There has been an increase in startup investments

The worldwide prescription drug market is growing at 6.5% compounded annually and is expected to reach $1.06 trillion by 2022. Start-ups are driving pharma innovation, accounting for 63% of all new prescription drug approvals over the last five years, HBM Partners reports. Drug companies have established venture capital funds and incubators to invest in promising start-ups working on new drug technologies. Novo Holdings’ recent launch of a $165 million venture fund focused on tackling “superbugs” resistant to modern antibiotics demonstrates the paradigm shift occurring in Big Pharma. Novo’s Repair Impact Fund — Repair stands for Replenishing and Enabling the Pipeline for Anti-Infective Resistance — will invest $20 million to $40 million in start-ups and early stage companies in the United States and Europe that have new approaches to combat bacteria that pose the greatest threat to human health. New approaches to combat antimicrobial resistance urgently need to be developed. Already, more than 700,000 people die each year from infections resistant to most or all antibiotics, and the number is increasing by the day. Antimicrobial resistance is projected to kill more people than cancer by 2050, which would reduce global economic output by between 2 percent and 3.5 percent and severely cripple modern medical and surgical advances. Despite growing recognition of this threat, there is an early stage funding gap for new treatments. To date, Big Pharma companies have not successfully developed a new generation of antibiotics, although last year they set up AMR Industry Alliance, a coalition to monitor the industry’s progress in this field. “This is a huge global problem in need of R&D funding,” said Aleks Engel, partner at Novo Holdings. “But many Big Pharma companies have pulled out of the area in the last 10 to 15 years because they see a challenging ROI.” As he explains, antibiotics are a fraction of sales of drugs in other classes. They would rather wait as upstart biotechs take the risk out of development. The economic challenge the industry faces is undeniable. That’s because the average cost to develop and win marketing and FDA approval for a new prescription drug in the United States is about $2.6 billion, reports the Tufts Center for the Study of Drug Development. Despite high development costs, the majority of drug launches achieve modest sales in the first five years on the market. Only 19 drugs have reached $1 billion in annual sales within five years of launch over the past 20 years, the QuintilesIMS Institute revealed. In response, industry giants like Novo Holdings — which has big stakes in Danish drugmaker Novo Nordisk —Merck, Johnson & Johnson, Sanofi and others are looking to become more entrepreneurial. Increasingly, these big players are setting up venture capital funds and investing in start-ups and licensing technology to fuel their own drug pipelines. Many are also outsourcing R&D, while reducing product development efforts internally. The trend is accelerating at a rapid pace. Behind the scenes, pint-size ventures are driving pharma innovation. The majority of drugs approved in recent years originated at smaller outfits— 63 percent of them over the last five years, according to HBM Partners, a health-care investing firm. The allure is multifaceted. Small biotech start-ups are more nimble, and many can do research and product development faster. By investing in a broad portfolio of young ventures, a big drug company can leverage outside scientific talent and cast a wide net in order to gain access to breakthrough discoveries in areas of the company’s strategic interest. For investors the sheer market size of the industry cannot be ignored. It’s a global market growing at 6.5 percent compounded annually that is expected to reach $1.06 trillion by 2022, HBM forecasts.