Table 6 Survey of common operating models used in the biotech startup world
From: Financing repurposed drugs for rare diseases: a case study of Unravel Biosciences
Operating model | Revenue stream | Pros | Cons |
|---|---|---|---|
Technology Licensing | Licensing fee paid upfront | Limited upfront investment (lower risk) | Reduced differentiation from other biotech companies, which leads to a reduced potential of completing a licensing agreement with a big pharma |
| Â | Fee for service revenue | Generates revenues early, making it easier to attract funding from venture capital firms | Reduced negotiation power due to higher clinical development risk |
| Â | Near-term preclinical milestone payments | Builds credibility before expanding downstream into development and commercialization | Reduced long-term upside due to potential replication risks |
| Â | Royalty payments on future sales of marketed products(typically a small percentage of sales) | Â | Â |
Discovery Service Provision | Licensing fee paid upfront | Build working relationships with large pharmaceutical companies, paving the way for a more profitable partnership in the future | Limits the startup to discovery service provision (the startup cannot venture with development if it finds a promising asset) |
| Â | Fee for service revenue | Provides revenue and cash flow visibility | Gives up all the upside to the large pharma partner |
|  | Discovery milestone payments for discovered drugs approved o by the pharmaceutical company | Leverage the big pharma’s expertise in late- o stage development and commercialization while sharing the risk |  |
| Â | Royalties on drug sales (larger than for technology licensing) | Modest revenues generated by upfront fee and milestone payments (in case the drug is not successful) | Â |
Sale and Out-Licensing of Assets (after Phase 2) | Large upfront fee per asset o (significantly larger than technology licensing) | Higher return on investment compared to technology licensing | Higher upfront investment |
| Â | Large milestones payments for late-stage development and commercialization | Differentiates the startup from other competing technologies by offering a tested drug | Higher risk ahead of commercialization |
|  | Royalties on drug sales (larger than for technology licensing) | Leverages the big pharma’s expertise in late-stage development and commercialization while sharing the risk |  |
| Â | Â | Modest revenues generated by upfront fee and milestone payments (in case the drug is not successful) | Â |