Evolving business models: Pharmaceutical incubators

January 8, 2024
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This article was originally published in Life Science Leader.

As pharmaceutical manufacturers grow, they often pursue external sources of innovation to supplement their own R&D efforts. A recent study found that 45% of drugs in the pipelines of 20 large biopharmaceutical companies were sourced externally in 2020. Sources of external innovation include M&A, university partnerships, licensing, joint ventures, and direct ownership investments. Over the past fifteen years, many large players in the industry have supplemented their R&D pipelines by developing their own incubator programs targeted at promising early-stage life sciences companies, academic groups, and individual researchers.

Incubators are programs in which a pharmaceutical company provides selected candidates with resources, such as lab facilities, specialized equipment, direct funding, scientific expertise, connections to the industry, and business guidance. Incubator programs aim to guide and accelerate an incubator participant’s research efforts toward a more robust pathway for achieving clinical development and commercialization. Incubator hosts select promising candidates based on criteria such as a product or scientific platform’s chances of scientific success, commercial potential, and alignment with the host’s internal capabilities. Large industry players such as Johnson & Johnson, Pfizer, AstraZeneca, and Roche have developed incubator programs over recent years, and in some cases, pharmaceutical companies may incorporate their incubator programs as a venture capital arm (e.g., Novartis).

The growing presence of pharmaceutical incubators can be attributed to the strategic benefits realized by both incubator hosts and participants:

  • Benefits to the host pharmaceutical company: To gain access to the latest advances in science and foster portfolio diversification, pharmaceutical companies often look externally to broaden their R&D pipelines. While traditional external innovation pathways, such as M&A, are likely to remain as primary growth strategies, incubators are becoming increasingly attractive, as they offer pharmaceutical companies lower-risk, hands-on opportunities to incorporate early-stage innovation and personnel into their R&D pipeline. In addition, incubator programs are often avenues to explore the potential of early-stage, preclinical assets, although incubator programs can be stage agnostic as well.
  • Benefits to the participant: Early-stage life sciences companies (e.g., startups) may have the scientific knowledge to develop a successful product but many lack the necessary resources and business expertise to move a product into clinical trials and commercial launch. Incubator programs provide participants with the resources and acumen to advance their ideas further and the commercial experience to guide their go-to-market planning.

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