Monday, June 30, 2008

Biotechnology Business Models: Snapshot

Biotechnology companies definitely need a business plan to convey the winning idea while being coherent, comprehensive, rational and defensible. Many new biotechnology companies have learnt the importance of business models and sophisticated business plans the hard way. A typical business model consists of three components – value proposition, value chain structure and revenue generation. These components are used to give a general description of a business. The biotechnology industry is not really characterized by specific business models and neither is there one single model for success. The sector is not only characterized by an enormous diversity, but is also driven by innovations, which makes the prediction of future development rather difficult. The enormous flexibility of biotechnology companies is a strength that has helped them survive in times of economic difficulties. In years of crisis, companies have managed to reorient themselves, change their business plans or even switch market. Business models have to be continuously adapted to internal and external conditions. This means in practice, companies occasionally follow one particular business model in preference to others in order to adapt to prevailing financing mechanisms as well as to changing market demands.

On the road to success, many biotechnology companies have adopted several different business models in order to be able to successfully operate under national and international conditions. Although business models in the biotechnology sector are not homogeneous, they are roughly divided into the Platform, Product, Vertical, and Hybrid models based on the value chain structure of the biotechnology industry. Typically, the Platform-based companies develop a set of tools or integrated technologies and provide these for use in different applications. One advantage of this business model is that revenue is generated relatively quickly. In addition, cost and time-savings are made in relation to product approval. The Product or drug developing companies offer products manufactured with new, own or already known technologies. This includes classical items like drugs and diagnostic products, but also new groups such as tissue engineering products. In FIPCO (fully integrated pharmaceutical company) or Vertical business model, the drugs are developed up to end of clinical studies or up to approval, meaning that the creation of value is pursued as far as possible. On the other hand, VIPCOs (virtually integrated pharmaceutical companies) only have a small number of employees that are focused on a specific area; other business areas are outsourced to external partners. It is simply an office-based company, dealing exclusively with project management and outsourcing all steps along the practical value creation work, from ADME tests (absorption, disposition, metabolism and elimination) to animal experiments and clinical studies. Contract research or service companies offer their services on the basis of known technologies, in the form of contract research or contract production. The combination of these business models leads to what is known as ‘hybrid or dual models’ in which technology platforms are combined with services and the creation of products.

The entrance of domestically manufactured products into the marketplace and the local competition has benefited Indian citizens in terms of price reduction from that of the imported products. Looks like, Indian companies appear well positioned to leverage their cost-effective manufacturing capabilities to corner some of the market share and compete on a global scale. Several Indian firms have focused their businesses on the development, manufacturing and marketing of biopharmaceuticals and providing services. Multinational companies have already established a presence in India in areas such as equity participation, contract manufacturing, research relationships, joint product development, commercialization and manufacturing relationships, and product/technology in-licensing and out-licensing. In the context of the size and growth of the current Indian biotechnology market in relation to the global markets, it is clear that India promises great potential to become one of the most significant players on the global arena by 2010. However, the product development capabilities of India's nascent biotechnology sector and the strategies used by private firms to survive and grow are among the innumerable challenges related to operating in a developing world’s context. The Indian biotechnology industry like its global counterparts is dominated by the healthcare sector having its roots in the pharmaceutical industry. The important characteristics of Indian biotechnology business lies in examining their evolution, structure and growth based on their products, technologies and the services provided by them. Though there has been a slow transition to Product model by Indian biotechnology companies, India is still a generic market. To achieve global presence, Indian firms need to have product focus and should come up with blockbuster drugs. In conclusion, there exist boundless opportunities for pharmaceutical and biotechnology firms to find innovative ways of working together by leveraging the committed government support in terms of public-private partnerships.

The article on 'Biotechnology business models: An Indian Perspective' accepted by the Journal of Commercial Biotechnology, is available online at: