Sample Business Plan MedBase

B to B: context, in a business context- the networked pipeline 71:;..._._. '- __.,, S 1. 2. Introduction - IT providesefficiency,butnotadvantage " The nextchallengeisB to B - whois the enemv?. Backto the future- from IT to IC. 4. 5. 6. The proposal IC drivesIT. The horsebeforethe cart. SLATE- an autopsyreport. The dynamicsin the environment.Undercurrents, ot decisions n drivethe Net. Biotechnology the networkis the pipeline. Architecture- the networkedpipeline. The networkedpipeline- an exposition. Membership- the singledeterminant f directrevenues. o What isthe product? advantage inside ! Price structureandjustification.No Information Rules. Versioningand masscustomization. Sourceof revenue- costs,margins,profdability. Competition- functionfollowsform. Or, forgetthe bait, where isthe hook? Suggesteddue diligenceframework. Conclusion - only the paranoidsurvive D_'_:IJ __, / /_:. _3 / ?p. _I ,._::.:: ' ' / I 4_ " / 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. Medbase LLC Princeton ' 2 B to B: context, in a business context- the networked pipeline =The idea that a corporation sells 'meaning' intrigues me." -Manuel Caste/Is, October 1998 "What does the future look like? Well, it's a network full of services." - David Clark, April 1999 1. Introduction - IT provides efficiency, but not advantage. Despite advances in the sciences and IT, efficiencies in science-based industries have been limited to the reduction in transaction related activities. This is significant, but finite - there are only a limited number of low-hanging fruit. Now that the price of computing, communication, and storage has decreased to allow for ubiquitous presence and utilization, a new plateau, maturity, has been reached. • Today, IT efficiencies is standard practice, and as such, do not confer compet#ive advantage. Efficiency, is not advantage ! The objective of this venture is to provide an actionable forum for deals in the defined area of drug discovery, development and commercialization. The proposed mechanism is integration within a fragmented global market - an electronic agora. 2. The next challenge is B to B - who is the enemy?. The next challenge is the profitable management of complex, differentiated, and competitive content. Science-based industry is an ideal model. The inputs are transparent, the process logical, and validation of development and commercialization potential, possible. Expectations drive the market, and investments are related to expected outcomes. Variance can be tracked and uncertainty addressed. • By understanding the critical success factors and the forces influencing them, a new and improved IT has the possibility of increasing value [this is quite different from efficiency]. Disciplinary processes, a concomitant of specialization, create bottlenecks, and, Attention to context, i.e. meaning, is the solution. It is intriguing. • • In e-commerce, only a business to business structure, that is directed to competitive advantage, can support proF_ablepricing. In the business to consumer structure, the no-barrier-to-entry advertising model is intrinsically flawed. There are no similarities betweenthe B to C and the B to B models. The enemy?.Answer:Inefficiencies the supplychain. in 3. Back to the future - &ore IT to IC. To a student of history, this proposalis not new. In fact, it has already been validated. In essence, it reverses the steps that were taken in the formationof the Coasean integratedfirm of 20_ century America. IT has dis-intermediated this construct,and as we enter the 21= century,we find ourselves in a peculiar situation - unstable conglomeratesand thdving start-ups, with nothing in between. IT has exchangedone problemfor another. Today's fragmented marketplace with manysuppliersand manybuyersresemblespre-Coaseanbusinessecology. B-to-B marketsare also concerned withtransactioncosts and opportunities and need integration. This is the opportunity,but it has been missedon accountof fixationon the consumerand beliefin the advertisingmodel. IT is in the process of building faster and broader tracks (broadband) and broaderdistribution nodes (servers)for larger railcars (multimedia). What is the outcome? Ever largerloads of hay and preciousfew needles. The opportunity, which has remained invariant all along, is for selection and differentiated advantage. This is the inflexionpoint - the railroad has to be congruentto the payloadas well as the desireddestination. • IT confers competitive advantage to early adopters; when it becomes a standard, and a commodity, the edge is lost. This is the time to stop and think. 4. The proposal - IC drives IT. The horse before the cart. Understanding and actionabilityhas always providedcompetitiveadvantage,but has been limited by information load [size, depth, complexity], tractability, communication, and the necessity of instant response - first mover. Understanding an invariantattributeof competitive advantage,and remainsa is key element of the Information Age as well as the New Economy. Althoughwe plead for more understanding,none of us admit to poor judgement. Optimal judgement,especiallywith regardto direction,necessitatessolid understanding, referenceto context. Our businessmodel attemptsto providean informationcontext-drivenframework for the new science-basedindustry- the networkedcluster. This frameworkwill shift the locus of competitive advantage from simple pricingto explicit product and service differentiation. The latter will occur within the network. This shift will reward innovation. The proposal approaches a previously integrated business system from within and links idea generators, idea developers, investors, marketers, government regulators, and customers in an e-community. This architecture will facilitate multi-disciplinary communication and deals. Buyers, sellers, and browsers will not be categorized, since their roles are mutable. Membership will allow for the display of specific interests - exhibits, but there will be no advertising. This is, admittedly, a fine line, but the significance is enormous. The proposal will allow for the partition of risk as well as the possibilityof option pdcing along the development track. This will be effected by scenado analyses. 5. SLATE - an autopsy report. We analyzed SLATE as an example of a well thought out initiative into a subscdption model. The quality was top-tier and name, brilliant. However, there were problems and the seven messages relevant to the commercialization of information are as follows: 1. 2. 3. 4. If it is on the Net, it has to be free. Advertising will pay for it. Sure. Quality alone is not sufficient to support price - at any level. There is only one way to support premium pricing, and that is to link 'must have' information and access to competitive advantage. This is not a circular statement. 'Must have' information must be actionable, and if possible, exclusive. For a premium-priced net product [an oxymoron], fear is a more potent driver than desire. The law of unanticipated consequences is alive and well on the Net. 5. 6. 7. If the product or service is not 'must have', it will fail. It is understandably difficult to define success, especially with the revenue-no profd model. However, failure is self evident - witness the recent demise of Pathfinder.com. [Autopsy report in preparation]. 6. The dynamics in the environment. Net. Undercurrents, not decisions, drive the The drivers of change in bio-technology and healthcare are not different from those affecting allied and diverse industries - there is a pattern. Other than the immediate transaction-related return, and rationalizing of back-office activities, we see no visionary activity in corporate policy or strategy - the high margin end. Also we see no opportunity or increase in shareholder value in mergers between companies that dominate the marketing and distdbution components of the industry. We see exponential growth in selected entities in the more fragmented, innovative, and smaller companies, or bigger ones that narrowly define their focus and executewith strictdiscipline. Knowledgehas migratedto this comer, and with IT leverage,we predictthat returnswill be non-linear. 7. Biotechnology - the pipeline is the network. The businessprocessincludesthree distinctphases- discovery,development, and commercialization. The objective is to introduce and formalize new standards in development so that creativity in the discovery phase is more closely linked to rewards attendant upon commercialization. The FDA's eguidance initiativehas already createdthe architecture. And with biotechnology showingall the signsof a stalled,spent,and under-valuedindustry, he challenge t and rewards of 'reversal of course"are truly inviting. Innovationwill not thrive withoutearly recognitionand investment. And objectiveswill not be attained without efficient linkages with development and commercialization. The integratedpharmaceuticalindustrymodelis history- mergerssignalthe failureof this model. This isthe opportunity IT to designand re-energizethe machinery for of innovation Bioinformatics, ratherthantrimthe hedges. The model is a pipeline that facilitates development of a drug by providing actionable information a network.We call it a networked pipeline. A drug is via an informationproduct and the accretion of relevantcontext is a reflectionof increasingvalue. This systemwill be successful f it acceleratesthe increasein i valuation,and is proFdable. he willingness-to-pay T propositionis favorableand is consistent with 'exclusivity'as well as serious intent. In contrast to other emodels,the productwill be premiumpriced. The timingis appropriate. The Human Genome Project is on schedule. Major private and governmentalinitiativeshave been taken in the US, Europe, and recently in Japan. Involvementin the networkedpipeline will allow for direct presencein the global marketobviatingdisadvantagesof geographyand time the electronic agora. 8. Architecture - the networked pipeline. The architectureto supportprescriptiveinformationwill favor focus, efficiency, and speed. Specifically,it will level the playingfield providingequal access to determinantsof successas well as providingan e-venue for co-operationand competition. The conceptof this design has its roots in game theory and could represent the third major commercialvariant followingthe Vickrey auction,and Pdceline.com's'reverseauction'method. No attempt will be made to engineer the ecology of membership- ecology cannotbe engineered. It will be left to natural mechanismsi.e. interest,intent, and the recognition intdnsicvalue. No hype here. of 9. The networked pipeline - an exposition. In brief, the networked pipeline is a tube directed to a target. within the walls of the tube. The network is Lumen The embryonic information package moves within the lumen of the pipeline assuming sequential labels - putative target, validated target, lead, optimized lead, formulation, candidate drug in Phase 1-3 trials, and approved medicine. The wall The wall of the pipe provides nutrient and direction towards growth of this embryo. Growth is facilitated by the accretion of context - relevant and itemtive testing and modification. There are five mural components - exhibit 2 : • Regulatory guidance • Scientific context • Business context • • Logistics context Medbase product 10. Membership - the single determinant of direct revenues. The essential members are biotech companies. This is the conceptual engine of innovation in the industry. The majority of members will include companies with interests related to the development and commercialization of biotech products. Membership will be global - primarily the US, Europe, and Japan. The growth and eventual make-up of the system will be the responsibility of the membership. The sellers will go where the buyers are, and the investors will go where the investments are, and vice versa. If properly executed, this is a virtuous cycle. Positive feedback. Shades of Santa Fe, and eBay here. The price structure is designed to create and support a brand image. Revenues are important but the financial model is conservative. It is structured to assure early profitabilityvia margins. 11. What is the product? advantage inside ! The productis notinformation. Today, whenthe word'information' s articulated, he listenerhears FREE. i t This listener,isthe customer- an individual, a business. or • Theproduct is a device that if used according to instructions will assure competitive advantage. In fact, the device may consider 'inefficiencies', if they promote competitive and cooperative advantage. • 12. Price structure and justification - no Information Rules. This topicwill have to be exploredwithan open mind. This is a novel business model,and accordingly, here is no place for comparisons heuristics. Everyt or thingone has learned hasto be forgotten. Preconceptions hazardous- stay are away fromthe Professorswho advocaterevenues-first-profit-will-follow mantra. The B to C modeluses information the hookand advertisingas the source of as revenue. This processdevalues and commoditizes information. As such, its utilityisantitheticalto the objectivesof B to B communication. According the lawsof thermodynamics,ncreasesin volumeof net unit losses to i will neverbringthe system intoprof'_ability. aluationof sharesas a reflectionof V prevalentand expectedmarketshare is hopelessly flawed- in the B to C model, market share isa costcenter, nota prot_center. Diesersystem funkionerf nicht! The B to B modelwill haveto be structuredon conventional conomicprinciples e - analysis of opportunity cost, investment, break-even point, and early profitability,preferablynon-linear. The product would serve as a surrogateor enhancerof back-officeresearch. In this context,pricingwould be based on a bottom-up estimationof researchand decision-supportexpenses. The individual who could best devisethis schemewould be a survivoron a deserted islandhowmany shellsdo I trade for a cold Coke? For purposesof discussion,Mr. Danny Defoe suggeststhat a price range of $250-4-00,000a year. Information and accessare amenableto versioning across a price-productrange. Although comparisons are discouraged, this range comparesfavorablywith globalconsultancies that promiseless,and delivereven less. Read the ads - Andersen,PwC, McKinsey.... Biotechcompanies,the conceptualengineof innovationin the industryare idea richand cashpoor. They shouldbe alloweda discountedprice, especiallythose that have not_jet gonepublic. A biotech'fullhouse'is a necessarycomponent. The n_ketinQ objectiveis to shiftthe new IC/IT investmentfrom a 'cost center' decisionto a 'profit center' decision- from operationsto the executive forum. We have notedthat capital recommendations originating from IT operationsare receivinglesserattentiontoday - and for good reason. 8 Principles of the B to B model: 1. DESIRE. How acute isthe need for competitive and cooperative advantage? 2. RELUCTANCE TO PAY. What isthe costof providing desiredwrap-aroundproductin-house? the • People • Accessto information • Accessto services • Instantaneousavailability business@ the speedof thought! 3. FEAR. What are the penaltiesof notjoining? 13. Versioning and mass customization. Versioningand mass customizationwill be used in orderto linkprice to value. This industrydoes have disciplinaryand productlines. These clustersare ideal for a mass-customizedoffering. However,versioningand mass customization are noteasy. It hasto be devisedbythe buyer,notthe seller. Poorly executed versioning is the latest victim of unintended consequences. According to CW, the cheaper product is pitched to consumers with the suggestionthat it performsas well as the more expensivecousin. The more expensiveproduct is then pitched to corporationswith the line - don't believe what we advertiseto consumers. The top-of-the-lineproduct now necessitates unbelievablejustification,with the proposer'sreputationand job on the line. In addition,the executivewhosignsoff,runsthe real riskof beinglabeleda sucker. Based on simple statistics, the fulcrum of the distributioncurve is not only a passive reflectionof volume, but in some mysteriousway determinesfuture activity. There is a pressureto the left. General Motorsfiguredthis out some time ago - there was good newsand bad news. Fleet average mpgwas loweron sales figures than with production- environmentalists were happy. However, revenueswere lower and continuedto decrease. Poorly executed versioning, especiallywith pricingof the intermediate productscan acceJ.er_te decrease in a total revenue - this is key. Heterogeneity of the customer base, and differentiated attributesare of no help. No happycampershere. Watch INTEL. 9 14. Source of revenue - costs, margins, profitability. Directrevenueswill be limitedto membership fees. The proposedentitywill have a 'hands-off" policyon transactions betweenmembers,Bto B. Pricingwill be basedon the provision several 'must-have'elements: of • Accessto actionableinformation • Accessto vendors- wider selection • Lowertransactioncosts • Betterdeals • Fasterdeals • Sponsorservicese-commercemachinery enterprisesolutions heavy-dutyglobalserversupport In order to capture heterogeneity- from start-ups and idea shops to multinationalcompanies,the cost of membership will be based on differential ricing. p The e-commerce environmentis suitableto differential pricing. Costs will be directlyrelated to the structure of the system and the timetable. The price structureis designedto create and supporta brandimage- advantage inside. In brief,this modelrationalizes step-wiseinvestmentsin the productdevelopment processwhileincorporating outcomeattributesrelatedto expectations- rewards and risks. Uncertaintyis addressedby annotatedscenarioanalyses. A defined directionand pathallowsforthe calibrationof expectationand uncertainty the key elementsfor option-basedinvestment. 15. Competition - function follows form. Or, forget the bait, where is the hook? There are severalexamplesof similare-initiativesin biotechnology, edicineand m healthcare. None commandcredibility, nd all are supportedby advertising a a to greateror lesser extent. Although the eyeballisa necessaryconduitto the brain, desire, attention,and decisionsare essentialand independentattributesof the latter. Contraryto CW, the e-advertising model remainsto be validated. The profitable commercializationof informationis possible,but not easy. The advertisingmodelworkedwell for printpublications, adio,and IV. Print has a r longershelf life, radio is portable,and TV is entertaining.With the exceptionof pornography, he Net does nothavea hook. t However,the competitionis not with e-initiatives,but with any service that can providecompetitiveand cooperativeadvantageto the member of the network. With competitiveadvantage, the customeris a single entity, with cooperative advantage,the customeris a groupof diverseentities. - ]0 16. Suggested due diligence framework. How does one bell this cat? • • • • • • Is there an important, immediate, and sizable need? Define it? Are the premises for product design, and marketability valid? Is it feasible? Can it be scaled up? Will the proposed product satisfy the stated need at the proposed price? Can this leverage our (read: your) technology?. List and rank the possible unintended consequences i.e. why will this plan fail? -technology -market Are there other applications? • 17. Conclusion - only the paranoid survive. Our model is sufficiently transparent and differentiated to project credibility. Brand perception, price, and the absence of conventional advertising will ensure qualitative _lifferenti,3tionin the market. This model while unique, is the right prescription, and will also serve as an elegant barrier to entry. The growth and eventual make-up of the system will be the responsibilityof ihe membership - natural selection. If this initiative is robust and prof'dable, it has the potential for scale-up in size and scope, and e-leveraged into related areas. ,_ L Cl w Exhibit 2. Some elements of the B to B model - drug discovery, and commercialization development, 1. Regulatory guidance Intemation_ Conference on Harmonization [ICH] E-guidance from the FDA determines appropriate testing and its timing, including the cdteda for approval. 2. Scientific context •..PubMed.from the. National Library of Medicine • Medline - Ovid Technologies • Combinatorial libraries • • e_. • e_ • Natural products The National Cancer Institute The-Office for Alternative Medicine Genomic databases - The gene bank consortium Selected on-line medical and scientific journals National Institutes of Health, and equivalent institutes in OECD countries World Health Organization Academic consultants - surveys, meeting reports 3. Business • • • • • • • context Edgar database Venture capital companies Institutional investors Investment banking PR newsline Universities - intellectual property offices Major pharmaceutical, hi•technology, medical device, tissue engineering companies o.- .Market research companies • Lexis/Nexis 4.. Logistics context • Supplies • Services • e-. • • • •. Contract research organizations Legal companies- patent, corporate, m&a Advertising .. Accountancies Software - technical, enterpnse Recruitment companies 5. Medbase product • - • customized offerings --