The pharmaceutical industry is undergoing considerable changes in face of R&D diminished productivity, the patent cliff and increased competitiveness leading to pricing pressure. The traditional linear approach to corporate innovation appears unable to increase pipeline value and corporate revenue. In fact, recent mergers and acquisitions, geographic expansion and diversification into consumer and animal healthcare have neither compensated for the slowdown in innovation, nor decreased the unsustainable cost of bringing new drugs to the market. Big pharma, as a result, is moving beyond internal discovery and drug development programmes. In recent years, industry analysts have documented the increasing number of open innovation initiatives such as academic partnerships, open source platforms, crowdsourcing and external venture capital units. For example, InnoCentive’s pioneering open innova- tion model was followed by several prominent initiatives of industry peers, including the public-private partnership founded by Structural Genomics Consortium and GlaxoSmithKline, Lilly’s Phenotypic Drug Discovery initiative and Merck’s Oncology Network for collaborative clinical trials. Perhaps more importantly, as observed by Henry Chesbrough who coined the term “open innovation” in 2003, in the recent years “companies that have used open innovation not just with technology but also with business models, there has been a rethinking”. The shift toward external innovation sourcing is consist- ent with the increased importance of venture and growth equity capital investments for new biotechnology start-ups. As biotech ventures are increasingly regarded as one of the most valuable sources for future revenue opportunities, corporate venturing is growing in strategic importance – especially at a time when the market for traditional venture financing is dwindling, affecting the ability to raise new private VC funds. Recent corporate venture capital activities, as documented by Global Corporate Venturing data, show that corporations have realised the nature of the opportunity, becoming a prominent source of capital and resources for the development of early-stage innovation in biotechnology. Interestingly, the current wave of corporate venturing exhibits a set of novel characteristics. A recent study published in Nature Biotechnology, conducted by the Swiss Federal Institute of Technology (ETH Zurich) and Bain & Co, reveals the majority of the established corporate ven- ture units reported substantial changes of the corporate venturing activities of leading pharmaceutical companies, primarily with respect to the structure, strategic scope and human capital. “Corporations have developed large and more sophisti- cated venture units, which take a more active role in syndi- cates and deliver greater value to co-investors and entre- preneurs. More importantly, corporations are increasingly adopting new models, practices and fund structures.” The results of the study revealed a number of venturing…
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What we can learn from ventures into biotech?
Jun 10, 2013 • Boris Battistini
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