Biotech-Pharma Partnerships and Acquisitions: Accelerating Innovation and Delivering Medicines to Market Faster
In a Nutshell
Both biotech and pharmaceutical companies are integral to drug discovery and development, addressing unmet medical needs through innovation, yet their partnerships and acquisitions create powerful synergies that accelerate innovation and help bring medicines and therapies to market and patients faster.
Biotech companies often lack the resources and expertise needed to advance promising therapies beyond pre-clinical development. Biotech-pharma partnerships provide access to essential resources such as financial capital, clinical trial expertise, regulatory support, and manufacturing and commercialization infrastructure necessary to develop and commercialize biotech’s innovative therapies.
Pharmaceutical companies gain competitive advantages and generate revenue by partnering with or acquiring biotechs. These collaborations enable pharmaceutical companies to access cutting-edge technologies, diversify pipelines and portfolios, offset revenue losses from patent cliffs, and strengthen their positions in strategic therapeutic areas and across indications.
Biotech and pharmaceutical companies can play seemingly overlapping yet complementary roles in discovering, developing, and commercializing new therapies and medicines. On the one hand, both biotech and pharmaceutical companies are in the business of discovering and developing new therapies for unmet medical needs. On the other hand, biotech and pharmaceutical companies can form symbiotic relationships via partnerships and acquisitions which promote and accelerate innovation and allow innovative therapies and medicines to be brought to the market faster.
Why do biotech companies often need pharmaceutical companies to develop and commercialize their innovative therapies and medicines?
Biotech companies are at the cutting edge of medical innovation as they discovery and develop the therapies and medicines of tomorrow. Biotech companies are often started based on a promising therapeutic approach or a platform technology, and typically aim to develop innovative solutions for unmet medical needs.
As the therapies being developed by biotech companies mature and promising therapies emerge from preclinical studies, their safety and efficacy need to be evaluated in clinical trials before they can get commercialized and reach patients.
Clinical trials are essential studies aiming at evaluating the safety, efficacy, and therapeutic benefits of new medicines and therapies. The costs associated with conducting these trials can range between $0.2B and $1.0B or more, depending on their endpoints, design, geography, and therapeutic area among others.
Biotech companies exploring clinical trials for their innovative therapies often rely on strategic options like self-funding, licensing agreements, and various types of biotech-pharma partnerships:
Self-funded clinical trials. When a biotech company has sufficient resources (e.g., from venture capital or public offerings) the company can fund and conduct its own clinical trials (via internal expertise or using a contract research organization). One example is Alnylam Pharmaceuticals, a biotech company specialized in the development of RNAi therapeutics, which self-funded the clinical studies that led to the commercialization of Onpattro (patisiran), the first RNA—based therapy to receive approval from the FDA.
Partnering with pharmaceutical companies. The biotech company can partner with a larger pharmaceutical company to co-develop the therapy. The pharmaceutical company can fund the trials fully or split the cost of the trials in exchange for licensing rights, milestone payments, or royalties paid to the pharmaceutical company. A partnership could also lead to an acquisition of the biotech by the pharmaceutical company. A notable example is the collaboration between BioNTech and Pfizer for the development of the COVID-19 RNA vaccine. In this deal, BioNTech was eligible for upfront and milestone payments.
Joint ventures. The biotech and a pharmaceutical company can create a joint venture to share clinical trial costs and responsibilities. Typically, rights and equity are negotiated upon setting up the new entity. For example, Pfizer owned 25% of Priovant Therapeutics, a joint venture between Roivant and Pfizer dedicated to the development of new autoimmune therapies.
Biobucks. Biobucks are typically milestone payments included in licensing or collaboration agreements between biotech and pharmaceutical companies. These payments are typically contingent on achieving specific developmental, regulatory, or commercial milestones related to a medicine or therapy being developed by the biotech. The recent licensing deal between Ratio Therapeutics and Novartis includes up to $745M in biobucks for the rights of a cancer therapeutic candidate in development by Ratio Therapeutics.
Licensing agreements. The biotech company licenses the therapeutic candidate to a pharmaceutical company, transferring the responsibility for clinical trials and commercialization in exchange for upfront payments, biobucks, and royalties. A recent example is the licensing deal between PTC Therapeutics and Novartis in which PTC Therapeutics licensed PTC518, a Huntington’s disease drug, to Novartis. In return, Novartis will pay $1B in upfront payments and up to $1.9B in milestones while assuming responsibility for the development, manufacturing, and commercialization of PTC518.
Selling the asset or company. The biotech company can sell the asset or the entire biotech can be acquired by the pharmaceutical company (M&A deal). The pharmaceutical company becomes responsible for the clinical trials and commercialization. The biotech’s founders and investors get immediate financial return, with which they can start new ventures and invest in new therapies and technologies. A notable example is the acquisition of Seagen, a biotech company developing and commercializing antibody-drug conjugates (ADCs), by Pfizer for which the pharmaceutical giant paid $43B.
Beyond clinical trials, biotech companies benefit significantly from pharmaceutical companies’ expertise and experience in marketing, commercialization, and manufacturing.
The decision on which path to take can depend on multiple factors, for example:
The biotech’s size and access to resources: the smaller the biotech and the more limited its resources are, the higher the need for a pharmaceutical partner.
Regulatory landscape: the more complex the regulatory landscape, the higher the need for an experienced pharmaceutical partner.
Economic context: the harder it is to secure additional capital to fund clinical trials, the more likely a biotech-pharma partnership is.
Why do pharmaceutical companies often need to collaborate with or acquire biotech companies?
Above we saw that some of the main reasons why biotech companies need to partner with or directly get acquired by pharmaceutical companies are for biotech companies to benefit from the clinical, commercialization, marketing, and manufacturing expertise and experience of pharmaceutical companies, get access to capital, share the risk associated with the development of new therapies, or for immediate financial return.
In turn, pharmaceutical companies have their own reasons to seek collaborations with biotech companies or to directly acquire them, many of which have to do with gaining a competitive advantage, accelerating innovation, decreasing costs, and generating revenue.
Access to innovation. Biotech companies are often at the forefront of medical innovation. Partnering with or directly acquiring biotech companies allows pharmaceutical companies to access these cutting-edge capabilities without having to develop these capabilities internally. These partnerships and acquisitions not only offer access to promising therapies but can also offer immediate access to platform technologies that can enhance the pharma company’s overall capabilities. By acquiring Immunomedics, Gilead Sciences not only obtained a promising and innovative therapeutic asset (Trodelvy), but also gained access to a platform technology that could be leveraged to expand its own oncology pipeline, showcasing how M&A can benefit pharmaceutical companies on several different levels.
Diversifying pipelines and portfolios. Pharmaceutical companies rely on robust pipelines of therapeutic candidates to sustain long-term growth and revenue. However, even with significant resources, it is not possible for pharmaceutical companies to pursue every single therapeutic area or indication of strategic interest. Collaborating with or directly acquiring biotech companies can help fill gaps in their pipelines and portfolios in high-demand or strategic therapeutic areas. Further, partnering with or acquiring biotech companies can allow pharmaceutical companies to diversify their portfolios by entering new therapeutic areas or strengthening their market position in strategic therapeutic areas. Pfizer acquired Seagen to strengthen its position in the oncology market and access Seagen's innovative antibody-drug conjugate (ADCs) therapeutic modalities. The acquisition expanded Pfizer's oncology portfolio, adding four FDA-approved drugs and a pipeline of experimental therapies. Indeed, a large fraction of acquisitions are focused on late-stage biotechs or biotechs that already have marketed products that generate revenue.
Boosting revenue. Licensing agreements, co-development deals, and acquisitions of biotech companies allow pharma companies to generate future revenue while sharing risk with biotech companies. Securing assets that will generate future revenue is particularly important when pharmaceutical companies face patent cliffs or generally expect revenue decline.
Patent cliff. Patent cliff refers to the significant decline in revenue that a company experiences when the patent protection for one or more of its blockbuster therapies expires. Once a therapeutic’s patent expires, generic versions can be legally manufactured and sold by competitors, often at much lower prices, leading to a sharp drop in sales for the original product and loss of revenue for the company.
When expecting revenue decline from patent cliffs or other, pharmaceutical companies need to secure new revenue-generating assets, which is typically done either via internal development or via licensing from and acquisition of biotech companies. The acquisition of Seagen aligned with Pfizer’s long-term growth strategy to offset revenue loss from patent expirations and declining revenue from COVID-19 therapies. With the acquisition of Seagen and the addition of FDA-approved drugs and a pipeline of experimental therapies, Pfizer is expecting revenue growth from the acquired assets topping $10B in revenue for 2030. Leveraging its global infrastructure, Pfizer aimed to accelerate the development and commercialization of acquired assets, positioning itself as a leader in precision medicine and diversifying its revenue streams in the high-growth oncology sector.
Faster time-to-market. Biotech companies often have preclinical or early clinical stage assets ready for development. Pharmaceutical companies can leverage their clinical trial and regulatory experience and expertise to accelerate the approval process and bring therapies and medicines to the market faster. In the example of Pfizer’s partnership with BioNTech for the development of the COVID-19 mRNA-based vaccine, BioNTech had the innovative mRNA technology and preclinical assets to be developed, and Pfizer contributed its expertise and experience in clinical trials, regulatory processes, manufacturing, and commercialization. Pfizer’s expertise and infrastructure allowed the innovative vaccine candidate to move through clinical trials, secure approvals, and get commercialized in a record time.
Access to niche expertise. Biotech companies typically specialize in particular technologies or therapeutic areas. Pharma companies can acquire this expertise through partnerships or acquisitions, enabling them to enter new markets or enhance their presence in existing ones. Sanofi’s acquisition of Translate Bio significantly enhanced and deepened Sanofi’s expertise in mRNA vaccine development, an expertise that was primarily gained through the collaboration of the two companies initiated in 2018.
Cost efficiency. Developing innovative medicines and therapies internally from scratch is costly, time-consuming, and a low-probability process: it might cost hundreds of millions or even billions of dollars to discover and develop a successful medicine, it might take anything between 5 and 10 years to discover and develop a new medicine, and, statistically speaking, a large number of potential lead compounds need to be considered before a single medicine is developed (only one in ten pre-clinical candidates makes it to clinical trials and the probability of success associated with clinical trials and FDA approval is also about 10%, bringing the probability of a pre-clinical candidate becoming an FDA-approved drug to about 1%). Instead of discovering and developing new medicines and therapies internally, pharmaceutical companies can collaborate with, license from, or directly acquire biotech companies which already have advanced therapies or have their therapies already approved by the FDA. Acquiring late clinical stage assets minimizes the costs associated with discovery and development while maximizing potential future profits.
Competitive advantage. By partnering with or acquiring biotech companies, pharmaceutical companies gain access to a range of assets, including but not limited to intellectual property (patents), unique expertise, and proprietary technology. Not only the partnering or acquiring pharmaceutical company directly benefits from these assets, but it also makes these assets unavailable for competing pharmaceutical companies to access. This is most clearly understood when considering intellectual property. The acquired patents not only enable the acquiring pharmaceutical company to develop and commercialize new therapies, these patents also typically block competitors from developing the same or similar therapies. The example here is the acquisition of Kite Pharma by Gilead for $11.9B. With this acquisition, Gilead secured exclusive access to Kite’s patents covering innovative CAR-T therapies. This intellectual property not only enabled Gilead to commercialize these therapies but also blocked competitors from developing similar treatments in the same indications.
