Velocity Pharmaceuticals’ CEO David Collier explores the challenges in pharma partnerships and questions why it is so hard for big pharma companies to invest in smaller startup biotechnology companies.
Big pharma companies today are “balance sheet rich” but “P&L poor“. They would like to invest in startup biotechnology companies in order to foster innovation and have access to new drugs. Investment by pharma companies in biotechnology companies could help fill the void left by vanishing venture capital firms. But if pharma companies are required to consolidate their investments, then the development spend of their startup investees hits the pharma R&D budget and P&L statement. This is a big problem for pharma. Wall Street values pharma stocks by multiples, so any increase in R&D spend could lead to a significant decrease in stock valuation, even if this “spend” is really investment into small companies discovering and developing new drugs.