An Idea Too Good to Die

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 its pipeline projects, but not the revenues to support the...