For much of its 30-year history, biotechnology has been a sector in search of a business model. In its primordial days of the mid and late 1970s, the model of choice and perhaps necessity was the contract R&D house. By the early 1980s, after Genentech’s wildly successful IPO, every new entrant aspired to become a fully integrated pharmaceutical company (FIPCO).
Investors soon learned the pitfalls of this approach: the FIPCO model works great when a company defys the odds and succeeds in getting its first drug approved, as was the case for Genentech, Amgen, and Genzyme; it is a completely different story when the drug fails, as was the case for companies like Cetus.
By the early 1990s, FIPCO was out, and the alliance-driven firm was in. Under this model, the biotech company would specialize in proprietary, early-stage R&D and then license drug candidates out to selected partners during the clinical development phase in exchange for upfront fees, milestone payments, and royalties on future product sales.
Then, the explosion of technologies, such as high-throughput screening, combinatorial chemistry, and genomics, in the mid 1990s ushered in the era of the platform model. According to this scheme, firms sought to earn returns by selling subscriptions or charging licensing fees for broad access to their particular technology. This was based on the idea that it is better to get a 1% cut on the returns across many firms and products than to get 100% of the returns as well as all the risks of trying to develop your own drugs.
Alas, with the bursting of the genomics bubble in 2001, however, the platform model was tarnished. Once again, investors became interested in companies with products that could either be licensed or developed or that made potentially juicy acquisition targets. In essence, we have gone full circle.