We do not need reminding that the matter of financing biotech companies is a tough task. Several factors have to be considered beyond the normal issues of management and intellectual property. These include questions around who should be your initial seed investors, which venture capitalists will back the next and future rounds, and what is the current mood in the financial markets. It is the cyclic nature of the financial capital markets that can be the major challenge for entrepreneurs. Within each cycle there is often a favoured business model - for example, the classic switch from platform technology-based companies before 2000 to companies with late-stage products post 2001.
Depending on their technology-base, biotech companies can adopt different revenue-based business models, basically 'revenues today' versus 'revenues tomorrow'. 'Revenues today' models are cash earners and usually fit companies with a fee-for-service potential - for example, some platform technologies and drug delivery companies. 'Revenues tomorrow' models tend to be cash-burn intensive as money is used to back high-risk drug development.
Which business model should a biotech company adopt? Changing attitudes and fluctuating financial markets make it very difficult for companies to set a long-term vision to a particular business model. Even pharma companies can change their attitudes to partnering, thus affecting the cash flows that biotechs can earn from licensing deals. What line, then, should entrepreneurs and management take?
"I would like to propose a new business term: corpomorphic - the ability for a company to morph from one business model to another so that it can adapt to a changing environment."
Success in biotech can be attributed to many things, but one key factor for any business is steady cash flow. This can be from equity financing rounds, licensing and alliances, and other revenues - either fee-for-service based or actual product sales. The ability of a company to switch from one source of cash flow to another means that it has the ability to change from one business model to another. This ability to morph from one business model to another is characteristic of many companies; the classic example is the transformation of many drug delivery companies into speciality pharmaceutical companies within which they are now taking on the risk of drug development. The switch that Millennium Pharmaceuticals made from being a platform technology company to a developer of late-stage products is another example. In light of these considerations, I would like to propose a new business term: corpomorphic - the ability of a company to morph from one business model to another so that it can adapt to a changing environment. Furthermore, I would like to suggest that maybe you should consider whether your company is, or has the ability to become, corpomorphic.
Fintan Walton
Chief Executive Officer
PharmaVentures Ltd