The Platform Business Model

Several established business models exist for the biotechnology industry. Initially companies tended to adopt the typical model of a fully integrated pharmaceutical company that controlled the entire value chain in order to maximize and sustain superior financial return. These are evolving over time into those that maybe more suitable at different stage as the company grows. Of late, new business model have attempted to adapt to changing market needs in order to deliver returns to investors. One such emerging model that essentially leverages novel research methods and tools, sold as services based on the use of the technique or sell tool, systems, instruments or software that embed the technology is the Platform Business Model.

Essentially the model involves developing a technology platform and licensing it out or selling it. The platform business model focuses on the discovery and development of a technological platform to aid the drug development process. It aims to generate value through licensing, subscription and service fees for the technology platform. For these reasons, this model compares well with companies outside of Biotech such as Microsoft, earning handsome profits by licensing and using the market for IP instead of vertically integrating into computer hardware itself. A company that follows a platform model might also be categorized as a 'Service Provider' according to the results of the OECD Workshop on the Outlook on Industrial Biotechnology, 2010.

An existing example of this model is the recently discussed Aragen Bioscience, offering a complete range of high-quality, custom R&D services, that enable clients to cost effectively accelerate their research efforts. With an emphasis on customer service and technical leadership, Aragen is able to offer a flexible, efficient, and cost-effective solution to internal product development programs. The productivity of services provided by Aragen allows it to capture value on fees from revenues and contracts while the customers make no technique specific investments.

Pisano Analysis

Pisano characterizes models based on two things: How well markets for know-how work and the type of technical innovation. Essentially he concludes that licensing strategies can be both lucrative and effective for players with scarce and valuable IP when the markets for know-how are working well. Conversely, in cases where markets to know-how are impaired, models involving a fuller integration may be required to overcome the critical barriers to innovation.

The platform model combines the four factors affecting market know-how: information asymmetry, investment in specialized assets, tacitness of the know-how and the degree to which IP can be protected legally, in its most effective and useful way. With little need to convince potential licensees/clients of the value of the technology prior to use, this model requires a low degree