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Another New Investor Jumps on the Biotech Bandwagon

Written by on Monday, May 28th, 2007

In case you missed it, Google is not the only company making news for investing in biotech.  Pfizer has announced that it will be setting aside $10 million to invest in biotech companies. 

Terri Somers of Bend Weekly reported:

In a modern, tile-and-glass building on its campus on the San Diego coast, the pharmaceutical giant is planning to spend $10 million annually for at least the next five years, incubating promising innovations or ideas as they germinate into startup companies. The incubator’s board met for the first time in April and reviewed the initial applications from interested entrepreneurs. The incubator is set up to operate as a separate and distinct business unit from the drug company. But Pfizer expects to favor innovation that may one day help it strategically, either by providing new drug candidates or technologies that make finding drugs more efficient, said Catherine Mackey, a senior vice president of Pfizer Global Research & Development and head of the laboratories.

Tenants will have to agree to an upfront equity-share agreement with Pfizer. When research is done, Pfizer will have an option to acquire rights at a fair market price. Or the incubator could spin out the company as an independent businesss.

There has been significant commentary in recent years about the failure of big pharma to generate a pipeline of new products.  Evidently, this new move by Pfizer is an attempt to secure a pipeline.

Is Pfizer’s new strategy good for biotech? 

Obviously, it does provide some benefits to start-ups who want to get up and running, but based on the article, it appears that the strategy will tie the hands of those start-ups as they go forward, since Pfizer will have the first option to acquire the rights.  As a transactional attorney, I wince at the idea of giving up your bargaining ability before you even get off the ground.  I can only imagine representing such a client down the road and trying to negotiate the deal with Pfizer to transfer the rights.  No doubt it would be a frustrating experience at best.

Does Pfizer’s move signal the launching of a new trend in the biotech world, and if so, what will be the industry impact of such a trend?   Could it ultimately result in a stifling of innovation?  Only time will tell for certain.  Those of us in the industry will be watching to see.





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