Biotech firms

https://www.researchgate.net/publication/283340264_Bioentrepreneurship_in_Germany/download?  

Industry Development, M&As, Strategic Alliances,
Crisis Management, and Venture Capital Financing 

Holger Patzelt November 2005 ("Bioentrepreneurship in Germany", but still adequate)

We live in the “biotech century”. Since modern bioentrepreneurial ventures are characterised by long product development cycles, high technological and market uncertainty, and a high capital intensity, starting a biotechnology firm is among the most complex entrepreneurial tasks. Novel strategies such as extensive inter-firm co-operations and strategic alliances between firms have emerged.

Categories of biotech firms: 1: Entrepreneurial Life Sciences Companies (ELISCOs) (“small and medium sized companies, the business objective of which is exclusively to commercialise modern biotechnology”); 2: small and medium-sized companies (“Extended Core Companies”); 3: large corporations ("which generate
a substantial part of their revenues from modern biotechnological products and
products for biotechnological research and production, respectively”).

Business sectors of biotech firms: 1: "red” biotechnology sector develop products for human healthcare. These products are therapeutics, molecular diagnostics, drug delivery systems, or tissue engineering products (the highest economic potential of all sectors). 2: green biotech firms develop or produce agricultural products such as transgenic plants or food. 3: white biotechnology develop and commercialise biotechnological processes and products such as enzymes in the fields of speciality chemicals. 4: grey biotechnology field develop products related to environmental
protection and environmental diagnostics. 5: blue biotechnology exploit marine organisms. 

Business models of biotech firms 

1: Product-oriented companies concentrate on development and commercialisation of
biotechnological products such as therapeutics and diagnostics (red biotechnology),
transgenic plants (green biotechnology), or enzymes (white biotechnology). As product development is capital and time intensive in particular in the field of red biotechnology, most product-oriented firms generate their first revenues not before several years after their inception. This business model is particularly risky since the success of product development is highly uncertain at the time of the venture foundation. However, if product companies succeed in bringing a product such as a blockbuster drug to market, they may earn several hundreds of millions of revenues each year.

2: Service or platform companies draw on an innovative but yet established technology which they either developed by themselves or purchased from another firm. These firms offer the utilisation of the technology to other companies as a research service. Often service firms are profitable few years after foundation. However, they generate substantially lower revenues than successful product-oriented companies. Examples for services include DNA sequencing or the supply of laboratory material. 

3: “Hybrid companies” utilise their proprietary technology for their own product
development besides commercialising it. These companies have the advantage
to generate revenues soon after their inception. Those revenues are invested in in-house product development. Thus, the firms are not profitable at an early development stage, but do not exclusively depend on external investors such as venture capitalists.

70 % of all German biotech companies and are indicated by the grey areas: 

  

Earlier, there was no understanding of the molecular mechanisms of diseases... but the modern drug development process starts with the identification of a potential
molecular target. A target is a gene or a protein the malfunction of which is responsible for the development of a disease. Target identification may be performed, e.g., by comparing gene patterns or protein profiles of ill and healthy individuals. In the second step, the identified potential target needs to be validated. Cell cultures and
techniques such as RNAi to modify pathogenic tissue cells in the laboratory are
fundamental for the target validation process. a potential drug candidate (so-called lead compound) which interacts with the validated target needs to be discovered. A lead compound is either a new chemical entity (“small molecule”) or a biomolecule such as an antibody, protein, or a piece of DNA or RNA. The lead molecules of either class are optimised in a way that the interaction with their target is as strong and as specific as possible. Chemical modifications of the lead may facilitate easy oral uptake of the drug.

After completion of the discovery process, the drug candidate enters the classical
pharmaceutical development process:

  

 0,60x0,90x0,71x0,31x0,69x0,75 = 0,06 >> The probability that an initially selected lead candidate will enter the market is only about 6 %