Biotech Business Models

Platfom, Product and Vertical Strategies

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, generator of cell culture media, fermentation/ production company, and biopharmaceutical storage and packaging companies all depend on each other. In a vertical business model, each company would have the same owner, who generates revenue at all levels. This model is suitable for situations where the companies work together in complex interconnecting ways.

Platform Model

The platform business model involves developing a technology platform and licensing it out or selling it. The platform model has been very popular in biotechnology because a company with an innovative enough product could coast for a long time on licensing revenues. Since the biotech "bust" of 2001, the platform business model has persevered. Likewise, CSOs have taken off, some of which, by providing specialized platform-based services. The platform business model is a form of horizontal model where a company produces some sort of tool, like a detection kit using specialized bioindicators, unique disposable equipment like plates for specific arrays, or software for specific uses such as protein modeling. The trick to success using a platform model is to maintain uniqueness so others can't undercut your pricing with imitation products.

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, 2010.

Fully Integrated Pharmaceutical Company

The Fully Integrated Pharmaceutical Company (FIPCO) is a form of vertical business model focused on developing a pharmaceutical product. This business model has gained support from investors during the 2000's and includes the full spectrum of ownership, from discovery to development and marketing. In the FIPCO vertical model, the value of an invention is pursued as far as possible by the inventor, instead of 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, 2010.