The buzzy biotech Perlara got into Y Combinator and raised $10 million from investors like Mark Cuban before things went south. Its founder shares the key lesson he learned from the failure.

Perlara

Ethan Perlstein started the biotech Perlara to focus on developing treatments for patients with devastating rare diseases who don’t currently have options.
In five years, Perlara quickly vaulted to success, from a slot in Y Combinator to investments from drug giant Novartis and the billionaire Mark Cuban.
But when things went south, Perlstein was forced to wind down the business.
He told Business Insider about how he built a biotech from scratch as a first-time entrepreneur, and what went wrong.
Visit Business Insider’s homepage for more stories.

Ethan Perlstein never meant to become an entrepreneur.

"I became a biotech entrepreneur out of necessity," he says.

The Harvard- and Princeton-trained scientist was following a path to academia when, by his own telling, academia wouldn’t have him.

Ethan Perlstein

So the 39-year-old chose to start his own biotech company, which he likes to joke is much safer and not at all risky.

In 2014, Perlstein started Perlara, basing it in Oakland, California. Focusing on treatments for devastating rare diseases, Perlara saw some initial success.

In 2016, it scored a slot in the startup accelerator Y Combinator, which is reportedly more exclusive than Harvard.

Twitter connected the biotech with rare disease advocates, and helped it catch the eye of the billionaire Mark Cuban, whose Radical Investments fund invested $250,000, plus a similar amount of additional funds towards a specific rare-disease program.

The Swiss drug giant Novartis also invested in Perlara and formed a research partnership with the biotech in 2016.

In five years, the startup brought in nearly $10 million from investors and $2 million in revenue from research partnerships with patient advocacy groups, and employed 15 full-time workers.

How Perlstein started a successful biotech from scratch

Perlara

"It was tenuous, not fully sustainable. But it was working," Perlstein told Business Insider.

He credits that to the company’s work in 12 disease areas, including pancreatitis, mitochondrial disease and some neurodevelopmental conditions. Revenue from those programs helped Perlara be cash-flow positive last year, he said.

Perlara also tried to help patients who might not otherwise be a focus for big pharma companies by finding drugs that were already out there and repurposing them.

The biotech worked with a family in Michigan, for instance, to find a drug that had been approved outside of the US and might be used to treat the rare inherited condition PMM2-CDG.

Most babies with the deficiency are stillborn or die quickly, and those who survive are affected in a variety of severe ways, including developmentally. It’s also incredibly rare: more than 800 people have been identified with it worldwide, according to the NIH.

…and how it all went wrong

PerlaraBut then Perlara’s model hit a wall. The company had grown too quickly, and a longtime partner suddenly walked out of a negotiation, sparking a tailspin in January 2019, according to Perlstein.

Months courting additional funds from seasoned biotech VCs, tech VCs, and institutional investors didn’t pan out.

Now winding down the company, Perlstein has some thoughts about what went wrong.

Perlara was formed as a "public benefit corporation," a structure aimed at bringing the values of a nonprofit to the corporate world. Its full name, Perlara PBC, nodded to that difference. But he suspects the PBC structure may have made new investors reluctant to invest.

And maybe Perlara broke out of the box too much, Perlstein says, varying up its scientific approach, and its platform, and its corporate structure. Maybe it should have stuck closer to the model established by other biotech startups

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He wouldn’t go back and change his decisions, he says. But he would have grown Perlara in a slower way, perhaps by launching six research programs instead of 12, because it put the company in a vulnerable spot when it lost the key partner.

"Be as idealistic as your heart wants you to be, but know with your brain to make a business, you’re going to have to sacrifice one of those dimensions," is Perlstein’s advice for other young founders.

And having public support is great, crucial even, "but at the end of the day, it doesn’t change the number in the bank account," he said.

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