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How large pharma impacts biotechnology startup success

Implications for bioentrepreneurs.

Many novel therapeutic molecules and technologies are conceived and initially developed by small biotechnology (startup) companies. However, usually large pharmaceutical and biotechnology companies (pharma) will bring the resulting therapeutics to the market and commercialize the product. Therefore, to bring therapies to patients, interactions between startups and large pharma are pivotal, and every startup entrepreneur needs to plan how and when to best start the relationship with pharma. With acquisition in mind, entrepreneurs often delay interactions with pharma until later stages of the startup life cycle, typically until after clinical data have been generated. Is this the best timing and approach?

We have analyzed the impact of interactions with pharma on the success of startups across the different phases of the company life cycle. These interactions include pharma acting as a parent company for a spinout, as an early- or late-stage investor, as a development partner with extensive knowledge and network, or as an acquisition partner.

Our results indicate that formal ties to pharma strongly correlate with startup success at the clinical as well as preclinical stage. On the basis of our analysis, we emphasize the need for a continuous involvement with pharma throughout the life cycle of the startup. This can be facilitated by the startup’s investors — in particular, by venture capital (VC) investors with ties to pharma.

Impact of pharma investors and licensors on startup success

During the past decade biopharmaceutical drug development has shifted from large pharmaceutical companies to small and mid-sized companies. In 2018, almost half of approved drugs were attributed to smaller biopharmaceuticals (<$100 million in pharma sales)1, and in recent years large pharma companies have reduced in-house research and development activities and greatly increased inlicensing or acquisition of products to fill their pipelines2. New technologies are appearing in such large numbers and advancing so rapidly that pharma now frequently chooses to rely on startups for initial drug development and acquire selected derisked development programs, rather than placing all bets on a few risky in-house programs. This development has been greatly boosted by a steady drop of the return on investment of large pharma in-house drug development.

Biotech startups are inherently risky, and research and development is costly and typically faces many unknowns. Development of novel therapeutic modalities, including RNA interference and cell and gene therapies, requires a complete rethinking of manufacturing, clinical development, regulatory interactions and pricing strategy3,4. This demands extensive development and manufacturing expertise and significant funding — resources that can potentially be provided by large pharma companies. However, the more common pharma strategy is to wait until novel technologies have matured and are derisked by startups.

Pharma may get involved during all stages of startup development through either corporate or venture financing of early- and late-stage financing rounds; through in- or outlicensing agreements, which are particularly powerful when spinout companies are created; or through direct or structured acquisitions (Fig. 1).

Fig. 1: Involvement of large pharma throughout the startup life cycle.

During the inception of a startup, large pharma may act as a parent company for a spinout, as a seed investor or as a licensor of assets to the startup. During startup development, pharma may act as an investor at early or late stages or as a licensee of the technology or key assets. At an exit, pharma is the preferred acquisition partner to bring the novel therapeutic to the patient.

Using GlobalData’s Pharma database, we compiled a dataset covering publicly disclosed financial interactions and licensing agreements between large pharma and biotechnology startups from 1 January 2004 to 31 December 2019. We cross-linked six different GlobalData datasets (all completed venture financing deals, all completed majority and 100% acquisition deals, all completed licensing deals with a private licensor, all completed licensing deals with a private licensee, all completed initial public offerings (IPOs), and all marketed prescription drugs with US or European Union market authorization) to attribute these interactions to companies that had received venture financing, excluding growth capital (‘startups’). Since the GlobalData database is assembled from public information, deals that have not been publicized were not captured in our analyses.

All deals were screened for large pharma involvement based on the 50 largest pharma companies by 2018 drug sales5. Deals by corporate venture capital arms of large pharma companies were merged with the respective large pharma unless they were specifically stated to not be strategic investment arms of their respective parent (only Novartis Ventures and SR One in our dataset).

Analysis of startup success rate

We interrogated the dataset to investigate the influence of interactions between large pharma and startups on the subsequent success of the startups. Success was defined as startups that either were successfully listed on public markets (IPO), were acquired (majority or 100% acquisitions), or had a drug approved between 1 January 2004 and 31 December 2019. If a startup was acquired as well as listed, the acquisition was used as success indicator. An approved drug was defined as a marketed prescription drug with US or European Union market authorization within the study period. We explored other success measures, including licensing deals with startups as licensors and startups with 2018 revenues, but discarded them owing to an unacceptable number of false positives and unequal representation of startups by age. Similarly, we explored failure events such as bankruptcies to interrogate the fates of companies that did not meet the success criteria. However, these did not adequately reflect failure rates as a whole.

We correlated the success rate with various categorical variables, including large pharma involvement, presence of a licensing deal with the startup as licensee, and development stage of the startup at investment. Statistical correlation was analyzed with chi-squared tests.

Analysis of market capitalization and acquisition value

Of the 740 startups in our dataset that were annotated as listed companies or as having undergone IPOs, 592 had a market capitalization attributed in GlobalData. Of the 770 startups in our dataset for which an acquisition deal is annotated, 516 had an acquisition value attributed.

We correlated the data subset for which the above values were available with various categorical variables, including large pharma involvement and presence of a licensing deal with the startup as licensee. Statistical correlation was analyzed using Mann–Whitney U tests.

Investor analysis

Investors were analyzed for their large pharma connection if they were involved in more than 25 venture financing deals between 2004 and 2019, with more than 15 companies invested in, 4 or more successes, and at least 1 deal in 2019. Investors’ deals were screened for large pharma investors and/or acquirers in the same or subsequent years after the respective investors’ venture financing deal with a startup.

Investor geographies were classified by company headquarters location, independent of the regional distribution of their investments.

Large pharma as an investor or licensor

A first and remarkable finding was that having a large pharma investor on board significantly increased the startups’ success rate, from 18% to 37% (Fig. 2). Overall success rates were substantially higher when the last four years, 2016 to 2019, were excluded from the analysis. This indicates the typical delay between a first venture financing and a success event. Comparing the different variables of success, approved drug had little impact on our analysis when added to the other success variables — acquisition or IPO. One explanation is the small number of companies with new approved drugs versus the total number of acquired or listed startups (164 startups with a new drug approval out of over 7,000 startups in our dataset) and the tendency for biotechnology startups to commonly be acquired by or have partnered with large pharma before drug approval. Therefore, the effect of an approved drug on the overall success rate is largely embedded in the other success variables.

Fig. 2: Success rate for startups with and without large pharma investors.

Success is defined as the startup having an approved drug, having undergone an IPO or having been acquired. Statistical significance: *P < 0.05, **P < 0.01, ***P < 0.001; NS, not significant. Chi-squared tests used to determine statistical significance.

Large pharma involvement not only boosted the overall success rate, it also increased the size of success as measured by current market capitalization for listed startups from a median of $138 million to $332 million, and acquisition value for acquired startups from a median of $136 million to $377 million (Fig. 3). We considered the possibility that large pharma investments would lead to a self-fulfilled increase in the valuation of the startup company. However, because these companies were often acquired by large pharma companies other than those that initially invested and because such companies had higher valuations on the public markets, it is more likely that having a large pharma investor on board increases the odds of successful drug development.

Fig. 3: Median current market capitalization and acquisition value for startups with and without large pharma investors.

a, Market capitalization. b, Acquisition value. Mann–Whitney U tests used to determine statistical significance; ***P < 0.001.

Looking from another perspective, large pharma investors were over-represented among the top startups and less common among the bottom startups, by market capitalization and acquisition value. For example, while only 21% of listed startups in our sample had a large pharma investor, 30% of the top 20 by current market capitalization had one, and only 5% of the bottom 20 did for the same sample. Similarly, only 18% of the acquired startups had a large pharma investor, but 25% of the top 20 did, and there were only 5% large pharma investors among the bottom 20 startups by acquisition value. These data seem to indicate either that large pharma are more likely to select companies that will become successful or that their involvement boosts startup success.

The common startup entrepreneur sentiment is that large pharma’s relevance for success becomes particularly important when the company nears the exit stage. Large pharma discussions are often initiated during clinical development, and companies may benefit from getting a large pharma investor on board at this stage.

However, we found that large pharma involvement also had an impact at the preclinical stage. Success rates for these preclinical companies were similarly boosted when a large pharma investor is involved, increasing from 19% without large pharma to 25% with large pharma. It is therefore also valuable to have large pharma on board as early as the preclinical stage (Fig. 4). We found the same trend for clinical-stage companies: success rates increased from 32% without large pharma investor to 38% with large pharma investor; the difference, however, was not statistically significant, as the sample size was small.

Fig. 4: Startup success rate by development stage at first venture financing round.

Success is defined as the startup having undergone an IPO or having been acquired. Chi-squared tests used to determine statistical significance; *P < 0.05, ***P < 0.001; NS, not significant.

Besides assuming an investor role, large pharma is also often involved with startups through licensing deals. At the early stages of development, large pharma may act as licensor of intellectual property to a startup. Not unexpectedly, development of an inlicensed program provides startups with a head start over their peers. In our sample, licensing agreements gave startups a success boost from 23% to 29%.

Large pharma licensors increased success rate significantly more than other licensors, stressing again that large pharma involvement is important throughout the startup life cycle. The success rate increased from 26% to 46% when the licensor is a large pharma company. The much larger success rate of inlicensed large pharma programs may be related to a better derisking of the assets before they are licensed in terms of safety and efficacy parameters and, in some cases, the continuous support from large pharma after the licensing event, including clinical development, regulatory interactions and manufacturing.

Similarly to the impact we saw with large pharma investors, large pharma licensors also affected median acquisition values for acquired startups, increasing them from $134 million for startups without a licensing deal to $278 million for startups with a large pharma licensor (but only to $244 million for startups with a non-large-pharma licensor).

Large pharma as an exit partner

Exits are only achieved by very few startups, and acquisition is about as frequent as IPO. Our analysis found that 10.5% of startups were acquired and 10.1% exited via IPO. In the span of 15 years, only 770 startups were acquired and 740 underwent IPOs, with an overlap for 102 startups.

To increase their chances of success, startups would do well to keep large pharma close by, but in reality only a small fraction does this through formal ties. We found that only 9.4% of startups had a formal tie to large pharma through pharma investment in the startup, and 2.1% and 3.4% of startups had a formal tie as licensee or licensor, respectively.

Our data show that a link to one or more large pharma increases the chances of making a deal with a large pharma. Companies with a large pharma investor were more likely to be acquired than their peers (17% versus 10%), and the likelihood of acquisition by large pharma increased from 23% to 53%. Interestingly, our data suggest that large pharma investors do not necessarily become the exit partner for their investments more often than for startups they have not previously invested in.

Perhaps informal ties play a significant role in keeping large pharma involved. We analyze and discuss below some of the indirect and informal ways of interacting with large pharma.

Implications for bioentrepreneurs and investors

Some early biotech investors seem to focus more on interacting with pharma, which can partly be traced back to the business model they pursue, including the stage of startups they invest in and syndication preferences. Of the 88 investors that fell within our selection criteria for the most active investors in attracting large pharma, 60 were in the US, 21 in Europe, 4 in Asia, 2 in Canada, 1 in Israel (Supplementary Table 1). Because the majority of investors rarely ventures across the Atlantic to make investments6, having an investor with strong ties to industry geographically close to the entrepreneur seems the best strategy. The involvement of large pharma in the portfolio companies of these investors ranged from 15% to 59%, with a median of 30% in our dataset.

Besides the business model itself, there are more subtle factors that influence investors’ large pharma ties, including the presence of large pharma as strategic investors in venture capital funds; personal ties to large pharma, often through previous careers within — or relations with — specific companies; and overlapping strategic considerations (for example, with regards to therapeutic areas favored, or even simple geographical proximity).

Despite the higher prevalence of acquisition-based exits among European investor portfolios vs. US investor portfolios (median of 47% for European investors vs. 31% for US investors), relations with large pharma investors or acquirers were similar, at around 30% of investments (Fig. 5). Easier access of US companies to IPOs over that of European companies offers a plausible explanation for the significant difference in prevalence of acquisitions among European and US investor portfolios. Other factors that may play a role are tradition in routinely bringing companies to public markets and investors’ and management teams’ familiarity in building public companies.

Fig. 5: Investor ties to large pharma. Investors’ share of their successful portfolio companies that have exited via acquisition and share of investors’ portfolio companies that have attracted large pharma in the same or subsequent years of the investment.

Showing all investors with >25 venture financing deals 2004–2019, with >15 companies invested in, >4 successes, and at least 1 deal in 2019. Chi-squared tests used to determine statistical significance; ***P < 0.001; NS, not significant. Center line, median; cross, mean; box limits, first and third quartiles; whiskers, maximum and minimum, excluding outliers.

Entrepreneurs are often capable of building ties to large pharma at various stages in the life cycle of their company — for example, through licensing deals at the inception stage (that is, spinouts) or acquisitions at the exit stage. However, maintaining the connection throughout the startup life cycle is more complicated and requires broader networks. Large pharma companies regularly change strategies, and when a large pharma discontinues support of a startup, this can be fatal. This is where specialized venture capitalists with relevant pharma networks come into play by helping to establish and maintain these ties, as well as providing ample alternatives within their networks. Proactive venture capitalists can also help establish ties between startups and large pharma at early development stages when large pharma may not necessarily be interested in investing, focusing attention on the startup’s technology and progress, which is especially attractive for companies that develop novel or paradigm-shifting technologies.

Establishing these connections with large pharma is even more important in Europe, where startups have limited access to financial market funding through IPOs and typically have access to smaller talent pools with large pharma experience to draw from for their teams.


Our data indicate that large pharma involvement, be it through investments, outlicensing, inlicensing or partnerships, has a large impact on the success of a biotechnology startup. Early pharma involvement, as early as preclinical stage, seems to boost companies’ success. While we cannot clearly separate the variables that determine large pharma’s impact on startups, our data contain a message to entrepreneurs and investors. Whether it is large pharma’s adeptness at selecting investments, their derisking processes, their choice of investments in high-potential therapeutic areas and markets, their superior inroads into large pharma networks, their mere presence acting as a quality-stamp, or a combination of the aforementioned, entrepreneurs and investors would do well to seriously consider their relationship with large pharma at all stages of product development.


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Corresponding author

Correspondence to Daniela S. Couto.

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Competing interests

G.M.v.D. and D.S.C. are employed by BioGeneration Ventures and S.v.D. is employed by Forbion Capital Partners. These companies invest in biotech ventures.

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Melchner von Dydiowa, G., van Deventer, S. & Couto, D.S. How large pharma impacts biotechnology startup success. Nat Biotechnol 39, 266–269 (2021).

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