Strategy Formulation A Case Study

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New directions for the biopharma industry in Canada: modelling and empirical findings

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Isidre March-Chorda

Received September 2007 Revised March 2008 Accepted March 2008

Dpt. Direccio´n de Empresas, University of Valencia, Valencia, Spain, and

Rosa M. Yagu¨e-Perales Dpt. Economı´a Aplicada, University of Valencia, Valencia, Spain Abstract Purpose – The main purpose of this study is to identify features and trends shaping the business models currently prevailing in the Canadian biopharma industry, by disaggregating the business model analysis into four key areas: value creation, investment strategy, business strategy, success factors Design/methodology/approach – Results arise from an empirical fieldwork of qualitative nature, undertaken by the end of 2004, involving deep interviews to a broad variety of key stakeholders of the biopharma industry in the Quebec region, including biopharma firms, large pharma firms, venture capital funds, research centers and recognized experts from consultancy firms and Universities. Findings – Biopharma firms encounter difficulties to bridge the gap between the research innovation focus to the large scale production focus. The biopharma firms need to announce achievable and promising hits in the near future, mainly by filing patents and also through scientific publications, and making believable their prospects to reach the release phase. Venture capitalists and private investors claim for original, innovative and marketable results, keeping away from just imitative enterprises. The one product firms still largely prevail. Research limitations/implications – Lessons learned through this fieldwork might in the future be complemented with a quantitative survey to biopharma firms in the Quebec region. Practical implications – When funding biopharma firms, private investors claim for original, innovative and marketable results, keeping away from just imitative enterprises. The business model must evolve, and take into account the quick changes in the environment, coming either from the market or from the technologies and research streams. Originality/value – Disaggregating the business model analysis into four key areas will make an original contribution to the limited knowledge about expectations and future prospects of the biopharma industry Keywords Management strategy, Biotechnology, Pharmaceutical technology, Canada, Performance management Paper type Research paper

Management Decision Vol. 46 No. 6, 2008 pp. 880-893 q Emerald Group Publishing Limited 0025-1747 DOI 10.1108/00251740810882653

1. Introduction The Organization for the Economic Co-operation and Development (OECD) (2005) defines biotechnology as the use of scientific and engineering principles (based on microbiology, genetics, biochemistry, chemical and biochemical engineering) to transform materials using biological agents (such as micro-organisms, enzymes, animal or vegetable cells) with the aim of producing goods and services. In short, the application of science and technology to living organisms, as well as parts, products

and models thereof, to alter living or non-living materials for the production of knowledge, goods and services (OECD, 2005). Biotechnology is most briefly defined as the art of utilizing living organisms and their products for the production of food, drink, medicine or for other benefits to the human race, or other animal species (Ernst & Young, 2007). The field of biotechnology started to be considered a proper independent industry at the beginning of the 1990s and is largely made up of start-up firms and SMEs (small and medium enterprises). Networking and the exchange of complementary assets with other actors, including academic teams, large firms, research centres, hospitals and SMEs, is crucial. Biotechnology companies are positioned between scientists who make the scientific discoveries and the large established firms that have the capabilities to market the products, and play a nexus role in these networks (Mangematin et al., 2003). This study focuses on biopharma, the segment that clearly excels within the biotechnology industry, receiving worldwide more than 90 per cent of total investment (Genoma Espan˜a, 2005). In 2002, in the USA, this segment accounted for 90 per cent of the total biotechnology R&D expenditure and 87 per cent of total biotechnology sales. These proportions have remained practically unchanged since then. The main purpose of this study is to gain new knowledge about the prospects and expectations surrounding the business models most frequently adopted by biopharma firms in Canada. Methodologically, a qualitative study was conducted in order to ascertain the views held by a broad array of analysts and agents engaged in this industry, in order to spot general features and behaviour patterns. 2. Biopharma in Canada: general overview The Canadian biotechnology industry has grown very rapidly since the beginning of the 1990s, having more than doubled its size between 1994 and 1997, from 121 to nearly 300 firms. Revenues increased sharply over this period, from US $ 230 million in 1994 to US $ 715 million in 1997, and to US $ 2,300 million in 2004. Growth since 2001 has slowed down, reaching 450 firms by the end of 2004 and almost 500 in 2007. The USA accounted for 2,196 firms undertaking biotechnology activities at the end of 2003. The capital invested in this industry mounted significantly until 2001, but is losing momentum since then. The priority given by the venture capitalists to the therapeutic human health area soon turned this segment into the core of the biotechnology industry. Drug discovery companies within the human health area rely strongly on basic research and aim to license their technologies, product candidates and final compounds to research bodies and to suitable companies in the pharmaceuticals industry. As in any other country, small and medium-sized firms predominate in the Canadian biotechnology industry (as Shan et al., 1994 already noticed). Canada hosts around 500 biotechnology companies (490 in 2003, according to the Government of Canada, 2005) which give employment to 12,000 people (11,863 in 2003). Almost 100 of these firms are public companies. Market capitalization grew by 56 per cent in year 2003, and the top ten firms accounted for a total capitalization of Can $ 13 billion, representing 64 per cent of the entire market capitalization of this industry (Canadian Biotech News Stock Index, December 2003). However, the 2004-2006 period witnessed a slow-down in capitalization, to Can $ 15 billion in 2006.

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The total capital invested in the Canadian biotechnology industry fell from Can $ 1991 million in 2003 to just Can $ 977 million in 2006. The majority of Canada’s biotechnology companies still remain small and undercapitalized. Of the 40 per cent employing less than ten employees, many are looking for a critical infusion of venture capital in the $5-10 million range, to help them nurture their products through the decade-long testing and regulatory approval process prior to reaching the market (Burrill Canadian Biotech news, 2007a). The Canadian Biotech Select Index, which tracks 25 of Canada’s leading public biotechnology companies, has slipped 7.25 per cent in the first quarter of 2007, with 15 of the companies losing value (Burrill Canadian Biotech News, 2007b). According to the Canadian Biotechnology Industry Report, 2007 (Canadian Biotech News, 2007), of the 500 biotechnology companies involved in the sector, over 70 per cent focus on therapeutics and diagnostics product development. The development of the biotechnology industry has followed different paths in mainland Europe and the USA (Prevezer, 2001). Leadership by the USA, and to some extent also by Canada, is largely explained by a stronger scientific, technological and industrial base, more easily available funding (venture capital), a more proactive approach to the protection of intellectual property rights, a less restrictive regulatory environment, different public-research funding patterns, and fluid linkages and interchange of information and personnel between the universities and the business community (Orsenigo, 2001; Owen-Smith et al., 2002; Todt et al., 2007). Table I shows the distribution of firms by biotechnology area in Canada. Table I reveals that the overall health sector, including genomics, overwhelmingly dominates this industry with almost 85 per cent of total firms and over 90 per cent of total investment, turnover and R&D expenditure. Genomics is defined as the study of all the genes and DNA segments of an organism, and their function. It aims to understand the structure of the genome, including mapping the genes and sequencing the DNA. Of the total resources invested during recent years in the Canadian biotechnology industry, 98.5 per cent has gone to public companies. Canadian biopharma firms account for over 500 products under development and over 50 already available in the marketplace. About 22 per cent of “product candidates” are at Clinical phase II or III (trials in humans, which are the last phases of product development prior to authorization of release).

Sectors/activity areas

Table I. Sectorial distribution of firms in Canadian biotechnology industry: year 2003

Human health Therapeutics Diagnosis Distribution/commercial Biomaterials Genomics Agriculture Environment Source: Canadian Biotech News (2004)

Number of firms

Percentage

329 252 46 21 10 54 55 16

72.5 75.1 14.5 6.4 3 11.9 12.1 3.5

Around 40 per cent of start-ups originated as spin-offs from universities or hospitals (Canadian Biotech News, 2004), with a similar percentage emerging as joint ventures from companies or from companies and research centres. In 2003-2004, the Canadian federal government spent Can $ 575 million on biotechnology R&D, accounted for 13 per cent of total federal R&D expenditures, and almost half of this was devoted to higher education (Government of Canada, 2005). In 2003, when the last Biotechnology survey conducted by Statistics took place, biotechnology firms spent Can $ 1,194 million on biotechnology R&D (Statistics Canada, 2003), compared to US $ 14,232 million in the USA (National Science Foundation, 2006). Tax credit programs, at both the federal and regional levels, are very supportive and over 50 per cent of the R&D activities cost can be subsidized by benefiting from these programs. These figures make the Canadian Administration subsidy system one of the most supportive in the world. Links and complementarities between pharmaceutical firms and small new biopharma companies are encouraged by two critical facts: (1) Large pharmaceutical firms operating worldwide, known as big pharma, fail to properly cope with basic research by themselves. (2) Large pharmaceutical companies lack the most appropriate environment to become leaders in the discovery of new molecules and the formulation of new drugs. This framework opens new opportunities for the pure biotech sector, composed of small biopharma companies, most of them still in a start-up phase, far from the clinical phases. They are usually starters of ideas in a continuous race to find new paths for future pharma products. In this context, big pharma firms, endowed with the necessary infrastructure to production and marketing, are increasingly dedicated to bringing out the new products (developed totally or partially by others). The following sections strictly focus on biopharma companies. 3. Business models in biopharma The term “business model” lacks a generally accepted definition and the diversity of definitions poses substantive challenges in delimiting their nature and key components. In this theoretical review section, the business model concept will be approached from four different perspectives: (1) The content of the business model. (2) The phases or stages in the development of the business model. (3) The role played by the research activities, and their degree of novelty and radicality. (4) The outcomes for the biopharma firms. The first pays attention to the factors that nurture a competitive business. Decisions involving customer selection, supply definition, internal and externalized tasks, entry to the market or profit generation, are the basic content of business models (Slywotzky, 1996; Mayo and Brown, 1999). Morris et al. (2005) provide a standard framework for characterizing a business model, reasonably simple and measurable. To them, a business model is “a concise

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representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets”. In this framework, six are the components to construct an entire Business model: value creation factors, market factors, internal capability factors, competitive strategy factors, economic factors and personal/investor factors. The second approach to business models focuses on the implications underlying each stage of the product development process. Value creation in biopharma progresses in a nonlinear manner with distinct specific inflection points along the way, each of which is linked to identifiable fundamental events of the company’s life: foundation; patent approval; product candidate; authorization; licensing and product release. Foundation. The start-up biopharma companies usually originate with a group of scientists who temporarily leave the university or research environment and decide to capitalize on a scientific breakthrough with potentially relevant applications to industry. Patent. Patent granting is the first major boost for value creation in biopharma firms and opens the door to capturing external funding. Product candidate. The next major event lies in the selection of candidate molecules for preclinical testing, after in vitro testing. The value of the firm remains flat between preclinical and early clinical testing. Authorization. After Phase II clinical testing the challenge is to shorten the time to market of the future drug. Licensing and product release. The transition from the research phase to the production and marketing of new products has to opt between vertical integration within the company, producing and marketing its products on its own, or licensing the products to someone else and concentrating exclusively on R&D. The experience to date shows that most dedicated biotechnology firms (DBF) prefer to license their products after Clinical Phase II, the point with the highest ratio between the market value and development expenses. This preference for licensing is largely explained by the prohibitive cost of production and marketing once the clinical phases have concluded, so firms prefer to license the product to a multinational in return for royalties, which enable them to raise funds to continue their research (Senker, 1998). The vertical business model is less frequent and involves a fully integrated organisational company with access to internal development, manufacturing and marketing capabilities, able to draw the resources and capabilities needed to carry out all the innovation-led activities, from research to commercialization. Despite operating in a high-risk environment, the vertical firms hold the potential for high returns on research investment and strong profit margins (Lim, 2003; Nosella et al., 2005). The third perspective in this review of the business model concept rests on the role played by research activities. In this sense, Senker (1998) classifies the DBFs into two main groups: research-driven and application-driven firms. The former concentrate on research in new technologies, build up strong patent portfolios and employ skilled technical staff. Focused on developing radically new techniques, which implies research of a long-term nature, they face the challenge of being involved in very long and costly research projects, and are under pressure to discover short-term applications and products in order to finance long-term research.

Application-driven firms for their part, concentrate on developing products through incremental advances in relatively familiar and generic technologies, which implies less costly and shorter-term projects. Mangematin et al. (2003) claim that two types of firms coexist: research/discovery based firms, the fast growing ones that form the elite, and a large number of small firms operating as suppliers of biotechnology-based services, with little chance of becoming worldwide leaders. The last approach deals with the outcomes of the biopharma firms. Lim (2003) and Nosella et al. (2005), class biopharma firms into five groups: (1) Product business model: aims to generate value by progressing products along the drug development chain process and either licensing them out or taking them through to market. This model is quite risky and requires substantial investment. (2) Platform business model: focuses on the discovery and development of a technological platform to aid the drug development process. Value is generated through licensing, subscription and service fees for the technology platform. This model enables companies to operate in a lower risk environment with lower profit margins. Bioinformatics and bio-analytical systems are the typical companies in this model. (3) Hybrid model: a hybrid of the product and platform business models that may be capable of generating a pipeline of products. (4) Production process business model: companies focused on the development of production processes for other biopharma or pharmaceutical firms. (5) Services business model: companies that produce analysis or diagnostic services such as chemical synthesis, cloning, sequencing, or DNA testing and sell them to other companies or final users. Although this literature review is helpful in explaining the development of Biopharma firms, these studies suffer from certain shortfalls and are not sufficiently comprehensive. The model proposed in this study is based on those presented in this section. This model, specific to the Canadian biopharma industry, attempts to provide new evidence on business models, by dividing the analysis into four broad areas: value creation, investment strategy, business strategy and success factors. These areas are expected to cover most of the postulates of the four approaches introduced in this section. 4. Canadian biopharma business models: findings and results The purpose of this core section is to provide a precise and appropriate description of biopharma firms in the Canadian Quebec region by highlighting the key features, trends and behaviour patterns exhibited by their business models. As regards the methodology employed, empirically-based qualitative fieldwork was conducted in the second half of 2004, This survey involved asking a broad variety of key agents engaged in the biopharma industry and located in the Quebec region about mainstream views of the key issues in business models. The agents interviewed for this study comprise: . ten biopharma firms: managing directors, R&D directors; . three large pharma firms: managing directors;

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three venture capital funds: managing directors; two research centres: top researchers; and three recognized experts from consultancy firms and universities.

The analytical methodology is qualitative as all these agents were interviewed personally to learn their views and opinions, using a semi-structured questionnaire combining both fixed and more open questions. The opinions expressed by all the informants cover the four areas defining the business model proposed in this study. 4.1. Value creation The biopharma industry assembles the following types of firms, classified according to their location in the biopharma development process: . Small start-ups (90 per cent of biopharma firms). . Intermediate firms (8 per cent of firms) in the final development phases. . Harvest firms (2 per cent of firms). . Large pharmaceutical companies, mostly customers of the biopharma firms. As biopharma is an extremely complex, intricate and challenging entrepreneurial activity, only a few firms (estimated at less than 5 per cent) have already reached the harvest phase, the one that finally enables the profits to be reaped. Very few companies have managed to cover the path from the small start up phase to the status of a large pharmaceutical. This is a long-distance journey filled with difficulties for bridging the gap between the research innovation focus and the large scale production focus. To create new value in the biopharma industry and yield eventually fruitful outcomes, the companies need to validate and prove the therapeutic value of new targets from an initial portfolio of possible targets. The discovery of new ways to attain promising results emerges as the main opportunity area for the small biopharma. Biopharma firms start to accumulate value in their project with the announcement of research advances, followed by the filing of patents and the publication of scientific papers in high impact journals. Over the development stage, more value will be added provided the firm successfully overcomes the preclinical and clinical testing phases. Obtaining all the authorizations and meeting all the legal requirements is a time-consuming task that must not be neglected or undervalued. Once the final products are ready to be released, the value of the firm will significantly increase through setting up licensing or marketing agreements with large pharmaceutical companies. The investors and non-entrepreneur agents visited consider that the biopharma areas with better future prospects include computer-based design of new drugs, tailor-made products for therapy, tailor-made diagnostics and personalized drugs (the ones that deliver the exact amount of drug needed by the patient). One major question posed to the CEOs in the empirical fieldwork was whether the best technologies and products in biopharma always win. The answers point in both directions.

Some CEOs believe that success in the biopharma industry is not directly linked to the quality and overall performance of their products and drugs. They share a pessimistic view in which technologically inferior products can manage to succeed in the market and beat other more advanced and advantageous products. Some other CEOs still believe in market efficiency. For them, biopharma firms endowed with the right projects and capacities to obtain worthwhile results at the medical level will eventually succeed. The agents visited tend to rank marketing of the initial ideas as one of the hardest tasks for the start-up the biopharma firms. Many promising ideas are around but only a few manage to fulfil the stringent conditions to become new projects. 4.2. Investment strategy Private agents investing in biopharma companies expect to attain a 25-50 per cent return on their money. The assessment criteria employed by venture capitalists (VCs) and other investors for identifying viable projects usually pay attention to worthy projects with a competitive edge and a established proof of the concept. Potential for increased value will help to raise more funding in the future, if needed. Venture capitalist investors also verify that the companies they invest in are run by experienced managers, as these increase credibility and enhance the chances of getting funded. Also appreciated are the companies with good credit ratings that might qualify for conventional sources of funding if needed (Phillips, 2007). The fieldwork undertaken largely confirms these conclusions. In the biopharma industry, the clinical development stage is the most resource-consuming, accounting for about 60 per cent of the total pharma industry expenses, which leaves the remaining 40 per cent for the previous stages. The funding model in biopharma involves institutional funding together with private investors, mainly venture capitalists. Practically all the medium-size biopharma firms share the will to go public soon. This is seen as a springboard for acquiring the resources needed to pass through the different product development stages. According to the CEOs, the main source of uncertainty lies in the funding area, nurtured by the investor’s growing preference for allocating their funds in areas with shorter-term returns and spreading the risks. A shortage of “patient” capital might hamper the proper fulfilment of the scientific and research-oriented goals and even jeopardise the survival of the firms in the long term. To persuade the venture capitalists, a sound scientific background and a clear vision of the prospects for the biopharma business projects are required. The surveyed CEOs judge the sector-oriented VC funds as being highly qualified but also as largely profit-driven, impatient and requesting tight deadlines for outcomes. The driving force behind the investors’ strategy is to attain high return rates (around 20-25 per cent on average for the biopharma industry) in order to counteract possible failures. The fieldwork suggests that the VC agents pay growing attention to technology assessment, which involves carefully exploring the start-up research related prospects and the managerial, R&D and technological capabilities.

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As in many other high-tech industries, pioneers hold out the best prospects in biopharma. Accordingly, the firms that are technological leaders, innovative and discovery-oriented are the preferred candidates for the VCs, while the followers and “me-too” companies are usually rejected. To assess the originality and innovative potential of the candidate firms, VCs request the support of a network of professional agents and established technology transfer offices such as Univalor (UdeM and Polytechnique), Polyvalor (Polytechnique), McGill’s Technology Transfer Office, MSBI (McGill, Sherbrooke and Bishop’s Universities). SOVAR (Universite´ Laval), among others, just to mention the Montreal metropolitan area. Some human health subsectors have been practically neglected by the VCs, such as the medical devices industry, whose weakness is attributed by the agents surveyed to lack of multi-disciplinarity and loose networking ties with the Canadian universities. As a result, despite advantages including a shorter time frame (five to seven years as opposed to ten to 12 years for the biophharma sector), shorter regulatory process (three to five years versus ten years or more for the biopharma firms) and lower overall risk, Canadian investors are reluctant to invest in this segment. Some of the CEOs met claim that the Canadian VCs are too short-sighted to understand the particular features of this industry and accordingly urge for early licensing agreements with the large pharmaceutical companies, whereas US investors are seen as more understanding and less risk averse. Most CEOs share a pessimistic view of local VCs in the Quebec region, based on the belief that these investors are geared to past tendencies but lack the ability to spot the hidden potential of the emergent technologies and scientific discoveries that are starting to break new ground in the biopharma field. This backward attitude inhibits the VCs from funding ventures which are involved in promising research areas but are still at the preliminary stages. 4.3. Business strategy A brief overview of case stories reveals that most of the successful Canadian biopharma firms laid the foundations of their business strategy on a “one-product” basis and ended by licensing and handing over their successful product as soon as it was ready to be marketed. Nowadays, most biopharma firms still keep focusing on just one product, but there is a growing awareness of the benefits of a broader products pipeline, which means having several candidate products in process through a “one after another” approach. Pipeline strategies are more efficient when they stem from a technology platform developed in-house. The business strategy prospects in biopharma are enhanced when the company is able build a leading-edge technology in house, resulting in valuable and legally defensible intellectual property. According to the agents surveyed, other features characterizing the business strategies in the Canadian biopharma industry include the following. Timing. The medical community’s eagerness to receive new, more efficient drugs urges on the development and launch of new drugs, which is precisely the field of activity of the research-based and discovery-driven biopharma firms.

As patents are usually granted a long time before the product launch, firms must be attentive to shortened life cycles for biopharma products, with a peak optimal point in terms of revenues and profits five years after release. Over this five-year period the company will be compelled to recoup all the investment and generate sufficient profits to keep shareholders satisfied. Once the patents expire, products become generic and the door to imitators is open, which makes maintaining the market position very tough. In short, main stakeholders are encouraged to keep in mind that the biopharma is a high risk and high reward industry and a long term business. Funding. In order to keep raising funds, in the biopharma industry profitable business models are needed. Financial agents are viewed by the CEOs as less than patient and specially eager to see the return on their assets. For their part, what financial agents miss in biopharma companies is an attentive attitude towards the pace at which technological advances and innovations are brought to market. The sounder and quicker the development process, the higher the chances of raising additional funds. Authorizations and regulations. To evolve properly, the business strategy in this industry strongly depends on country-specific authorizations and regulatory approvals which are set to ensure the safety and effectiveness of the drugs. This situation is hindered by the lack of harmonization across countries, that in Canada is claimed to undermine the chances of meeting the initial timetables. The USA offers an advantageous regulatory environment for the biopharma industry, with an average period of six months to two years for new drug authorization since the application was sent. The competitive environment diverges considerable across the different biopharma fields. While some areas such as cancer and diabetes are overcrowded, in other segments few if any competitors are encountered. Inappropriate resource-allocation policies lie behind many failures. Some companies run out of resources before sufficient progress is attained to convince new investors to go ahead. In an environment where the opportunities emerge and vanish fast, a widely-accepted but little-followed principle is to maintain an open-minded and long-term view as well as a proactive and permanent watch. Instead of this, the survey reveals a not inconsiderable number of firms that stick to their original project to the extent of overlooking the rapid changes in the environment, including the market, technologies and research streams. 4.4. Success factors In the survey, the agents were also asked to list and rank a set of factors conducive to growth and overall success in this industry. The findings are grouped into a series of lists – as follows: (1) Management of human resources: . Implementing the right human resources approach to ensure motivation and commitment by the research-oriented employees. . Transferring the knowledge and experience of the scientist/medical employees to productive outcomes. . Defining the management rules guiding the human resources policies. . Aligning the researchers demands with the companies goals and priorities.

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Constituting multidisciplinary teams with goals shared and agreed by all the team, in accordance with the general managers. . Creating a working atmosphere oriented towards the creation of new knowledge and wealth generation. Partnering and networking strategy: . Get early involvement in partnership strategies with different agents and to participate in research-led networks. . Strongly driven by R&D, firms are encouraged to set up collaborative agreements with the right partners for each phase of development. . Retain control over the firm’s output as long as possible and avoid cheap and over-early sharing or selling the discoveries to other firms. Focus . To focus on a core technology or research stream with promising market prospects and real needs behind. . To remain loyal to the primary stream of research even if this implies having to dismiss other potential research lines. . Avoid dispersion of efforts in several research lines. Technology watch; . Outward-looking attitude and a continuous technology watch. . To guarantee a certain outward looking attitude, necessary for awareness of technological changes and new market opportunities. . To remain open to external discoveries and advances from the general research environment. . Open-minded towards ideas and talented minds from elsewhere (outside the company). Management rules . Strictly meet the rules, guidelines and timing set for the product development process. . Favour the R&D activities oriented to practical and applicable results. . Become an organization driven by willingness to learn continuously. . Be ready to stand the impact of external blockages and misfits, mostly related to regulations and delays in receiving authorizations to go through the subsequent phases. . Strategic vision and ability to foresee the complete potential of the business in the long term and to retain control for as long as possible. . CEO’s ability to display openness, transparency, trustfulness and determination. . Managing the expectations and prospects of the firms properly will be crucial for bringing the company to the harvest phase and avoiding a loss of confidence by the investors. .

(2)

890

(3)

(4)

(5)

Try to always meet the needs and expectations of the mainstream consumers and users of the firm’s final outputs. . Keep the main stakeholders (board of directors, employees, customers, competitors, . . .) reasonably satisfied. (6) Investment rules: . Display true enthusiasm, belief and expertise and an ability to pass it on the investors. . Explaining the business model accurately to the investors is essential to gain their support. . Competence to build a relationship of trust throughout the complete chain: investors-company-clients-employees. . Efficient cash management and avoiding wasteful decisions. . Keep “the best financed projects succeed in this industry while the others die” as a major rule. .

5. Conclusions: The main stated goal of this study is to gather new evidence and shine light on issues defining the business models in the Canadian biopharma industry. The findings derive from a qualitative study based on the views offered by a broad range of agents directly involved in this industry, located in the Quebec region. This is one of the core territories for this activity, accounting for about 20 per cent of the total Canadian biopharma industry. The analysis of the business models has been structured into four areas largely derived from the literature review of the business model topic. As far as wealth generation and value creation are concerned, the survey highlights the difficulties encountered by the firms in successfully bridging the long distance that separates the start-up stage from the category of well-established pharmaceutical provider. Many biopharma firms fail in their attempts to shift the focus successfully from research innovation to large-scale production. The biopharma firm’s main battlefield lies in being able to deliver promising outcomes in terms of product candidates and therapeutic solutions that are viewed as valuable by their potential customers, represented by the large pharmaceutical firms. Filing patents, satisfactory results in the preclinical and clinical tests and licensing agreements are the most appreciated announcements in the biopharma firm’s life, bringing credibility, endorsement and confidence in their capacity to reach the harvest phase. Regarding the investment strategy, biopharma raise funds from both institutional and private investors, with a major role being played by venture capitalists, and most of the medium size firms share the will to go public soon. Venture capitalists and investors committed to high-tech industries call for high rates of return and give support to companies that are expected to attain original, innovative and marketable results with relatively tight deadlines. The business model prevalent in the Canadian biopharma firms remains loyal to the one-product firm.

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An attentive technology watch, the right partnership and a sensible resource allocation policy are seen as key guidelines to ensuring survival and subsequently finding the path leading to eventual success in this highly demanding industry. To summarize, this is an exploratory study of a qualitative nature, intended to discern and categorize views and opinions of those involved in the business, the aim being to highlight best practices and to warn of the barriers and pitfalls affecting this young and rapidly evolving industry. The survey conducted in 2004 made it possible to encounter a set of behaviour patterns, strategies, priorities and concerns which are specially helpful for figure out and gaining a closer view of the business models prevailing in the Canadian biopharma industry. Most of the findings are easily generalizeable to the biopharma industry in other countries where the Anglo-Saxon biotechnology business model prevails. This is the case of the USA, and to some extent in Europe, of the UK, Switzerland and the Scandinavian countries. Some of the results and findings can be directly generalized to other emerging and technology-driven industries, including nanotechnology, microelectronics or clean, renewable energy sources, while other results are specific to the biopharma environment. The role played by venture capitalists and the need to be original and innovative are findings common to any technology-led industry. However, other findings are not valid for other industries, as biopharma firms constitute a specific category within the new technology based firms (NTBFs), and their business models cannot be directly extrapolated to companies pertaining to other industries even within the high-technology sectors. Troubles in finding ideal financial partners are particularly acute in this industry. As regards weaknesses and suggestions for further research, a broader qualitative survey encompassing new agents from the whole of Canada, combined with a specific quantitative survey of companies, would surely yield statistically significant results. References Burrill Canadian Biotech News (2007a), Vol. 16 No. 1. Burril Canadian Biotech News (2007b), Vol. 16 No. 2. Canadian Biotech News (2004), Canadian Biotechnology Industry Report, Canadian Biotech News, Montreal. Canadian Biotech News (2007), Canadian Biotechnology Industry Report, Canadian Biotech News, Montreal. Ernst & Young (2007), Global Biotechnology Report, Ernst & Young. Genoma Espan˜a (2005), BioEuroLatina Conference, La Fundaco´n Genoma Espan˜a, Barcelona, April 2005. Government of Canada (2005), Canadian Trends in Biotechnology, 2nd ed., September, Government of Canada, Ottawa. Lim, L. (2003), “Bio-business models”, Cambridge Manufacturing Review, Winter 2003, p. 7. Mangematin, V., Lemarie´, S., Boissin, J.P., Catherine, D., Corolleur, F., Coronini, R. and Trommetter, M. (2003), “Development of SMEs and heterogeneity of trajectories: the case of biotechnology in France”, Research Policy, Vol. 32 No. 4, pp. 621-38. Mayo, M.C. and Brown, G.S. (1999), “Building a competitive business model”, Ivey Business Journal, Vol. 63 No. 3, pp. 18-23.

Morris, M., Schindehutte, M. and Allen, J. (2005), “The entrepreneur’s business model: toward a unified perspective”, Journal of Business Research, Vol. 58, pp. 726-35. National Science Foundation (2006), Research and Development in Industry: 2003, National Science Foundation, Arlington, VA. Nosella, A., Petroni, G. and Verbano, C. (2005), “Characteristics of the Italian biotechnology industry and new business models: the initial results of an empirical study”, Technovation, Vol. 25 No. 8, pp. 841-55. Organization for the Economic Co-operation and Development (OECD) (2005), Statistical Definition of Biotechnology, Organization for the Economic Co-operation and Development, Paris. Orsenigo, L. (2001), “The (failed) development of a biotechnology cluster”, Small Business Economics, Vol. 17, pp. 77-92. Owen-Smith, J., Riccaboni, M., Pammolli, F. and Powell, W. (2002), “A comparison of US and European university-industry relations in the life sciences”, Management Science, Vol. 48 No. 1, pp. 24-43. Phillips, T. (2007), “What venture investors are looking for?”, Proserve Technologies. Prevezer, M. (2001), “Ingredients in the early development of the US biotechnology industry”, Small Business Economics, Vol. 17, pp. 17-29. Senker, J. (1998), Biotechnology and Competitive Advantage: Europe, Elgar, Cheltenham. Shan, W., Walter, G. and Kogut, B. (1994), “Interfirm cooperation and startup innovation in the biotechnology industry”, Strategic Management Journal, Vol. 15, pp. 387-94. Slywotzky, A.J. (1996), Value Migration, Harvard Business Review Press, Boston, MA. Statistics Canada (2003), Biotechnology Use and Development Survey, Statistics Canada, Ottawa. Todt, O., Gutie´rrez-Gracia, A., Ferna´ndez de Lucio, I. and Castro-Martı´nez, E. (2007), “The regional dimension of innovation and the globalization of science: the case of biotechnology in a peripheral region of the European Union”, R&D Management, Vol. 37 No. 1, pp. 65-74. Further reading European Association for Bioindustry (2004), Europabio documents. Hall, L.A. and Bagchi-Sen, S. (2002), “A study of R&D, innovation, and business performance in the Canadian biotechnology industry”, Technovation, Vol. 22 No. 4, pp. 231-44. Nilsson, A. (2001), “Biotechnology firms in Sweden”, Small Business Economics, Vol. 17, pp. 93-103. US Department of Commerce (2003), A Survey of the Use of Biotechnology in US Industry, US Department of Commerce, Washington DC, October. Corresponding author Isidre March-Chorda can be contacted at; [email protected]

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