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Chair:
Robert I. Blum, Vice President, Business Development, Cytokinetics,
Inc.
Speakers:
Gary Pinkus, Principal, McKinsey and Company
Alan Crane, Vice President, Business Development, Millennium Pharmaceuticals
Brian Atwood, Managing Director, Versant Ventures
I. Introduction
Business models in biotechnology have gone through
several transitions over the past few decades.
Version 1.0 in the 1980s
· conduct basic and preclinical research
· develop products in defined therapeutic areas
· VC funding through preclinical development
· public investors to support clinical trials
· early stage alliances provide validation
· license away "first-born" products
Amgen succeeded with a Version 1.0 business model,
but many failed.
Version 2.0 in the 1990s
· enabling technology/tools/services
· brand discovery/ development applications
· no outright failures
· VC seeking early returns
· public financing with eye to profitability
· limited capitalization but limited capital requirements
· products/services generate near-term revenues
· multiple alliances to validate platform
· modest retained rights and royalty interests
· "pick & shovel" diseases - selling picks and shovels to
gold diggers
Version 2.0 was used by companies in genomics,
combinatorial chemistry, and high throughput screening. this model ran
into difficulties because:
1. technology diffusion rates and adoption were slower than anticipated
2. profitability was difficult to achieve
3. growth rates were constrained by limited customer base
4. creeping commodization was a threat
Version 3.0
Company characteristics:
· breadth of integrated technologies
· proprietary biology
· focused therapeutic interests and capabilities
· longitudinal product development
· renewable source of products
Financing strategies for companies using Version
3.0:
· stretch private capital/amass public capital
· develop short, medium & long-term revenue sources
· define path for revenue and profit growth
· sustain large market cap
· leverage other people's risk capital
Business development strategies for companies using
Version 3.0:
· partner often and opportunistically
· ensure growing customer base
· retain product rights to satisfy larger pharma appetites
· leverage business development as a key competitive advantage
· forge alliances that provide reach-through to downstream capabilities
II. A Strategy Consultant Perspective
Gary Pinkus, Principal, McKinsey and Company
The biotech industry has begun to provide returns
to shareholders. The BioCentury 100 index has done better than the NASDAQ
Biotech 250 over the past 5 years.
There are 5 broad business models for biotechnology:
| Business
Based On: |
Examples |
| Products |
Amgen,
Gilead |
| Tools |
Affymetrix,
PE Biosystems |
| Services |
Abgenix,
ChiRex |
| Information |
Incyte,
Celera Genomics |
| Hybrids
(biotech v.3.0) |
Millennium,
CuraGen |
Composition of BioCentury 100
- % market cap in each business model (as of 2/2000)
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