The Company at the Crossroads. Part 1: To Commercialize or Not?

At a certain point, every biotech company must decide what type of company it is trying to be.
Sep 01, 2008
Volume 21, Issue 9

Joseph J. Villafranca, PhD
Call it the awkward age: that critical period when a biotech company is no longer a start-up but is certainly not yet mature. As in late adolescence, when ill-defined dreams meet the specific demands of reality, the time comes when a company has to decide what it wants to be when it grows up.

It's not as easy as it might appear. Successfully coming through this critical period requires that the company:

  • understands the strategic options and associated cost;
  • knows when it is time to make a choice; and
  • assesses the risks, timelines, commitments, and potential rewards of each option.

Selecting the right options requires careful thought, planning, and timing. A hasty decision can prematurely foreclose a more appropriate option. Deferred decisions can result in the business drifting in several directions at once, instead of proceeding directly toward a clear destination. In both cases the result is likely to be, at best, lost opportunity and, at worst, business failure. In our experience, it is far more profitable for up and coming innovative biotechs to take control of their destinies by making a careful strategic choice at the right time and then pursuing that option single-mindedly.


For the early-stage innovative biotech company, there are essentially two strategic options for the long term: (1) to become an idea factory or (2) to become a fully integrated company. Of course, there are ways to blend these two options, but the two basic options remain.

The idea factory is designed to generate innovative therapeutic products (with a strong IP position), devices, processes, or technologies and develop them to a point where they can be outlicensed to another company. The license then produces royalty payments that provide funding for generating new ideas which continue the cycle. In a variation of the strategy, idea-generating companies, especially those that have only one novel product or platform technology, may aim to be acquired by another company.

By contrast, the fully integrated firm takes ideas and innovations from discovery and development all the way to the market. Becoming such a company requires all of the functions and elements of infrastructure to execute the enormously difficult, complex, time-consuming, and costly job of commercializing a therapeutic product: R&D, quality assurance, quality control, regulatory affairs, clinical trials design and execution, technology scale-up, manufacturing, marketing, sales, and more. Further, the kind of executive management team required to operate a fully integrated company differs substantially from that required to run a successful idea factory.

There are, of course, other business models, such as a hybrid strategy that seeks to generate ideas, outlicense them, and use the royalties to commercialize other products. Firms that have unique platform technologies can profitably exist in this hybrid space as long as they have a strategy that limits their investment dollars to a manageable number of internal product candidates. But the idea factory and the fully integrated firm are the two proven business models that typically represent the dramatically different options biotechs must eventually confront.


Knowing when it is time to decide can be as important as the decision itself. In the beginning, the strategic decisions of many biotech companies are driven largely by two factors: by the belief of the founders in their scientific or technical expertise and by the investors who provide the early funding. Both factors are compelling and important, but they should not cloud the judgment of company decision-makers, either encouraging the postponement of hard strategic choices or propelling hasty, ill-considered decisions. In both cases, the result is likely to be an unrealistic or suboptimal strategy.

Innovative scientist-founders understandably have great faith in their ideas, which often represent exciting, if distant, novel possibilities for therapeutic breakthroughs. However, many of those ideas are initially born in talent-rich university laboratories, where considerations such as the highly regulated road to drug development, the demands of clinical trials and manufacturing, and the sheer scale of commercial operations are usually not well understood or practiced. Innovation is often the most highly coveted and rewarded skill set in these companies, and individuals are often promoted to high levels of executive management beyond their capability to run the practical day-to-day operations necessary to advance promising therapies to clinical trials.

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