The 'biotechnology company' is a company that is set up specifically to turn the science of biotechnology into a commercial product and sell the result. It is the science base of the company that is defining. In the next section we will discuss what it takes to take a biotechnology company from that initial scientific idea to a flourishing commercial enterprise. General rules
Successful biotechnology companies must combine scientific creativity with market need.
Scientific creativity The science in a new biotechnology company generally falls into 'discovery'--you have discovered something wonderful--or 'platform technology'--you can do something wonderful. In either case, first-rate science is needed to found a first-rate company. Because living systems cannot be exactly modelled or predicted, genuinely new products must be created, at least in part, by experimental research. This must in turn be based on knowledge, creativity, and rigorous and systematic investigation, the hallmarks of good science in any context. We shall return to this theme several times, because it is crucial.
Good science is not necessarily 'leading edge' science. Research has 'fashions' and, to an extent, the biotechnology industry follows the fashion because these areas of research or technologies are where senior researchers have chosen to work. But they are not the only, or even the most productive, areas where creativity can be exercised. It can be 'old science', carried out rigorously.
Nor, unfortunately, does it necessarily mean science that is captivating for the bench scientist to perform. However, it must conform to what most people would recognise as scientific 'good practice'. This is taking care that your experiments test your hypothesis rigorously, and using all the data and knowledge available to put the results in context. Several high-profile failures of biotechnology companies, notably some of the early 'products' for the treatment of sepsis using monoclonal antibodies, are now recognised as being due to companies pushing poor science in order to achieve funding goals.
Market need Science on its own is not enough. We must sell it to someone--a 'market'. But what is a 'market need'? A general statement that, for example, 'People want a cure for AIDS' is not useful. Which people? Who will pay for it? How? How much? Will your product cure all cases of AIDS or only some? Just as scientific creativity cannot occur in a vacuum, so market research must research something specific. Biotechnology research and development is expensive, so it is important that a market for the intended product is big enough to give a return on all the investment needed.
The basic components
The market is the environment in which the company works--it is not a component of the company. Science is a central, critical component, but it is not the only one. For the biotechnologist, it is important to remember that the scientist does not have to provide all of the other features we will discuss below, but someone does. If the team initiating a biotechnology programme cannot provide an aspect of the successful commercialisation of a piece of science, then they should team up with someone else who can. This is the role that seed venture companies can provide, as can 'business angels'--individuals who can bring their own wealth and business experience to a company as joint investors and directors.
People
A new company's need for excellent, motivated people who have commitment as well as skill and knowledge is paramount. Who is going to be the entrepreneur who makes this company happen? It may be the founding scientists, but they are not going to do it in any spare time left from an academic job. It is not going to be the scientific advisory board, who are there to advise and support the scientists. It is not going to be the Board of Directors. It needs someone to jump with both feet into the science and business and make sure that things happen.
In Europe the fear of failure has severely limited academics' inclination to do this. To a limited extent, the USA supports entrepreneurship even at the cost of failure--it is seen as meritorious to have 'had a go' and failed, because it proves motivation and drive, and the scientist who has tried and failed is unlikely to fail again in the same way, thus increasing the chances of success. In Europe, cultural conservatism means that failure is considered more significant than effort. People are therefore not willing to try for a major success if there is a significant risk of failure. This cultural barrier is disappearing slowly; the high media profile of successful scientific entrepreneurs is encouraging this cultural change and an increasing number of scientists are 'having a go'. But, in our experience, the large majority of researchers who want to see their science commercialised also are unwilling to jump whole-heartedly into that commercialisation themselves.
Although the central, driving entrepreneur is often a founding scientist with a 'good idea', it need not be. Packard Inc. were turned into a leader in the field of scientific analytical instrumentation by two business school graduates who, at the start, knew almost no science at all. Against the background of failures and successes in Europe and the USA in the last 10 years, experience shows that both business and scientific skills are essential for the success of a company, and that it is a rare scientist indeed who can combine both roles. No biotechnology company has been a commercial success when one person tried to combine both roles for more than the first 2-3 years.
Attitudes and culture
This 'jump-in-feet-first' approach from academia requires a major culture change. Academic science focuses on the subject, commercial science on the object. Academics typically address a topic or discipline, and follow it wherever it goes. It is the process of research that is important. Commercial science addresses a specific problem, and uses any tools or disciplines that are appropriate. It is the product that is king.
These apparently small differences in emphasis have major cultural effects. For example, there is little reward for an academic to be part of a multi-disciplinary team but it is essential for most commercial programmes. It is impossible for an academic scientist to be 'redundant', as by definition what they do is what they are meant to be doing. (They may be incompetent or unfundable, but that is different.) Industrial scientists can most definitely be redundant in the sense that their science, no matter how excellent, is no longer needed to achieve the company's aims. This is made more acute by the need for a company to focus on a small number of products or projects, while it is worth an academic group having at least as many projects as it has PhD students.
This is not the same as the choice between 'blue sky' and 'applied' research. Many companies carry out highly speculative research, and much academic work in biomedicine is, in essence, applied.
Some academics believe that these differences make science, in a commercial context, less attractive to the scientist. This old-fashioned view is now not very widely held because commercial science, and especially commercial science in a small company, can be an extraordinary place to do science for several reasons:
- the environment is intellectually stimulating, with hard problems to solve and many different disciplines being brought to bear to solve them;
- problems change fast;
- money is not usually a limit in developing excellent science, and state-of-the-art equipment and materials are in plentiful supply;
- there is a real opportunity for career development into any or all of the areas of science, technology or business the company is involved with;
- there is the chance of making substantial financial gains from your inventiveness (although not usually a large salary in the short term in a small company).
Strategy
Having found the people, and the great science, you must decide what you are going to do. This is your strategy, what you mean to do in the longer term, beyond the exigencies of day-to-day research. The strategy of a company is, of course, specific to that company, but we can frame the things that the strategy should address as questions. Some key strategic questions for a small company start-up are:
What is your company's specific aim? 'Cure cancer' is not a reasonable strategic goal for a health-care company. What is your first product going to be? This is absolutely essential. Out of the cornucopia that your science could create, you must choose one thing to start with and focus most of your energies on that one. This 'focus' is critical for new science-driven companies. This means hard choices and it means dumping some 'pet projects'. How do you deal with success? Success in a research programme usually means having to start a development programme. Do you have the skills or funds to do this? If not, how are you going to get them? What will you do next? After your initial research programme has finished (with success or failure), do you have to fire all the scientists or do you have another programme for them to move on to? Remember that a company's science is focused on a particular problem, not on a discipline or process. Whatever those scientists have to do, it must fit in with the overall aims of the company and the company's competitive advantage (see below). Define what the key scientific advantage of the company is and hence what the scientists are going to be doing. Do not confuse 'strategy' with 'mission statement'. The latter is a single phrase that encapsulates what you think you are about but it says nothing about why, how, or what you are going to do to get there. Some people think 'mission statements' are purely public relationship exercises for the company brochure.
Product vs. service vs. technology
A key aspect of your strategy is how your company is going to make money. In the 1980s it was every biotechnology company's stated dream to become a FIPCO--a 'Fully Integrated Pharmaceutical Company', like Pfizer or Roche, doing everything from basic discovery to trucking boxes of pills to doctors. This is very unrealistic. There are several more realistic goals
Product company. You discover or invent products, take them as far through development as your funding allows, and then sell or license them to someone with experience in manufacture, distribution, etc. Examples include all the larger 'first wave' biotech companies such as Amgen, Celltech and Chiroscience. In rare cases, these companies may seek to manufacture their own product. In even rarer ones they may go round doctor's surgeries selling it. But there are probably 400,000 general practitioners in Europe alone. Are you going to personally sell your pills to them all? If not, someone must work with you on that end of the business. Tools company. You develop tools or technologies that help other people develop products. Examples of such 'toolsets' include genomics and combinatorial chemistry. These are often also called 'technology platform' companies. 'Solution providers'. You integrate several tools into one company. This is often achieved by the merger of two or more companies as any one start-up company may be excellent at one technique or approach but is unlikely to master all the 'tools' that a collaborator needs. Mergers and acquisitions are becoming more common in biotechnology and are an effective way of welding a lot of small brilliant companies into one (hopefully brilliant) whole. If this is your goal, you should say so from the start. Your strategy as to which of these companies you wish to emulate will probably change. But you should at least have some idea today as the approaches the different companies take to product discovery and development are radically different, and it is that first product that will make or break your new company.
Success
Success is hard to define. Intellectual leadership is not the same as company success (witness the commercial success of Mutant Ninja Turtles and The Spice Girls). A strategy must be careful to define 'success' in a useful, meaningful way. What is your ultimate goal? (Remember 'cure cancer' or 'enhance shareholder value' are too vague to be useful.) What are significant steps along the way, and how will you show that you have passed them to the outside world? Defining criteria for success is very important, as it defines your commercial goals, and hence shapes your strategy in getting there.
By different criteria, the biotechnology industry as a whole either has been very successful or a dismal failure. Less than 1 percent of the first tier of (almost all US) biotechnology companies have become profitable on the basis of sales of products. However over 90 percent are still in existence as active, science-based companies. Over 60 percent would have given their initial investors an IRR of over 10 percent ('IRR' is 'Internal Rate of Return', a measure of the financial success of the investment--see session 3). For your start-up, these might be rather long-term goals. You might define success in terms of milestones along the way, such as flotation on a public stock market, signing a major collaboration with a pharmaceutical company, or entering your first product into Phase II clinical trials.
Competitive advantage
This is a trendy phrase from the management manuals of the 1980s that means that you can do something better than your competitors. What is it that you can do and no-one else (or, more realistically, very few other people) can do? What is it that, rather than merely being good at, you excel at? 'Excellence' is the watchword here, and it may come from one of five reasons.
You hold the patent on doing it. This is a powerful argument. Scientists should always patent an idea, process or invention that they think might be of some use to someone. The patent prohibits anyone else from 'practising' your patented invention without your agreement. It does not physically prevent anyone from copying your invention, but it makes it illegal to do so, and you can sue them if you have the time and money, and it is worth the effort. An example is the patent on polymerase chain reaction owned by Hoffman-La Roche, to whom anyone in the world using PCR for commercial purposes must pay a license fee or Roche will sue them.
You have the tools necessary to do it. This is as good as holding the patent in the short term, as it means that, while someone else could copy your process or invention in theory, in practice they cannot. Examples would be owning key cell lines, gene clones or production equipment. This, however, is only a competitive advantage until your competitors can either duplicate your tools, or find a way round using them, for example, by building their own production plant. A good tool to own is therefore one that inherently cannot be duplicated, like a unique genetic population.
You have the skills necessary to do it. Early practitioners in the science of in vitro fertilisation were in that position, as are those able to produce clones of mammals from adult cells today. This is a powerful competitive weapon until someone else learns how to do it. The skills base of this sort is sometimes called the company's 'intellectual capital'.
You have a lot of resources or money to do it. This is a weaker form of competitive advantage in biotechnology, because the industry is a knowledge-based one, not a resources based one. Many companies have lots of resources, especially major pharmaceutical or agricultural companies, and if your sole competitive advantage is that you have bought 20 DNA synthesisers and lots of computers and technicians to run them then you will shortly be out-competed by another company which can afford 30 DNA synthesisers.
You are the first to do it. This is the least attractive of all but it is often where biotechnology companies start. They see an opportunity and set up a company to exploit it. Their advantage is that they can move faster than anyone else. This only lasts while you keep moving.
Other forms of competitive advantage that apply to companies, such as Pepsico or Ford, such as having efficient factories or a recognised 'brand name', rarely apply to biotechnology companies.
The only way to show you have a competitive advantage is to demonstrate that what you want to do can actually work. In therapeutics discovery, this means proving that your material has some effect in people (remember that most drug discovery programmes fail). As it takes tens of millions of pounds to develop a product to the point of proving therapeutic efficacy, companies often have to accept a less rigorous proof, such as a sound scientific reason for supposing that it will work, evidence from animal tests that it works in animals, evidence that it is not actually harmful in humans (Phase I data).
Competitive intelligence
Part of proving that you have a competitive advantage is knowing how good you are compared to how good you have to be. This is competitive intelligence. Is there a medical need that you are going to satisfy and is someone else already filling that need? Is that need still going to be there in 10 years' time? This is a combination of finding out what the competition is doing, and what the market is. A surprising number of business proposals we have seen contain no evidence that their authors realise that the outside world exists, even less that it might contain competitors.
The business plan
Many of the rules for success go beyond 'strategy' and into tactics. Tactical planning should be carried out by a team of people bringing scientific, product development, business and financial skills, because all of these things are essential. The end product of this planning is a detailed plan of what your business is going to do--a business plan. But the business plan is a product of planning, not an end in itself. No matter how colourful or typographically creative it is, it is worthless if the planning behind it is not rigorous.
During the construction of a business plan, scientists must be aware that not only will bankers, accountants and the like be telling them what experiments they can and cannot do in the company, but that these people actually have a valid and useful viewpoint, and can sharpen and focus a company's plan substantially. (The decision on what is and is not good science, though, must rest with the scientists unless the bankers have post-doctoral laboratory experience, which is rare.) Typically, the stages that this process goes through are summarised below: we have considered several of them already.
Identifying the science that will go into the company, according to the criteria we summarised above. Defining what you are going to do with that science. This is the first part of the 'business plan', a document that should literally describe what the business plans to do. It should include consideration of what can the science really do? who is going to do it, and where? who is going to manage them (i.e. make sure that everything happens)? are there bits the company cannot do, or it is not sensible to do, and if so who is going to do them, and how will you pay them? who will own the new intellectual property? who will manage the development programmes? what are the key milestones?
Identifying the company's competitive advantage. How will the company be funded, and specifically, how much money do you need to get started? where will you be when that runs out, and who will give you some more then?
Who do you sell your product to, and by implication, what is your product? Is your strategy to generate intellectual property that you sell to another company, to develop drugs to Phase II clinical trials and then sell them to a drug company, to provide a service, or to get a product all the way to selling it to a high-street store. These paths take very different skills, and very different amounts of money. And most importantly:
What happens if (when) it doesn't work? The last point can be hard for some scientists to accept but it is a fact that most science fails and you have to ask what happens to your company then. If it is a 'one product company' then when the product fails, the company fails, and everyone is out of a job. So it is wise to look round for other technologies you can bring in to the company. It is possible that, after a year, half of the brilliant science that led to forming the company has been abandoned! This should be viewed as evidence of growth and evolution, not failure, providing it has been replaced by something better.
The whole process boils down to identifying the shortest route between where you are and where you want to go (but not taking scientifically unjustified shortcuts), with suitable cut-outs for when it does not work. This is why the strategy is important--you cannot define the shortest path to where you want to be until you know where that is. It also shows that in a company you cannot separate science from business issues.
The result of this process is a detailed plan of what the business will be doing, why it will survive and, preferably, flourish if given a certain amount of money. This forms the basis of an investment proposal--you take the plan to a funder, and say 'I propose you invest in this company because it will do this with the money'.
The business plan will almost certainly be wrong. Unforeseen events, from scientific breakthroughs or failures to stock market crashes, will derail your carefully laid plans. This should be expected, even embraced. But if you cannot think through where you might go if all goes well, the chances are that you will go nowhere.
