New Way to Finance
This traditional business model is fraught with challenges. The high cost and long timeline for drug development has challenged this mechanism for raising money. Venture investors don’t have the ability to provide round after round of financing and wait 10 to 15 years for a return.
The rules under which the industry has operated since its inception have been washed away by a confluence of global economic, policy, marketplace, and technological forces that are transforming the way in which companies need to operate to succeed. The collapse of the global financial markets and financial systems was a major force in reshaping the landscape.
The days of needing just a promising product past proof-of-concept trials in order to get an initial public offering complete are over. Companies need to have products on the market and predictable revenue before going public, thus eliminating technological, regulatory, and reimbursement risks.
With escalating R&D expenditures, a paucity of new drug approvals, increasing safety demands by regulators, and the loss of revenue to generics, the pharmaceutical industry has turned its focus toward biotechnology.
The business models that created value in the past are no longer effective in an increasingly risk-averse and competitive environment that includes governments focused on controlling healthcare costs, skittish investors, and demanding shareholders.