Biotech - pharma relationship in 3D

The ongoing relationship between young biotech start-ups and big pharma companies has been evolving in many ways in the last years. It is important to understand those changes with a little bit of perspective.

First, the number of alliances between pharma and biotech has been growing steadily. The market for “know-how” has become much larger. This can be explained because the number of biotech companies is obviously on the rise, but because the appetite for buying “know-how” (targets, technologies, molecules, proteins..) has grown a lot as well. As I mentioned in a previous post, Research and Acquisition (R+A) is the new Research and Development (R+D).

Second, the nature of alliances being signed has evolved as well, specifically the stage at which collaboration begins. In the last 10 years, deals struck at the discovery stage (the earliest time) account more or less for only 50% of all alliances. More and more biotech start-ups are holding nowadays a little bit longer, as their projects make their way through the development process. Therefore, if at the early beginnings of the biotech industry almost all deals were at discovery, now half of the deals are occurring later on the development process, let’s say in the lead molecule, preclinical, phase 1, phase 2, phase 3, or even market approval phases.

Third, the nature of the relationship between biotech and pharma has evolved as well. At the beginning of the industry, relationships were short-termed, with very little organizational, financial or operational integration. There was a contract (usually licenses or fee for service arrangements) and each party remained independent, being the only concern whether the terms of the trade were met. But now we are seeing more and more “intimate” alliances, involving significant organizational, financial and operational integrations. Most of this “new era” deals involve equity investments by the pharma company into the biotech start-up (along with representation on the board of directors), agreeing on long-term collaboration, even through several projects.

Having all this in mind, the future of biotech looks a bit different now: we will see a large market for “know-how”, with more alliances taking place later on the development process, and more long-term relationships involving equity investments.