Key takeaways
- Nearly 70% of Phase II trials fail, often due to preventable issues like restrictive endpoints or recruitment shortfalls, highlighting the need for proactive risk mitigation in protocol design.
- New clinical trial failure insurance products use predictive analytics to identify and price risk factors—enabling coverage of up to $40 million and offering early-stage biotechs a critical financial safety net.
- This insurance model helps de-risk trials for investors, aligning operational planning with capital strategy and improving funding access for scientifically sound but high-risk programs.
Clinical trial failures have long been accepted as a harsh reality of biotech innovation.
According to Bio, nearly 70% of Phase II clinical trials fail to move to Phase III—often due to risks that can be anticipated and mitigated, such as overly strict endpoints or recruitment shortfalls. These failures don’t just stall innovation—they can bankrupt companies and prevent promising therapies from ever reaching patients. In a sector where risk can be unavoidable, mitigating challenges facing clinical trials is key to moving innovation forward and enabling the delivery of essential therapies to patients.
The innovation paradox
Biotech companies are at the forefront of scientific progress, yet their business model creates inherent operational challenges. Often, startups without revenue streams are forced to burn through capital as they navigate a demanding and costly development process. With the odds stacked against success and no clear financial safety net, many investors have retreated from the biotech space entirely.
Investor hesitation is understandable, considering the sector’s notoriously high failure rates. In turn, potential breakthrough treatments die in development—not because science doesn’t hold up, but because the funding environment is too fragile.
For many early-stage biotech companies, the dilemma is circular: no funding without de-risking, no de-risking without funding.
Creating flexible guardrails
Until recently, clinical trial failure was considered an uninsurable risk—too uncertain, too opaque. Now, with access to decades of historical trial data and advanced analytics, insurers can assess and accurately price this risk. What was once a blind spot is becoming a quantifiable, coverable risk category enabling greater innovation.
Akin to the assessment of many other insurable risks, insurers are running predictive models on the protocol of the trials themselves, with analysts paying attention to items such as overly narrow inclusion criteria or impractical endpoints.
This process provides biotech companies with multiple, actionable rounds of feedback and the chance to fix issues that might otherwise doom trial enrollment before the terms are finalized. The therapeutic areas where risk modeling is most reliable include oncology, metabolic disease, and central nervous system disorders.
As a result of this risk management progression, early-stage biotech companies can today secure up to $40 million (additional limit may be available) in coverage for clinical trials.
Opening the door to new investors
The advent of clinical trial failure insurance has the potential to transform catastrophic losses into transferable risk. This risk capital protection is critical given today’s funding environment where differentiation and capital efficiency matter more than ever. The insurance solution also reflects a broader change in how the biotech industry approaches innovation financing—moving from accepting certain risks as unavoidable to proactively managing them.
With insurance in place, biotech firms don’t just have to explain the risk to investors, they can demonstrate how they’re managing it. This risk capital coverage serves as an additional layer of due diligence assurance for institutional investors. It signals that the company, even the sector, has taken proactive steps to manage one of its most critical risks.
By limiting downside capital exposure, more institutional investment sources previously sidelined by the binary nature of biotech risk, such as pension funds, family offices and hedge funds—can now engage in a more measured, confident way. For companies preparing to go through initial public offerings, highlighting this added layer of clinical trial failure insurance during IPO roadshows can help differentiate them from peers and strengthen their investment case.
Overall, this risk capital approach fosters a more collaborative financial ecosystem. Biotech companies, investors and insurers can align earlier to structure development plans that are scientifically rigorous and financially resilient.
A healthier future for innovation
Beyond clinical trial failure insurance, biotech should explore other tools to help shift their overall risk profile and enhance appeal to investors. This includes optimizing protocols to avoid unnecessarily rigid trial criteria, implementing second-look assessments when trials narrowly miss their endpoints and establishing funding pathways for scientifically sound but commercially overlooked therapies.
The biotech sector now has the opportunity to reshape its innovation cycle, while recognizing that failure isn’t just an inherent risk, it’s a problem we now have the tools to solve. The biotech companies that identify and pursue risk management strategies, including insurance earlier, will likely be rewarded by the investment community now incentivized to reevaluate the biotech risk-reward equation.
The ultimate goal of the biotech community has always been to deliver vital therapies to the patients who need them most. Achieving this requires bold thinking and innovative risk management approaches to accelerate the path to market.
Scott Foster, Managing Director at NFP; and Natalie Marquess, ARM, CIC, CRM, Director - Business Development, Life Sciences at Aon
