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20% Solution: Addressing the Biotech/Pharma Logjam with Innovation Partnerships

Executive Summary

While pharma needs to access biotech's innovation, biotechs and their investors are unwilling to cede late-stage control. This is a recipe for stalemate: the industry needs different partnership structures which fully pay biotech for innovation (with royalties of 20% or more) and leave early-stage development in their hands, while allowing Big Pharma to do the later-stage development and commercialization. To afford these deals, however, Pharma needs to cut their own spending on innovation.

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After Roche/Genentech: Pharma's Focus on Efficiencies, Not Innovation

Roche's rationale for buying Genentech must out-argue the one big reason not to do the deal: theirs has been the most successful relationship in pharmaceutical history. Instead, Roche is betting that this unique relationship has already borne its best fruit. In an emerging world of payor constraints, biological me-toos and growing oncology marketing expenses, the costs of keeping Genentech independent -- manufacturing transfer prices, up-front fees and royalties, and most importantly, no ability to leverage its investment in the US marketplace -- are simply too high. Moreover, Roche is clearly not convinced that Genentech's productivity would have continued at the rates it has in the last decade. Roche's vision of the pharma future looks a lot more like the cost-constrained world CEO Schwan knew at Roche Diagnostics - where innovation was rare and rarely paid for; where extraordinary business acumen counted for more than outsized research capabilities.

Isis: Pondering Platform Power

The January 2008 collaboration Isis forged with Genzyme was transformative for Isis and a desperately sought-after validation of the antisense field. But unlike its brethren in oligonucleotide drug development -- and most biotechs, for that matter -- Isis rejects the notion of commercializing its products. The deal sets up a paradox: Can Isis remain a platform company once investors' focus is on a product and its trajectory? In a sense, can it stay small?

Isis: Pondering Platform Power

The January 2008 collaboration Isis forged with Genzyme was transformative for Isis and a desperately sought-after validation of the antisense field. But unlike its brethren in oligonucleotide drug development -- and most biotechs, for that matter -- Isis rejects the notion of commercializing its products. The deal sets up a paradox: Can Isis remain a platform company once investors' focus is on a product and its trajectory? In a sense, can it stay small?

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