An Idea Too Good to Die

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.

Drug companies always want to develop more drugs than they have funds for. At the same time, they don't want to out-license these potentially valuable candidates without getting a chance to buy them back—who knows when they might be giving away a blockbuster? But no in-licenser likes that idea: if they're going to take the risk of developing a product, they need a commensurate reward—at a minimum a super-royalty share of the successful product's upside.

Genentech Inc. in the mid-1990s was particularly interested in solving this Rubik's cube. It had enough cash to finance...

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