How pharma companies can build mutually beneficial relationships with biotech and digital health start-ups

Seemingly every week, headlines declare new partnerships inked between global pharma giants and previously unknown start-ups.

These often very high-value deals (the top 20 highest value licensing, collaboration, and partnerships deals in 2023 were each worth at least $1 billion¹) are framed as win-win: the start-up is provided with access to resources, advice, a huge network, and an avenue to commercialise their innovation, whilst the pharma company gains the ability to integrate cutting-edge innovations into their pipelines more quickly than through in-house development alone. Such partnerships may also unlock rapid access to specialist expertise or data that can enhance R&D capabilities, helping big pharma adapt to market changes and emerging trends more rapidly. The trend has been historically high with biotech start-ups and is growing rapidly with digital health start-ups in US, Europe, and Asia.

Although these deals are increasingly commonplace (and for most start-ups, a key accelerator of success), they are also notoriously difficult to navigate and implement. When the two very different worlds of big pharma and start-up are brought into collision, expectations and interactions must be carefully managed to ensure that initial discussions and future action plans are not derailed. This article will provide actionable insights for pharma and start-up leaders on establishing and maintaining successful, mutually beneficial partnerships.

Look for culture fit

Concluding a partnership of this sort takes time! For a big pharma, the process requires careful validation of what the start-up has to offer and when they will be ready to deliver. But, when exploring partnership opportunities, look at more than the technology and expertise at the start-up.

At this stage, it’s important to understand the culture and values upheld by the team, and to assess the alignment and overlap between your two companies. Do you have common goals? Are your company visions complementary? Asking these questions should give you an indication of whether you’d be able to maintain a good working relationship with the leadership team, and whether you’d be able to navigate the twists and turns of a commercial partnership successfully. Culture and value analysis should be an important part of the due diligence process for any deal and could help protect your company from reputational damage further down the road.

Different types of partnership

When it comes to defining the relationship you want to enter, clarity is key. As mentioned, both partners should be in agreement on the ultimate goal of working together, and on the capabilities and expectations each party brings to the table. From this point, the nature of the relationship can be defined:

• Research and development (R&D) collaborations focus on jointly discovering and developing new products, treatments, or technologies. Both companies contribute to research efforts, often combining the biotech or digital health start-up's innovation with the larger company’s resources. The goal is to bring new therapies to market, with both parties sharing the intellectual property and costs
• Purchase agreement of a digital solution (e.g., AI imaging or medical device) focuses on the use by big pharma of the start-up’s solution for its own activity. It can happen in clinical trials (e.g., digitised clinical trial execution), diagnostics (e.g., AI imaging and digital medtech) or patient monitoring (e.g., monitoring of vital signs in hospitals and of efficacy of treatment for chronic disease).
• Data-sharing agreements involve one company providing access to proprietary data, such as clinical trial information or patient records, while the other contributes tools or analytics to extract insights. These agreements enable both parties to accelerate research and product development, often involving stringent protections for privacy and intellectual property.
• Co-development agreements involve both companies working together to develop a specific product or technology. Responsibilities for development, clinical trials, and regulatory approvals are shared. These agreements result in jointly owned products, with profits and risks split between the partners.
• Joint ventures occur when two companies form a new, independent entity to pursue a common goal, typically focused on developing a specific product. Both companies invest in and share ownership of this new entity, allowing for a deeper commitment to the venture while maintaining operational independence.

Scaffold for success

Once the nature of the relationship has been officially (and contractually) defined and both parties are clear on their legal responsibilities, the next step is to establish structures for collaboration. Roles and responsibilities should be clearly divided, communication channels agreed upon, and success metrics and timelines that work for both parties set up.

Pharma companies operate in a highly regulated - and risk-averse - environment. Internally, their operations are likely to be hierarchical, process-led, and (often) slow. So, it’s to be expected that their collision with the more agile and flat structure of a start-up will produce some friction. To mitigate this risk, try to anticipate these friction points and how they can be smoothed. Setting up frameworks and outlining expectations early on is important, as is providing clarity on timelines, team structures, chains of command, processes that must be adhered to, and policies on external communications.

Questions that should be addressed include: What’s the best means by which to communicate project updates? Who is the best point of contact in the organisation? Who is responsible for updating shared progress trackers? What is our mechanism for resolving problems?

Define clear milestones

Delivering value will take time and pass through multiple steps. Similarly, the process of building a relationship and trust in each partner’s ability to deliver will be a gradual process. However, defining clear milestones to achieve - each one marking tangible progress - will provide tangible objectives and opportunities to confirm intermediary success and continuous progress. Starting with small milestones that progressively increase in significance provides a plan and allows for early successes whilst the partners are learning to work well together. Most often, milestones will be linked with cash payment commitments from the big pharma partner.

Strategies to preserve momentum

Building successful and mutually beneficial relationships between pharma companies and start-ups requires more than simply formalising a partnership. It demands an understanding of each other's operational cultures, an alignment of shared goals, careful management, and delivery of expectations. By securing clarity on the mutual benefits, prioritising cultural fit, and clearly defining the structure of the partnership and clear milestones to achieve, both parties can effectively navigate towards success and manage potential challenges.

The key to sustaining a productive relationship over the long term lies in continuous adaptation. As the partnership progresses, it’s important to remain flexible and open to recalibrating strategies and expectations as needed. This could involve regularly reassessing progress, being open to renegotiating terms, and fostering a collaborative mindset that prioritises innovation and agility over rigid adherence to initial agreements. Additionally, ensuring that both parties maintain a focus on their shared objectives - whether that’s advancing cutting-edge therapies or scaling novel technologies - will help to preserve the partnership's momentum and deliver meaningful outcomes.

Ultimately, by embracing an approach grounded in mutual respect, transparency, and adaptability, pharma companies and start-ups can accelerate innovation, advance patient care, and drive both scientific and commercial success in ways that neither party could achieve alone.