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Abstract
The drug discovery and development industry is under intense pressure to become more efficient and develop drugs better, faster, cheaper. Consequently, pharmaceutical and biotechnology companies are entering into alliances in an effort to utilise each other's talents, exploit each other's specialisations, and create more value. In this paper, the economics of the drug discovery and development cycle are examined to identify the economic and strategic logic of the alliances. The financial instruments commonly used to structure the alliances are discussed with example case studies.
Keywords: alliances, codevelopment partnerships, drug development economics, financing structures, joint ventures, licensing
INTRODUCTION
Maturing product portfolios and competitive pressures due to patent expirations have been some of the factors that have stimulated the drive for innovation in the pharmaceutical industry. As a result, a vast amount of resources have been dedicated to the development of technologies that will increase the throughput of the discovery of new drugs. In the 1990s, many millions of dollars were spent on genomics technologies that would increase the number of drug targets and the subsequent discovery of many new drugs. As a result, the field of'genomics' or the study of the genetic material, or genes of an organism, has experienced a revolution, culminating with the sequencing of the human genome in February 2001. As a part of this revolution, as is common with paradigm shifts and the birth of disruptive technologies, many new start-up ventures were spawned to pursue the opportunities that the new field offered.
The private equity market, sobered by the dot.com bust and a lacklustre initial public offering (IPO) market, has been an insufficient source of funding for these new ventures which require the continued infusion of capital to survive the many years that it takes to take a new therapeutic drug from discovery through development to tdcommercialisation. At the same time, the large pharmaceutical companies, faced with maturing product portfolios and a lack of new drugs in their development pipelines, are eager to participate in the discovery and development of new drugs underway at the emerging biotechnology ventures. The strategic and economic logic that drives the formation of alliances between biotech and pharma companies is explored in this paper, along with the financing structures commonly found in these alliances....