My personal recommendation for anyone unfamiliar is to begin by read the relevant literature re: the field being worked in by the company. You can access most things through pubmed.

Admittedly that will most likely be a slog. But realistically you need a deep understanding of the molecular/biological context when investing in this space to understand whether or not a drug will be successful.

I worked for a YC biotech (S18) this last year in a scientific role, but bridging the gap between investor to startup has been something I've been thinking about as a possible career in the future...

One way I have seen is to have a cadre of scientific/medical advisors with skin in the game (usually, on the board). This is also one of the paths out of debt for MDs that don't want to practice or MD/PhDs in general. With a few people that actually know the science/art, you can then focus on the finance and other issues.

The science part isn't always hardcore mol-bio, as many devices can be a bit more like traditional engineering (even internal ones). But many of the problems that the various agencies will cite will be mol-bio related. Even as a hardcore investor, unless you have the many years of background, or can get people with background to put their own money in it, you are going to have a hard time. Paying just for consulting isn't likely to be appropriate due-diligence. Biology is monstrously complex and frustrating even in one individual, let alone a population. As such, it takes a lot of research to have a good clue of what is going on, more so that you can likely pay consultants for.

EDIT: Again, I want to stress that every situation is different and that I am only relating my personal experiences here.

I've invested in a few smallish ($200M to $2B) biotechs over the past decade or so. While I eventually got out with a small profit, I have sworn off ever investing in one again.

Too much time and too many grey hairs from following the hope-and-disappointment cycle as you read the tea leaves from ambiguous trial results and FDA announcements.

Are there any specific instances that stand out to you that you can share?

Mesoblast. I won't bother to share the full story of all this company's ups and downs over the last decade but let's just say that the amount of time I spent tracking the news on it was far out of whack with its importance to my portfolio.

Thanks for sharing!

https://en.wikipedia.org/wiki/Mesoblast

You're not kidding, they have been a roller-coaster!