same: small companies for small jobs; big companies for big jobs. Contract research organizations have demonstrated the scale of potential savings that can be realized by specializing in various stages of drug development. Relative efficiencies from externalization of early stage development could dwarf the savings realized in services.
In a partnering model, a private equity firm would raise a fund designed specifically to partner drug development projects in partnership with a pharma or a group of pharmas. The fund would operate like a venture fund, but with the express purpose of pursuing projects consistent with the partners’ strategic interests in the entrepreneurial community. NewCo portfolio companies would be organized with an option allowing the pharma sponsor to acquire the product at a pre-negotiated milestone and price. Ultimate responsibility for managing development would reside with the NewCo team. Pharma would pay only for success and only when it fits their strategic priorities at the time of purchase. By operating in more of a build-to-suit mode, biotech/bio-venture improves the odds of getting a timely buyer, and most importantly a buyer who has years of experience with the molecule and a sense of shared ownership.
Yet, pipeline priorities and pharma managers can change, even when molecules succeed. Un-optioned molecules could still be carried forward by the NewCo team if the original sponsor goes in another direction. This would reduce the opportunity cost to the industry of good molecules stalled or lost for reasons of strategic fit rather than performance. As the number of projects increases, the growing pool of un-optioned molecules in the venture/entrepreneurial community would enable pharma to draw and discard assets to optimize pipelines throughout the development process.
A partnership requires both sides to agree in advance on a program. Interests and economics must be aligned at the outset, rather than across a bargaining table, where the balance of power is tilted in favor of the deep pockets. Both sides would have to agree on a “fair deal” before proceeding; so risks and rewards would be consistent with contributions.
Partnering at the fund level, rather than in individual NewCos, would enable managers on both sides to develop a consistent and efficient interface across multiple deals, enabling pharma to
