Monday, October 11, 1993
By Karen Bernstein
As biotech funding efforts have run into a brick wall and changes in the health care system threaten the traditional wisdom about how to build successful drug companies, there have been rumblings in the industry about new business models for biotech companies to follow.
One mentioned with increasing frequency has been the "research boutique" or "just-in-time research company" model, loosely defined as companies that develop a product mid-way through clinical trials and then turn over final clinical development, marketing and possibly manufacturing to a pharmaceutical partner.
While many companies may find themselves becoming de facto research boutiques because they can't raise the $400 million to $500 million necessary to build a fully integrated biopharmaceutical company, the question for investors is whether the model provides a return on investment.
Among those who believe the model has potential for companies and investors alike are Grant Heidrich of the Mayfield Fund and John Wilkerson, chairman of The Wilkerson Group.
Wilkerson told BioCentury the new model will be driven by two fundamental forces: the uncertainty of substantial sustained funding for small companies, and, more importantly, a prolonged price-cost squeeze on large drug companies, the effects of which will be accentuated by thin pipelines and products going generic.
For biotech companies with $75 million or $100 million in the bank, it makes sense to go through Phase III trials and do their own manufacturing, Wilkerson said. But for the bulk of companies with $10 million to $50 million, the question isn't what they should do, but what they can do.
The pressures on pharmaceutical companies and their obligations to shareholders will lead them to craft deals that share value creation with the creators of technology, Wilkerson said. "They will create completely different types of agreements than before. While I'm suspicious that these agreements will create as much value as a fully integrated biopharmaceutical company, they have the potential to create substantially more value than the traditional contract research house."