Nature Biotechnology | Trade Secrets

The Strategy of Biotech

blindelephant

How do small biotech firms “do” strategy, and how can they “do it better”?

In a nutshell this was essentially the topic of my doctoral thesis. I am a scientist-turned-bioentrepreneur and am passionately interested in the process of turning science projects into successful products and businesses. Why? Because I find the science of biotechnology fascinating, and I am excited about the promise it holds for improving the lives of individuals and populations if it can be turned from an idea into a product. And I also believe that those who take the risk and invest in these promises should be rewarded.

The biotech sector has struggled to provide attractive returns, with high rates of company failure and tens of billions of dollars of accumulated losses. The reasons for this are not clear. It may be that biotech science is not financially viable – high regulatory costs and long timelines of getting biotech products to market often overwhelm the financial returns. It may be that the timelines and risk appetite of investors are at odds with the needs of biotech firms. Or it could be that biotech firms need better business strategies to overcome these challenges.

The last suggestion is the perspective I take. When I embarked on my doctoral research, I wanted to find answers to how we can improve the process of taking an innovation, adding knowledge, reducing risk and turning it into a form that can earn a return for the owners of the innovation. Discussions about strategy in the academic literature

reminded me of the famous Indian legend and poem about the nine blind men and

the elephant.  Similarly many practitioners in the biotech sector seemed

to have a partial understanding of strategy based on their individual

experiences.

Earning a return on investment in biotech need not involve taking an innovation all the way through the development process to a physical product or delivered service. Often financial returns can be earned at earlier points in the value chain – for example a patent (an idea with intellectual property protection) may be licensed, or a drug that is still in clinical development may be licensed or sold, thereby earning a financial return for its owners.

Over a series of blog posts I am going to talk about how biotech firms “do” strategy – how the strategic issues that firms face shape their choice of business model, the strategic decisions and trade-offs that firms make and the implications of those choices.

Then over a further few posts I am going to suggest ways in which biotech firms can “do it better.” I’ll talk about organisational practices that support better investment strategy – the strategy that underpins getting a return to investors. I hope you’ll add your thoughts and comments as we go along, because the one thing that became obvious in my research was that no single biotech entrepreneur has all the answers. The answers are held across the community of entrepreneurs, and they have often been learned the hard way.

Upcoming posts will cover:

• The basics – defining investment strategy, business model and value chain

• The market for ideas vs product markets

• Common business models in the biotech sector (e.g. RIPCO, FIPCO, NRDO, FIPNET, VIPCO)

• How and why common business models are associated with certain types of technological innovation

• Strategic issues facing biotech start-ups and how biotech firms tend to do commercialisation strategy in this context

• Key strategic choices – what, when and how to commercialise

• What to commercialise – trade-offs and implications

• When to commercialise – trade-offs and implications

• How to commercialise – transaction mechanisms

• Organisational processes for improving investment strategy

• Amplifying value and reducing risk

Then we’ll see where we get to from there!

Janette Dixon

Comments

  1. Report this comment

    Brady Huggett said:

    You write that "the biotech sector has struggled to provide attractive returns, with high rates of company failure and tens of billions of dollars of accumulated losses" and you mention a few reasons for this.  But because many molecules will fail in the clinic, the companies built to shepherd them to the market will lose money, and may fail.  Are you saying this can be overcome with better business models?

  2. Report this comment

    Janette Dixon said:

    Molecules fail in the clinic for many reasons – pre-clinical animal models can be poorly predictive of human outcomes, poorly designed trials, high regulatory barriers, unpredicted safety issues and even bad luck.  By and large firms won’t look to better business models to overcome clinical risk.  However, there are strategic choices that firms can make, even within well known business models, to minimise clinical risk and improve the chances of successful outcomes for shareholders.  Examples: choosing an acute indication over chronic will shorten the duration of clinical trials and lower the cost of bringing a new drug through the clinic, some drug indications have endpoints that are more clearly defined and measured than others, some indications have clearly establish regulatory expectations whereas others don’t.  I’m going to devote an upcoming post to "what to commercialise – trade-offs and implications".  I’m going to follow that with a post on "when to commercialise – trade-offs and implications" … because the two are closely linked and drive the choice of business model.

  3. Report this comment

    Timos Papagatsias said:

    Nice post Janette, looking forward to the upcoming ones.

    In my opinion, the very least a biotech can do, is make sure the science behind its product is solid. I understand that some criteria might not be so "strict" early on, to allow an early influx of funds, but this is also one of the reasons that we see so many candidates fail in later phases when candidate drugs are really pressure tested. In any case, an open minded approach by regulators and a closer collaboration between them and entrepreneurs, starting early on in the development of a product, should avoid delays and disappointments. I agree with you with the choice of indication and its impact on timelines, but sometimes there isn’t much you can do about this. 

    I have a particular interest in vaccines and gene therapy and, at least in these fields, it feels as that the regulators usually play catch-up to new tech and approaches (hence the long timelines etc…).

    There definitely is great tech out there and hopefully we will see more of it coming through in the near future.

     

  4. Report this comment

    Andrew Marshall said:

    Hi Janette. Look forward to your subsequent posts. Here at NBT, the editors have been thinking quite a bit about the funding situation for innovative science recently (check out Brady’s podcast on the subject). One clear concern with all the present models is that current business models (for very good reasons) really only address a subset of the real healthcare problems of chronic diseases of aging that are facing the US and other countries. Thus, for instance, as you say, “choosing an acute indication over chronic will shorten the duration of clinical trials and lower the cost of bringing a new drug through the clinic.” Indeed, some big pharmas are now adopting this niche or orphan strategy, which has always been a strength of biotech companies. But it does raise the issue that if we rely on existing models of commercialization to produce our drugs, are we are going to end up with a set of treatments that meet the requirements of least resistance along the tricky road to approval but fail to address the biggest and most costly unmet needs facing healthcare systems. Any thoughts on that?