A recent article published on Labiotech.eu provided some high-level insight into whether or not non-profit structures are suitable for biotechnology companies. In this article we dig a little deeper, and challenge some of the assumptions and hypotheses presented.
Across the globe, there is a new movement of entrepreneurs emerging, which value making a positive impact with their venture as highly as making a profit. These people, often referred to as ‘social entrepreneurs’, leverage well known business principles to ensure that their venture is sustainable but the overriding driving force is a passion to benefit society in general. Social entrepreneurs often adopt legal structures that prevent any one individual from accumulating large amounts of wealth and ensure that profits are reinvested back into the company to maximize the social impact.
The socially conscious business model
We believe that there is a clear difference between a non-profit organisation and a socially conscious ‘for profit’ business. By definition, non-profit organisations exist to further social or charitable causes rather than generating financial surpluses, although many do. Importantly, many of these organisations are grant funding dependent, meaning that without support from other organisations, they wouldn’t exist.
In contrast, socially conscious businesses generate funding from the delivery of products and/or services in exchange for money. These businesses focus on both generating profit and social and environmental benefits and have share capital so they can return a financial upside, making them better suited to take investment. Many of these businesses choose to donate some profits to charitable causes every year. Others focus on a buy-one-give-one business model, where the company donates an item match for every item sold. Larger companies tend to focus on transparency and a call to action.
Socially conscious businesses have gained significant mainstream attention of late. In many sectors, such as retail and consumer goods, the concept of demonstrating commitment to sustainability and social impact is well established. There is, however, little in the way of universal standards for companies to adopt in order to measure and compare their social and environmental performance. In an effort to change this, an organization called the B-Lab has created a private certification called ‘B Corp’, which is issued to revenue generating companies that receive a minimum score on an online assessment along the company’s entire operation and impact.
Our sector is different
The path from bench side to bedside involves an expensive, long and risky journey from discovery, pre-clinical development, complicated and expensive clinical trials and then regulatory approval. In light of this, new start-ups in the biotechnology sector have traditionally been less focused on progressing products to market with a view of generating a financial return for investors. This way, investors can justify the risks associated with investing in a biotechnology start-up.
In consideration of the above, one would assume that there are no non-profits in the biotechnology and life sciences sectors, but that is not true. Examples include the mission-led companies Aeras – a large and fully integrated biotechnology company developing tuberculosis vaccines – and the Esperare foundation, a non-profit organisation based in Switzerland focused on accelerating and developing drugs for rare diseases. However, the non-profit model is not well suited for the vast majority of biotechnology start-ups because of the risks involved.
With regards to the socially conscious business models, the buy-one-give-one approach described above is at best limited to different pricing structures (e.g. in the developing world) or just doesn’t work, and the profit redistribution model doesn’t work either because the company would be giving away money raised through investment rather than generated through revenue. Indeed, although socially conscious business models have gained significant mainstream attention in other sectors, the idea of employing ‘profit with purpose’ structures to advance high-risk and costly R&D in these industries remains largely untested.
Moving over to the pharmaceutical sector, where companies are sufficiently mature and engage in a plethora of socially conscious activities, social impact does not appear to be a top priority. Indeed, pharmaceutical companies have been subject to substantial criticism including unnecessary price hiking, falsifying clinical trial data, bribing doctors and marketing drugs that have very limited clinical benefit. That being said, companies such as Regeneron may have a slightly more vocal opinion.
In need of new framework
Socially conscious business models are beneficial for the environment and society but also for the businesses that adopt them. They are not just a charitable choice but they can give additional advantages to companies, particularly when present at an ecosystem level. However, whilst the concept of making products to improve human health is an extremely noble and important endeavor, it is clear that our sector represents a unique challenge for measuring and defining social impact. The B-Corp certification is an excellent scheme, but because most biotechnology companies are not generating revenue they would be ineligible to become a B-Corp.
James McIlroy is a biotechnology entrepreneur and medical student based in Scotland, focused on solving big challenges in healthcare by translating and commercialising innovative research and technology into products and services that make people’s lives better. He is currently CEO of EnteroBiotix, a biotechnology company focused on using the body’s own microorganisms to prevent and treat infections and diseases of the intestinal tract. He is also a Non-Executive Director at EthosBio, a social enterprise established to embed socially impactful entrepreneurship within the life sciences ecosystem.