Corporate Incubators Unproven, but Other Models Emerging

By Melanie Senior

Pfizer and Biogen are unusual in having corporate incubators, providing lab space and facilities, investment, advice, plus the possibility (if not a guarantee) of a partner or exit to young start-ups in strategically relevant areas. Several other firms have shied away from this method of filling the pipeline, citing cost and other resources. Indeed, the very concept of "grow-your-own" contradicts today's strong continuing trend toward low-risk, low-cost, low-resource discovery-stage alliances, as illustrated by the rise in option-based deals and corporate venture capital.

The jury is still out on whether these ventures will bring strategic benefit to the parents. Two years or more after inception, both Pfizer and Biogen are currently considering the next steps for their portfolio companies: whether their assets are sufficiently successful—and relevant—to be taken into the fold, or whether (as is already the case for one Pfizer company) the start-ups should be launched onto an independent future path, drawing in external investors.

And it's this—the question of what happens if the parent doesn't want to keep any of its brood, for whatever reason—that presents the major hurdle to the corporate incubator model. VCs won't approach these offspring without very clear and convincing justification of why the parent passed them over. The other snag is related: how do the companies doing the incubating know what kind of technologies they will want in several years' time—and thus which ones to grow?

All of which helps explain why many other companies have avoided the incubator model. A few are experimenting with variations on the theme, however, including GlaxoSmithKline with its "open innovation" model in Stevenage, UK, or Johnson & Johnson through its Internal Ventures group, while Roche's plan is to work with local VC partners that specialize in incubation, and garner help from local governments.

Most of these models are a long way from showing any sort of proof-of-concept; thus far only the Seattle-based Accelerator incubator, with its unique mix of private and strategic investors, seems viable.

Corporate Biotech Incubators

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