Business Modeling for Life Science and Biotech Companies

Creating Value and Competitive Advantage with the Milestone Bridge

Alberto Onetti, Antonella Zucchella

• Editore: Routledge
• Anno: 2014
• ISBN:
  9781317919124
• Edizione: 1
• Argomento: Business
• Categoria: Business Development

Most books on the biotechnology industry focus on scientific and technological challenges, ignoring the entrepreneurial and managerial complexities faced bio-entrepreneurs. The Business Models for Life Science Firms aims to fill this gap by offering managers in this rapid growth industry the tools needed to design and implement an effective business model customized for the unique needs of research intensive organizations.

Onetti and Zucchella begin by unpacking the often-used 'business model' term, examining key elements of business model conceptualization and offering a three tier approach with a clear separation between the business model and strategy: focus, exploring the different activities carried out by the organization; locus, evaluating where organizational activities are centered; and modus, testing the execution of the organization's activities. The business model thus defines the unique way in which a company delivers on its promise to its customers. The theory and applications adopt a global approach, offering business cases from a variety of biotech companies around the world.

1
Introduction to The Milestone Bridge

“Man has three main goals in life: seeing the future, amassing wealth and living forever.”

—David Watson¹

1.1 Introduction

The Milestone Bridge provides entrepreneurs in the life science industry with a simple, but effective, business-modeling tool to make informed decisions that create value and competitive advantage. Written especially for the start-up executive, our method will show you how to identify, prioritize, and execute the most important activities of your business plan, and achieve the milestones that are critical to the growth and development of your business. Although much of what we discuss is applicable to entrepreneurial startups, this book is not a how-to manual on starting a life science company.² As with other commercial sectors steeped in science and technology, the life science industry is dependent on innovation as a key driver of competitive advantage and commercial success (Burns, 2002). However, innovation—the successful implementation of a creative idea or invention into the marketplace—is dependent upon managerial skills and the successful completion of milestones that create value for the company, its stakeholders, and, most importantly, society.³

In the following chapters we will present a managerial tool that helps you organize your key operational activities to make fundamental business decisions with respect to FOCUS—the strategic relevance and prioritization of these activities to achieve a developmental milestone; LOCUS—where you should geographically conduct these activities; and MODUS—the way in which these different activities are executed (Onetti et al., 2012a).

We show you that a successful business is not just about having the right business vision, but it requires the timely completion of milestones. Toward such completion, an accurate planning of activities is key.

The Milestone Bridge will also help you identify and decide which activities are worth building as in-house operations, and which activities are best outsourced. Especially useful for early-stage life science companies with long product-development cycles (e.g., drug developers), seeing your business within the context of the three dimensions of FOCUS, LOCUS, and MODUS enables you to more effectively manage each stage of product development. For more mature companies with multiple products,⁴ our approach may help you to identify the most effective business model for supporting and generating revenues from each product.

For the budding entrepreneur, familiarity with The Milestone Bridge may make you reconsider and revise your original business plan, as you realize that not enough thought went into understanding the nature of your activities, which of these activities are milestone-driven, and how they relate to your value proposition and your business model. Most importantly, our approach will help you turn your ideas into a go-to-market plan, identifying the most important activities on which to focus. Additionally, if you have a clear business strategy and business model, you will be all the more effective in engaging prospective investors in all your communications—regardless of whether they be via an email, a two-page executive summary, a slide presentation, or a 200-page document (preferably not this long!). The book will help your business strategy not to sound vague, your value proposition confused, and your investor pitching non-engaging and ineffective. It will give your project a strong chance to get to “due diligence.”

The Milestone Bridge embodies several meanings of the concept of “bridge.” At the highest level it provides a comprehensive overview of your operations akin to the elevated platform on a ship from which the captain can oversee its activities and navigate a course of action—and, if necessary, change it in the face of the many uncertainties inherent in building an innovative life science company. In navigational terms, a ship’s direction is its bearing relative to a fixed point, magnetic north or the North Star. Following a specific bearing and course, the ship ultimately reaches its destination.

“Bridge” is also an action verb referring to the objective of our approach: enabling executives to effectively connect their business activities to the achievement of successive milestones that not only complete an important developmental event, but ones that signal value creation for all the company’s stakeholders—especially investors. For development-stage companies backed by venture capital, these so-called value inflections are milestones associated with funding events that are critical to both company valuation and survival. They may include the completion of a medical device prototype, pre-clinical drug testing in animals, proof of concept of a new therapy, the issuance of a major patent, the formation of a strategic alliance, or the regulatory clearance and launch of a new medical product.

And finally, “bridge” is a reference to our approach as a means for facilitating a company’s activities into the innovation ecosystem that helps drive entrepreneurship, innovation, and globalization in the life science industry. Often treated separately, these three processes need to be linked,⁵ and our book helps you do that.

1.2 Our Scope

Although applicable to any business enterprise, the scope of our book is the global life science industry and the growing convergence of enabling technologies that produce commercial applications of the biological sciences. This includes the healthcare sector—developers of pharmaceutical and biological therapies, diagnostics, medical devices, and healthcare information technology. While biology and medicine remain centerpieces of the life science industry, the industry includes applications of molecular biology, nanotechnology, systems biology, and genomics beyond healthcare—the use of living organisms and bioprocesses to produce a myriad of products from agricultural as well as industrial applications that include bioremediation and alternative fuels.⁶

Business models have been a topic of perennial debate in the life science industry, especially in light of how both the pharmaceutical and biotechnology sectors continue to redefine their business models and value-chain participation in today’s rapidly changing global market (Onetti et al., 2012b). The global financial crisis—which is likely to continue for several more years—is compounding this value chain, as the need for increasing cost efficiency has become the operational “new normal” for life-science product development. Although in 2009 the global biotechnology industry was able to weather the worldwide economic turmoil reaching profitability for the first time in history, according to Ernst & Young’s global biotechnology report, the gap between the “haves” and the “have nots” in the biotechnology sector continues to widen, posing new challenges for emerging companies in accessing the capital needed for R&D.⁷

Technological innovation is making it more and more difficult to define any industry with well-defined boundaries and sectors. Consider the melding of the pharmaceutical and biotechnology sectors, as innovations in one sector are utilized by another in drug discovery, development, and commercialization. Thus the life science industry is more a meta-industry (Onetti and Zucchella, 2008) where technologies are cross-platforms that are transversal and pervasive—all the more reason why in this book we shift the business focus from industry to the company: what matters most is not to what industry a company belongs, but the business strategy, business model, and corresponding revenue model it has chosen in order to succeed.

Due to the heterogeneous nature of this evolving meta-industry, the activity mix chosen by a company is increasingly at the intersection of different industries and markets. Thus a company’s business model decisions also provide the seeds for innovation and new industry generation, which of course, is how the life science industry continues to evolve and innovate into new applications and market sectors.

1.3 Our Audience

Our book is written not only for entrepreneurs and entrepreneurial executives, but also for business managers, investors, financial analysts, and academics—anyone who wants to get a better understanding of the operational complexities of life science companies.

For business managers, The Milestone Bridge provides a vehicle for aligning day-to-day management decisions to the company’s long-term strategy, and communicating to employees and third parties what the company is doing.

It also supports managers in preparing budget allocations to different operational functions and departments, keeping the company’s strategy and objectives aligned and on track. The Milestone Bridge also helps to focus, and if necessary to balance, the company’s resource allocation—e.g., research and technology development with marketing and commercialization.

For investors and analysts, our approach provides a simple blueprint to check whether and how their portfolio companies are executing the best strategy for achieving a return on investment. Although risks still exist, investors are able to better understand how their investment is tracking against the activities of a company and its completion of milestones critical to creating value.

For academics seeking a better understanding of the life science industry, our approach provides them with a practical conceptualization of the business model construct. Providing the reader with real-world case studies, our business modeling approach helps them merge theory with practice.

Although our discussion is confined to the life science industry, our construct can be applied to other high-tech sectors where the proactive management of complex business activities is required to successfully deliver a company’s value proposition to customers in an increasingly complex and dynamic global market.

For those seeking to find the “ideal business model” for forming, funding, and operating a profitable life science company, we offer no monolithic answer to the uncertainties of science-based businesses—particularly with respect to risk management, integration, and learning.⁸ Nor are we arguing for any particular business model or degree of vertical integration for biotechnology companies engaged in the drug-development value chain—e.g., the Fully Integrated Pharmaceutical Company (FIPCO) at the top of the chain versus the Research-Intensive Pharmaceutical Company (RIPCO) at the bottom (Burns, 2002).⁹ While one company may find that operational integration is competitively advantageous, another may choose to “disintegrate” its operations and outsource some of its activities to achieve optimal operational synergy in the value creation process. The so-called Virtually Integrated Pharmaceutical Company (VIPCO) or Fully Integrated Pharmaceutical Network (FIPNET) are ones where virtually all key activities—R&D, preclinical support, clinical development, manufacturing, sales, and distribution—are outsour...