Biotechnology business models work: Evidence from the pharmaceutical marketplace

Abstract

A study was undertaken that validates the business models of biotechnology companies that compete in the pharmaceutical marketplace. Strategic alliances, largely with established pharmaceutical companies, have enabled biopharmaceutical companies to obtain revenues prior to achieving their goal of manufacturing and marketing their own products. As a result, despite the generally long lead-times to commercialisation, an increasing number of biopharmaceutical companies are demonstrating financial success in the marketplace, particularly with respect to revenues, at a faster pace than occurred for both the traditional pharmaceutical and the specialty pharmaceutical companies. There were 244 biopharmaceuticals approved for 366 indications from 1982 to 2005, of which 48 per cent of the approvals for both the products and the indications occurred in the period 2001–2005 (representing just 21 per cent of the 24-year period). From 1990 to 2005, the ten largest US biopharmaceutical companies increased their total revenues from $1.1bn to $31.7bn and turned a combined loss of $0.3bn to net income of $6.2bn. During this time-frame the number of US biopharmaceutical companies reporting revenues in excess of $1bn increased from zero to eight.