need to understand and anticipate those evolving risks as they move through the growth cycle. They need to ensure they have measures in place to mitigate them, such as the right insurance coverage.
The consequences associated with not having the right risk management strategies in place can be catastrophic. Growing companies can find themselves without capital sources when they need them most. They can face significant penalties from regulators and the loss of confidence from major customers. The company’s reputation can suffer irreparable damage, making it more difficult—or even impossible—to successfully complete a buyout or an IPO.
Preventing problems such as these begins with dedicating time to understanding and managing risks. Managers who can do that effectively will be better able to build a larger, more valuable company.
That’s why it becomes increasingly important to choose an insurance broker specializing in the unique needs of the life science sector. A broker who is accustomed to working with life science companies at all stages can anticipate needs and provide valuable insight as the management team makes decisions of greater importance and impact. Just as a growing company needs attorneys and accountants familiar with the regulatory climate and other challenges, a broker specializing in the sector knows the issues and situations that can interfere with operations and create disasters.
Risk management is not without cost, but it’s an investment a growing life science company cannot afford to forego. Aligning your efforts with a specialized insurance broker will allow you to apply stress tests to your growth plan, identify potential areas of weakness and create sound strategies that will reduce risk and increase the company’s value.
If you would like help exploring your company’s risks in relation to your business plan and goals, contact your local Hylant office to speak with one of our experts. If your organization is in the startup stage, you may also want to learn these five steps for avoiding risk-related accidents, mistakes and mishaps.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.