Written by Lev Garlovin, Jared Levin, and Sunil Mendiratta
As pharmaceutical manufacturers grow, they often pursue external sources of innovation to supplement their own research and development efforts. A recent study found that in 2020, 45% of drugs in the pipelines of the 20 largest biopharmaceutical companies were sourced externally. Sources of external innovation include M&A, university partnerships, licensing, joint ventures, and direct ownership investments. Over the past 15 years, many leading companies in the industry have supplemented their R&D pipelines by developing their own incubator programs for promising early-stage life sciences companies, academic organizations, and individual researchers. I did.
An incubator is a program in which pharmaceutical companies provide selected candidates with resources such as research facilities, specialized equipment, direct funding, scientific expertise, industry connections, and business mentorship. The Incubator Program aims to guide and accelerate the research efforts of Incubator participants toward a more robust pathway to achieving clinical development and commercialization. Incubator hosts select promising candidates based on criteria such as the product or scientific platform's potential for scientific success, commercial potential, and alignment with the host's internal capabilities. Major industry players such as Johnson & Johnson, Pfizer, AstraZeneca, and Roche have developed incubator programs in recent years, and in some cases, pharmaceutical companies have incorporated their incubator programs into venture capital arms (e.g., Novartis) in some cases.
The growing presence of pharmaceutical incubators can be attributed to the strategic advantages realized by both incubator hosts and participants.
- Benefits for host pharmaceutical companies: To access the latest advances in science and increase portfolio diversification, pharmaceutical companies often look externally to expand their research and development pipelines. While traditional external innovation channels such as M&A are likely to remain the primary growth strategy, incubators offer pharmaceutical companies a low-risk, practical opportunity to incorporate early-stage innovation and talent into their R&D pipelines. It is becoming more and more attractive because of its offer. . Additionally, although incubator programs are often a means of exploring the potential of early-stage preclinical assets, incubator programs may also be stage agnostic.
- Benefits for participants: Early-stage life sciences companies (such as start-ups) may have the scientific knowledge to develop successful products, but many companies are struggling to move their products into clinical trials and commercial launch. They lack the necessary resources and business expertise. The incubator program provides participants with resources and insight to further advance their ideas and provides commercial experience to guide their go-to-market plans.
Compared to other traditional business development strategies (Evidence I), incubator programs are low-risk and partnership-based. Hosts realize the greatest benefits when their corporate structure is best organized to leverage the value of collaboration with potential candidates.
Exhibit I: Benefits and use cases of different business development strategies
Source: CRA internal analysis
Different structures of incubator programs
The incubator is structured to help pharmaceutical companies achieve a variety of strategic and operational goals. We can offer incubator participants a wide range of capabilities, including technical, financial and commercial support. The level of long-term organizational involvement with incubator participants also varies between incubators. As incubators become more integrated, participants are more likely to take advantage of multiple features.
CRA has conducted an analysis of several pharmaceutical incubators and developed a framework that characterizes different incubator designs and their respective goals. The analysis evaluates the host's commitment by examining the type of support and level of integration provided. This framework outlines how each incubator structure provides specific benefits to the host pharmaceutical company. Below are the definitions of the framework components.
Exhibit II: CRA Incubator Design Framework
Source: CRA internal analysis
- Host capabilities – Focus on the types of resources that incubator programs provide candidates.
- technical: A collaboration that provides participants with access to scientific expertise, laboratory facilities, technical expertise, and organizational/research expertise. Child care providers who focus primarily on providing technical capabilities tend to leverage the clinical knowledge of both entities in forming long-term thinking partnerships to increase the likelihood of success.
- Finance: A collaboration in which the host primarily provides funds to the participants to further their research and development. Incubators that primarily focus on providing this functionality are typically seeking economic benefits, i.e. return on investment or portfolio diversification.
- commercial: A collaboration where the host provides commercial expertise to bring potential pipeline products to market. This level of involvement can occur later in product development and requires a higher degree of organizational integration.
- Integration level – We will focus on the level of engagement between organizers and candidates, particularly the key commitments that incubator participants need to make to organizers.
- Independent collaboration: A model with no investment or commercial license obligations. Hosts using this model benefit from the learning and exchange of expertise shared between entities to target specific disease areas, as well as Try to get an early perspective.
- Organizational integration: An arrangement in which the host is deeply involved in the incubator participant's development approach and views the program as a partnership between two entities. Hosts are more likely to influence the direction of incubator participants' developmental approaches. Using this model, hosts may select a small number of candidates in the hope that close involvement may accelerate time to market.
Incubator program design case study
Exhibit III: Positioning CRA case studies into the incubator design framework
Source: CRA internal analysis
Critical success factors for incubator programs
The success of incubator programs depends on key factors that enable host organizations to properly take advantage of the benefits these programs offer. There are three key factors to success:
- Host companies find a balance between quantity and quality in candidate selection. An organizer with sufficient resources to provide guidance to each candidate increases the chances of success for both the organizer and participants. It is important to select a large number of candidates to allow appropriate access and deployment of resources across the incubator program, while still benefiting from the diversification of opportunities. Incubator programs that strategically balance resource commitments with the number and diversity of opportunities are more likely to be successful. To advance these efforts, companies need to develop clear criteria for candidate selection and resource budgets (related to both finances and expertise).
- In addition to alignment with the host's business development strategy, there is harmony between the host's strengths and the candidate's profile. Candidates are most likely to succeed when there is strategic alignment and complementarity of strengths between organizers and participants. When the incubator matches the host's remaining scientific capabilities (e.g., similar therapeutic areas of interest), the overall impact increases. This means that a company's resources are effectively leveraged towards a common goal. Host companies need to make internal adjustments, clarify corporate goals, and understand the strengths to leverage and the gaps that incubator programs can fill.
- Host companies set realistic time periods and expectations accordingly. Developing new drugs is costly (approximately $2.6 billion) and time-consuming (approximately 10 years), so candidates need support at least through proof of concept. Pharmaceutical companies that can balance this burden with competing financial challenges are more likely to succeed in incubators. Organizers should develop performance benchmarks and key performance indicators (KPIs) to assess which candidates require more money and time to succeed.
CRA expects the growth trend for pharmaceutical incubators to continue given the mutual benefits that both hosts and candidates derive from incubator programs. Incubator programs are a less risky and more flexible means of building your research and development pipeline than traditional methods. Additionally, incubators align with the overall trend toward agility in resource deployment, talent acquisition and retention, stakeholder engagement, and more within the life sciences ecosystem.
Industry leaders can learn from existing incubator programs and inform the design of technology platforms, R&D pipelines, and unique products that support the needs of long-term strategic goals. Organizations seeking to design and improve their incubator programs must align the incubator's focus areas with the organization's research and development needs that cannot be effectively met by other innovation strategies. When designing an incubator program, you should carefully consider your organization's goals. As hosts seek to formalize their R&D pipelines, they are likely to pursue a more organizationally integrated model that includes multiple functions between technical, financial, and commercial support. If the host is less formally informed about the development of its R&D pipeline, you might consider a single-function incubator design that increases organizational independence and focuses on financial or technical support.
About the author:
Lev Garlovin He is vice president of CRA's global life sciences practice and has more than 15 years of experience in life sciences strategy consulting with a focus on commercial and market access strategies.
Jared Levin He is an associate in CRA's Global Life Sciences Practice and has strategic consulting experience with a focus on commercial and market access strategies.
Sunil Mendiratta He is an associate in CRA's Global Life Sciences Practice and has strategic consulting experience with a focus on commercial and market access strategies.
The views expressed herein are those of the author and not those of Charles River Associates (CRA) or the organization with which the author is affiliated.