Betting on Biotech

Big pharma is taking big risks in its dealings with biotech, The Wall Street Journal's Jason Douglas says. Pushed by the market to get new products out, pharmaceutical companies are spending less on their own research and more on acquiring experimental compounds from biotech companies, even if they've barely begun to be tested. "In recent years, Big Pharma has licensed more products in preclinical, Phase I or Phase IIa stages of development than ever before," Douglas says. And the reason could be that the companies have overhauled their R&D to focus more on clinical studies than lab work. "It can take 20 scientists five years and $30 million to turn an idea into a drug ready to be tested in humans, and to reach this stage once typically means there have been dozens of other lines of research that have also cost time and money but turned out to be dead ends," Douglas says. "On top of that, fixed costs such as payrolls and running laboratories are high." If companies can pay biotechs that amount, or even a little more, for a promising Phase I prospect, the risk can be worth it. And the deals are benefiting the biotechs as well. As long as the funding environment stays the way it is, Douglas writes, these deals are helping keep some biotechs alive.