Mind to Market

Wednesday, February 21, 2007

Turning Software into Drugs

Typical software revenue models include licensing, support and maintenance, subscription and advertising but what sets software for the biopharmaceutical market apart is that the technology can be used to develop a very lucrative product. Software that may be licensed for $500,000 per year could help in producing a product that brings in revenues of $1 billion per year. True, it may be difficult to determine exactly the contribution the software had in bringing the drug to market and therefore assigning an accurate ROI to the software investment may be sketchy, but even reducing the development time by one day will bring in an extra $2.7 million. And time to market is everything in the pharmaceutical business. Since the clock on the patent is ticking from the time the patent is filed, not when the drug goes on the market, the faster a drug gets to market the more time it's generating profits.

For this reason valuable technologies are often bought up by the pharmaceutical companies as a way of providing them with a competitive advantage. But sometimes it may be more advantageous for a pharmaceutical manufacturer to license a product, pay a software company to build a proprietary product or even partner with a software developer on a drug. This last scenario has often been cited by software companies as a potential source of revenue but in actuality has rarely been agreed to by the drug companies. As biosoftware has advanced technically, the software companies have brought more value to the deals.

Entelos has announced their second ownership position in a drug technology with Johnson & Johnson. Entelos is a modeling and simulation software company that builds computer models of biological systems, called PhysioLabs, in order to test new therapies. In the J&J deal Entelos has received an option to an exclusive worldwide license to develop selective progesterone-receptor modulators for a range of indications. Entelos has no plans to become a fully integrated pharma right now, but having the ability to tap into potential drug revenues will surely enhance their future profitability.

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