Avoiding becoming one of the industry's zombies—a company that is neither alive nor dead—requires not only establishing critical
organizational systems, the subject of a previous installment in this series, but also making sure that the day-to-day processes
that implement those systems contribute to the overall success of the enterprise. Doing so requires a system of business models
that focuses strategy and keeps daily performance on track toward fulfilling that strategy.
Joseph J. Villafranca, PhD
FOCUS: TWO SUCCESSFUL BUSINESS MODELS
Focus means knowing what you are good at and sticking to it. There are many biotech business models, but two proven models—the
idea-generation factory and the fully integrated company—stand out. These present such different implementation challenges
that they illustrate the imperative need for a comprehensive system for mapping strategy onto implementation and the perils
of foregoing focus to pursue hybrid business models. What many biotechs fail to see is that while you may easily imagine similarities
between the two models, implementing a successful blend is extremely difficult, if not impossible. Each entails a different
strategy, different implementations, different risks, and different rewards.
The Idea Factory
The idea factory aims to generate breakthrough therapeutic products, devices, processes, or technology; develop them to a
point at which the company can profitably out-license them; and repeat that cycle to grow an annuity stream of royalty payments.
Such a strategy requires the agility to continually generate enough new, saleable, and clinically promising ideas to keep
the company in business.
Because these operations require fewer resources than those needed to develop the idea into a full commercial product, the
risks are lower and so are the rewards. The idea factory need only produce products that show promise, not take them all the
way to regulatory approval and use in humans, which is a much longer path that requires far different capabilities and greater
financial resources. The idea factory does a wonderful thing: it generates a continual stream of ideas developed up to Phase
1 or 2 clinical trials, making it possible for other companies with other capabilities to eventually bring those products
to market. If the idea factory stops to bring one of its own ideas to market, then the ongoing stream of ideas will likely
slow down or even dry up completely because the focus has changed. Fully developing and commercializing ideas requires a fully
The Fully Integrated Company
To take products all the way from initial discovery and development to full commercialization and the market, the fully integrated
company needs to make larger investments of financial, human, and infrastructure resources—investments that may never pay
off. For example, generally accepted estimates put the probability of an investigational new drug (IND) reaching the market
at about 10–15%. The challenge for such companies is to make sure that they have enough potential products in the laboratory
and the clinic, and they almost can't get enough to sustain the risk that other products may fail. Certainly, the risks are
greater for fully integrated firms, but so are the rewards in the form of the substantial revenue and profits of a commercially
Success with either of these strategies begins with having a clear idea of precisely which you are pursuing so you can focus
the entire company on it. Surprisingly, some companies fail to achieve such clarity at the outset—or, just as importantly,
to maintain it throughout. As a result, they drift into a hybrid implementation that is neither one nor the other.
For example, a natural idea generator may become enamored of the potential of one of its ideas and, tantalized by the financial
possibilities of full commercialization, it may drift into creating processes and building infrastructure that is more appropriate
for a fully integrated company. The impetus to change direction may come from senior executives, boards of directors, or even
early investors who want a greater return on their investment, thus allowing greed to overcome the company's driving strategy.
Conversely, an integrated company might decide that greater profits depend on seeking innovative new ideas solely within its
own four walls and may therefore invest in its own exclusive idea factory. Either lapse recalls the difference between those
who have vision and those who see visions.