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An Idea Too Good to Die

This article was originally published in Start Up

Executive Summary

Drug companies always want to develop more drugs than they have funds for and a variety of companies have sprung up to offer financing alternatives for them. One company, Collabra, tried to take the enormously Genentech model and apply it to Big Pharma. It didn't work, and the reasons are instructive.

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Symphony & Guilford Try Out Project Financing

Symphony attempted to re-create an off-P&L financing vehicle for biotech projects that would both pass the much tougher SEC scrutiny applied since the late 1990s and allow biotechs to avoid licensing away what could be important revenue generators. To do so, it had to create a fully independent corporate vehicle with the capacity-through an alliance with an equity-incentivized CRO--to manage its own development. But its first biotech partner, Guilford Pharmaceuticals, didn't feel Symphony had proven the financing could be completely off-P&L. Consolidating the expenses, Guilford sees the deal's value largely in the additional management resources, along with the funding, that Symphony provides a second-priority program. Symphony also has yet to prove it can make its investors money from these projects: in part because the value of late-stage programs has increased since the original off-P&L vehicles were created, Symphony could only get from Guilford a single compound, not a portfolio of projects with which to reduce its investment risk.

Symphony & Guilford Try Out Project Financing

Symphony attempted to re-create an off-P&L financing vehicle for biotech projects that would both pass the much tougher SEC scrutiny applied since the late 1990s and allow biotechs to avoid licensing away what could be important revenue generators. To do so, it had to create a fully independent corporate vehicle with the capacity-through an alliance with an equity-incentivized CRO--to manage its own development. But its first biotech partner, Guilford Pharmaceuticals, didn't feel Symphony had proven the financing could be completely off-P&L. Consolidating the expenses, Guilford sees the deal's value largely in the additional management resources, along with the funding, that Symphony provides a second-priority program. Symphony also has yet to prove it can make its investors money from these projects: in part because the value of late-stage programs has increased since the original off-P&L vehicles were created, Symphony could only get from Guilford a single compound, not a portfolio of projects with which to reduce its investment risk.

The Drug Industry's Real Post-Genomics Problem: Financing the Pipeline

At iO Pharmaceuticals, two former Genentech executives aim to do for Big Pharma what Genentech, with its creative financing techniques, did for itself. By setting up a clinical development company, they plan to create off-P&L financing structures which will allow drug companies to develop more products without decreasing earnings.

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