The pharmaceutical industry is headed back to school, with a number of large drugmakers announcing partnerships with universities.

Last week, Pfizer (NYSE: PFE) announced that a consortium of seven New York hospitals -- most associated with universities -- had joined the pharma giant in establishing a Center for Therapeutic Innovation in New York. That was on top of establishing a center at University of California, San Francisco, in November. Pfizer will fund early development in exchange for the first crack at new technology that might be developed by the academics.

Pfizer isn't the only one. sanofi-aventis (NYSE: SNY) separately signed on to help fund early research at UCSF. And Johnson & Johnson (NYSE: JNJ) is funding research on Alzheimer's disease and major psychiatric disorders at Sanford-Burnham Medical Research Institute.

Good for pharma (maybe)
On the surface, these look like good moves. Pharmaceutical companies get early access to new technologies and drug targets. The royalties that universities demand from drugs that result are a small price to pay.

But large pharmaceutical companies haven't been that efficient at bringing drugs into the clinic over the last few years. Pharmaceutical companies have gotten their hands on many of the most promising drugs in their pipelines through licensing deals or outright purchases of smaller drugmakers. Think Bristol-Myers Squibb's (NYSE: BMY) ipilimumab via Medarex, Johnson & Johnson's ex-U.S. rights to Vertex Pharmaceuticals' (Nasdaq: VRTX) telaprevir, or GlaxoSmithKline's (NYSE: GSK) rights to Human Genome Sciences' (Nasdaq: HGSI) Benlysta. All three are potential megablockbusters.

One reason for the difference in productivity between large and small drugmakers likely has to do with the culture. The develop-or-die attitude of small drugmakers that don't know where their next R&D dollar will come from can be highly motivating. Researchers at startups work hard because the alternative isn't really an option.

Promising technologies coming out of universities will be developed by venture capital if large pharma doesn't license it early. I'd suggest that drugmakers might be better off by waiting and licensing the technology once startups have had a chance to do their thing. It'll likely cost more that way, but the development time might be cut down substantially.

Bad for VCs (and maybe you)
Cutting venture capital out of the equation could hurt the funds that finance private early-stage companies, although it might take a lot of these partnerships to really put a major dent in the number of quality startups looking for early-stage funding.

And of course, pharmaceutical companies have venture capital funds of their own, so it seems unlikely that the whole industry is going away anytime soon.

However many potential startups the pharmaceutical industry takes off the market, it will hurt investors. One allure of investing in the drug space is small drugmakers. Find one at the right time, make the right call on the chance for success, and doubles or more are par for the course.

Highly focused early-stage drugmakers make good investments since they are often prime takeout targets. They offer the potential for quick returns from a takeout or for larger longer-term returns if the drug development pans out.

What's a Fool to do?
The trend has already started. There isn't much investors can do but watch it happen, hope it works out for the best, and bail if it doesn't.

For investors in large pharma, look for products coming out of these partnerships in two to five years. Then you're looking at another three to 10 years to get through the clinic. Yep, drug development is a slow process.

Investors in small drugmakers can expect the potential for a subsequent drop in IPOs although, considering how these things come in waves, it might be hard to tell how much the pharmaceutical industry is cutting into the IPO market.

Find out about this emerging technology play by grabbing the Fool's free report.

Johnson & Johnson and Pfizer are Motley Fool Inside Value picks. Vertex Pharmaceuticals is a Motley Fool Rule Breakers pick. GlaxoSmithKline is a Motley Fool Global Gains selection. Johnson & Johnson is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Johnson & Johnson. The Fool owns shares of GlaxoSmithKline and Johnson & Johnson. Motley Fool Alpha owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.