Biotech Business Models and Strategies

Biotechnology is the combining of technology and biology to develop, make, or modify products or processes for a specific use. Mankind has used biological alteration techniques for thousands of years in agriculture and medicine—but in the late 20th and early 21st centuries, these techniques expanded to include new and diverse sciences and methods. 

Several business models exist in the biotechnology industry. There are three main models used in the industry. In all of these models, protecting patents and intellectual property (IP) is the basis. The most suitable approach to handling IP depends on the type of innovation, and also likely depends on the types and availability of financing.

The most prevalent models used in the biotech industry include the vertical model, the platform model, and the Fully Integrated Pharmaceutical Company (FIPCO) model.

Vertical Model

In the business world, the vertical business model means the business owns much of its supply and distribution channels, if not all of them. This focuses them on a single market and allows them to dominate that area by specializing and providing consistent products and services over time. 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.

Vertical integration reduces costs, creates more control, and increases a company's competitiveness.

If one company owned all of these levels of production, it would be vertically integrated. The company would then generate revenue through all levels of the operation. This model is suitable for situations that require different companies to work together in complex and interconnecting ways.

Platform Model

The platform business model involves developing a method of facilitating transactions and interactions between clients and customers. In biotech, 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.

A platform business model is a form of the horizontal business model.

In this model, a biotech company might produce a tool such as a detection kit using a specialized bioindicator or unique disposable equipment like plates for specific arrays; they might design software for a specific biological use such as protein modeling.

The exclusive products are then licensed out for use, generating income. For this model to work, the company must maintain uniqueness so that their competition doesn't undercut their pricing with a less expensive imitation product.

A company that follows a platform model might also be categorized as a "Service Provider" because they are offering their services to other companies, according to the results of the OECD Workshop on the Outlook on Industrial Biotechnology.

Fully Integrated Pharmaceutical Company

The FIPCO model 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 and development to marketing. In the FIPCO vertical model, the value of an invention is pursued as far as possible by the inventor, as opposed 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.

The benefits of using integrated business models in biotechnology companies are the same as for non-biotech businesses. They are more able to reduce supply and logistics costs and production times while handling processes internally. This gives the companies more control over their products and services, providing them with competitive advantages. In an industry as highly competitive and specialized as biotech is, companies need every advantage they can get.

Article Sources

  1. Festel Capital, Organization for Economic Co-operation and Development. "Industry Structure and Business Models for Industrial Biotechnology," Page 25. Accessed Mar. 30, 2020.