30 September 2025
Gross profit insurance is a common tool for protecting businesses from financial losses due to operational disruptions. However, for companies involved in drug discovery and reformulation within the life science sector, this type of coverage is often inappropriate and misleading.
Gross profit insurance: Designed for traditional businesses
Gross profit insurance is typically geared toward businesses that rely on steady revenue from the manufacture and sale of physical goods. These are mainly retail, manufacturing, or consumer products. This insurance covers the loss of gross profit resulting from interruptions caused by physical damage to insured property, such as fire or flood. The policy assumes the business has a predictable sales cycle and a direct link between physical assets and income.
Why it doesn’t fit drug discovery and reformulation
Drug discovery and reformulation companies do not operate on a traditional revenue model. These businesses often spend years or even decades in R&D phases, with little to no revenue during early stages. Their value lies in intellectual property, clinical data, and the potential for future licensing or commercialisation; not in consistent sales of products.
In the absence of current gross profits, this type of insurance offers little or no meaningful protection. Worse, it may give companies a false sense of security, as the policy won’t respond to the kinds of losses these firms are most exposed to - such as delays in clinical trials, laboratory damage, or regulatory setbacks.
The need for specialised coverage
Instead of gross profit insurance, life science firms should consider tailored business interruption or R&D loss of income policies that are specifically designed for intangible assets and development-stage companies. These policies can help cover the cost of repeating trials, loss of research data, or extended project timelines due to physical damage or other insured perils.
Conclusion
Gross profit insurance is fundamentally mismatched to the operating model of drug discovery and reformulation companies. These businesses require specialised coverage that reflects their real exposures and supports their path to innovation and eventual commercialization. Choosing the right insurance solution is a critical step in protecting the continuity and value of R&D-driven enterprises.
This is for general information only. Cover is subject to insurers policy terms, conditions, and exclusions.
