Big pharma may be powerful, profitable, and global, but it cannot rely on scale alone to secure the future of medicine. As patents expire and blockbuster revenues decline, pharmaceutical companies increasingly depend on biotech startups to generate new ideas, products, and platforms. Yet many early-stage biotechs are struggling to raise the capital they need to survive. If that trend persists, the consequences will reach far beyond startups — weakening pharma pipelines and delaying future health solutions for patients.
By Shelley Margetson
For years, big pharma was seen as the dominant force in medicine, while biotech occupied a more experimental corner of the industry. That distinction is increasingly outdated. Biotech is no longer just a source of interesting early-stage ideas — it has become one of the main ways large pharmaceutical companies renew their pipelines and protect future growth.
The main reason is simple: internal research is not enough. Developing a successful drug is expensive, slow, and highly uncertain. Even with vast resources at their disposal, large pharmaceutical companies cannot guarantee that their laboratories will produce the next generation of high-value products.
At the same time, many of their existing top-selling products face patent expiry over the coming years. Once exclusivity ends, revenue can fall sharply as competitive generics or biosimilars enter the market. This creates a concern that’s very familiar for investors: where will the next wave of growth come from?
Biotech offers one answer to this conundrum. Smaller biotech firms are often built around a specific scientific insight, a single therapeutic approach, or a new technology platform. Because they are more focused, they can often move faster and take bigger scientific risks than large pharmaceutical organizations. They are more likely to explore emerging areas such as gene editing, RNA-based medicine, cell therapy, or highly targeted cancer treatments. These are exactly the kinds of innovations that can reshape treatment markets and create major commercial opportunities.
All these factors make biotech companies attractive to pharma — not only scientifically, but also strategically. Rather than trying to build expertise internally across every promising field, large pharmaceutical companies can partner with, license from, or acquire biotech firms that are already leading in those areas. This is often a more efficient use of capital, allowing pharma to access cutting-edge science without shouldering the early, risky research. In effect, biotech has become an external innovation engine for big pharma.
While smaller companies generate novel ideas, produce early data, and prove that a technology has real-world potential, larger companies can provide what biotech often lacks. Pharma specializes in late-stage development capabilities, regulatory experience, manufacturing capacity, and global commercial reach. One side brings discovery; the other brings scale.
Over time, this pattern has changed the way pharmaceutical companies do business. Deal-making is no longer a secondary activity, used to fill occasional gaps. It is now central to growth strategy. Licensing agreements, co-development partnerships, and acquisitions are all ways for big pharma to strengthen pipelines and reduce dependence on in-house discovery.
In many cases, the market now expects this. Investors no longer judge large pharmaceutical companies only on current product sales — they also assess how strong their future pipeline looks, and how effectively management is using partnerships and acquisitions to build it.
The financial implications extend to biotech as well. Many biotech companies are valued not only based on future standalone revenues, but also on their potential strategic value to larger players. A biotech firm with strong clinical trial data or a promising platform may become a candidate for a licensing agreement or an acquisition, which can lift its valuation well before it becomes a profitable commercial business.
In that sense, biotech exists not just in a scientific market, but in a corporate finance ecosystem shaped by M&A expectations, partnership economics, and investor appetite for innovation.
Importantly, this is a risky relationship. Not every biotech company produces commercially viable science, and not every pharma acquisition pays off.
In competitive markets, large pharmaceutical companies can overpay for promising assets. Early clinical success doesn’t necessarily translate into regulatory approval or strong sales. Sometimes the science works, but the economics don’t — especially if manufacturing is difficult or reimbursement is uncertain.
For biotech firms, dependence on pharma can also be a weakness. When market conditions are poor and capital is harder to raise, smaller companies may be forced into deals from a weaker negotiating position.
The dynamic is an interdependent relationship, with inherent risks for both parties weighing against potential rewards.
Big pharma remains essential to health innovation, because it has the infrastructure to test, produce, and distribute medicines at global scale. But biotech is increasingly where the most important scientific risks are being taken, and where some of the most valuable ideas originate. In a sector defined by constant pressure to replace old revenues with new products, that makes biotechs more than useful partners to pharma — it makes startups indispensable.
This is why funding early-stage biotech companies matters so much, and why we’re deeply concerned to see them struggling to find support. This worsening trend is likely to cause severe problems with far-reaching ripple effects. If early-stage companies cannot raise enough capital, many promising ideas will never reach the point where large pharmaceutical companies can license, develop, or acquire them. Without strong venture funding and access to capital markets, the whole innovation pipeline weakens.
In the long term, this lack of capital will not only hurt small biotech firms and big pharma but also result in less health solutions for patients. Funding startups is not just about supporting entrepreneurship, or the pharmaceutical industry — it is about protecting all our futures.
