Biotech Business Models and Strategies

Biotechnology is the use of living systems and organisms to develop or make products in order to make (or modify) products or processes for a specific use. Mankind has used biotechnology for thousands of years in agriculture and medicine but in the late 20th and early 21st centuries, biotechnology expanded to include new and diverse sciences and techniques. 

Several business models exist in the biotechnology industry. Three of the main structures are described below. In all cases, patents and IP are at the core of the matter. The most suitable approach to handling IP depends on the type of innovation, and also likely depends on the types and availability of financing available.

Vertical Model

In the business world, the vertical business model means to "go deep" into a single market and dominate that area by specializing and providing a consistent product for the long term. In the biotechnology business, this model means generating revenue from several levels of a process.

For example, in bioprocessing, the raw materials supplier, the generator of cell culture media, the fermentation/ production company, and the biopharmaceutical storage and packaging companies all depend on each other.

When you think about the vertical business model, each company involved in the overall process would have the same owner, and that owner generates revenue at all levels of the operation. This model is suitable for situations that require the companies to work together in complex and interconnecting ways.

Platform Model

The platform business model involves developing a technology platform and then licensing it out or selling it.

The platform model has always been very popular in the biotechnology field because a company with a truly innovative product can easily coast for a long period of time existing solely on licensing revenues.

Ever since the biotech bust of 2001, the platform business model has continued to persevere. Likewise, the role of CSOs (i.e., Chief Scientific Officer) has taken off, some by providing specialized platform-based services.

A platform business model is a form of the horizontal model whereby a company produces some sort of tool such as a detection kit using specialized bioindicators, some kind of unique disposable equipment like plates for specific arrays, or software for a specific use such as protein modeling.

The trick to successfully using a platform model is to maintain uniqueness so others don't undercut your pricing with a less expensive imitation product.

A company that follows a platform model might also be categorized as a "Service Provider" according to the results of the OECD Workshop on the Outlook on Industrial Biotechnology.

Fully Integrated Pharmaceutical Company

The Fully Integrated Pharmaceutical Company (FIPCO) is a form of a vertical business model that is focused on developing a pharmaceutical product.

This business model started gaining support from investors during the 2000s and includes the full spectrum of ownership, from discovery to development to marketing. In the FIPCO vertical model, the value of an invention is pursued as far as possible by the inventor, as oppressed to selling the idea off before its full value is realized.

The FIPCO might fall under the category of a "Producer Business Model", according to results of the OECD Workshop on the Outlook on Industrial Biotechnology.