The structural changes roiling the pharmaceutical sector are driving innovation of biotech business models. With shrinking operating margins, patent expirations, a paucity of new product launches, significant reimbursement pressure, and an unpredictable regulatory environment—Big Pharma’s high risk bets on early stage biotechs of the past decade look cavalier through the lens of the current market environment.
The days of multi hundred million dollar upfront payments to acquire early stage biotech companies are likely gone for good, creating an exit trap for early stage private company investors. This trend is proving challenging to the sustainability of the venture capital model of the past. Various prognostications are that one quarter to one half of venture capital firms will disappear in the coming few years. The old biotech model of building early stage companies with loads of venture capital in the hope of a rapid Big Pharma acquisition at a large multiple to the invested capital, now seem oddly prosaic. Risk-sharing, earnouts, and contingent value right (CVR) agreements are the order of the day. The strategy of going public looks even more remote in today’s market. So, with that gloomy backdrop what does the future hold for those of us not ready to hang it up and head to the golf course?
To read the full, original article click on this link: The New Normal for Biotech Startups | Xconomy
Author: James Posada
