Business models in biotechnology and effects of funding patterns

Abstract

As a sector, biotech has garnered a lot of attention because of the complex nature of business delivery as well as the potential scope that it has shown in all major industries ranging from agriculture to drug discovery to veterinary sciences. An essential characteristic of Bio-tech firms is long gestation periods because of the intricacy and uncertainty of results. They therefore require patient capital for large number of years before any substantial returns can be mildly proven. The go-to-market process is very long and requires huge investments of money and time in clinical trials and regulatory approvals. In such a capital-intensive industry, the question of sources of funds therefore becomes very crucial. This alone can determine the existence of firms as well as influence the nature of firms that manage to thrive and emerge victorious. Therefore, with this motivation, we look at the different sources of funding that has been observed in biotech in the Indian context. We will also try to establish linkages between prominent business models and funding sources and find reasons for why some models receive more attention than others. Lastly, we will try and introduce a new variable (geographical location) and attempt to see if that also leads to more funding in Biotech start-ups. Business Models have been the subject of research for many studies. Sabatier et al. (2012)i have studied triggers to the biotech industry evolution. And they found that it’s not the biotech innovations that are responsible; instead it’s the innovation in Business Models that have contributed to the evolution of the Biotech industry. This approach resonates with the software industry’s business model innovation. Zott and Amit (2002) have key elements that impact business model changes in the software industry: content, structure and governance. Change in either of these can lead to a business model innovation. In his 2006 book ‘Science Business’, Pisano has claimed that it’s the business models which determine financing needs and organization structures that are responsible for success of the firms in the business of science. And therefore, it makes sense to postulate that this success must be factored in by external funders before they make decisions to fund these organizations