Could open innovation save the pharmaceutical pipeline?

By Marie Shields and Nick Pryke

Twenty years ago, in the glory days of the 1990s, when pipelines were flowing and big pharma was busy chasing down and providing remedies for the more readily treatable diseases, introducing an ‘innovative’ drug was relatively easy. These were the blockbusters, the billion-dollar cash cows that gave the industry the solid financial footing that allowed it to weather the recent downturn.

“I personally don’t feel there’s a major deficit in innovation. I believe it’s an evolution of the industry and of how we will develop drugs in the future.”
-Mike Mentesana, PricewaterhouseCoopers

But all good things must come to an end. The days of blockbusters are over, and the industry is facing threats on several fronts. Treatments exist for most common conditions, pipelines are drying up and many of the patents still in force on big earning drugs are due to expire soon.

According to the latest annual life sciences research from intellectual property group Marks & Clerk, more than eight in 10 (82 per cent) of those working in the drugs industry believe big pharma will be unable to innovate sufficiently from within to replace blockbuster drugs going off-patent.

The same research found that 97 percent expect patent life extensions to continue to grow in importance as companies seek to squeeze out revenue streams as blockbusters come up against the patent cliff, and that 67 percent predict substantial acquisition activity within the next two years.
 
The findings, based on a survey of 381 executives across the pharmaceutical and biotechnology sectors, show that big pharma is becoming increasingly reliant on patent term extensions to safeguard essential blockbuster revenue. The gains from small molecule based drug discovery have largely run their course, and the picture for pharmaceutical R&D has become much more challenging.

Faced with what many observers are calling an ‘innovation deficit’, companies are casting about for a different angle– something to keep them afloat in this new, blockbuster-free world.

Looking outside

For some, the answer lies in open innovation; yet it isn’t always clear what this term means. Mike Mentesana, Global Pharma and Life Sciences R&D Leader for PricewaterhouseCoopers, gives the following definition: “The way I like to define open innovation is collaboration. It’s about making sure there’s an inflow and outflow of knowledge that expands the market so collaboration or information exchange creates new opportunities. If we look holistically at the pain our industry is going through, it’s a combination of not enough collaboration, and the fact that the science is a lot harder.”

“Over the last 10 to 15 years, the industry has done an amazing job in bringing new medicine to market,” Mentesana continues. “The drugs that are on the market now have turned a tremendous amount of illnesses that were previously death sentences into treatable illnesses.

“You can look at several examples – HIV, diabetes, even some forms of leukaemia – there are drugs on the market now that have transformed that care pathway from ‘You will take it until you die,’ to ‘You will be able to live a lot longer and have a much better quality of life.’

“We’ve done a very good job as an industry and that’s where the innovation deficit comes from. A lot of the low-hanging fruit in terms of drug development has been picked and there will be fewer and fewer blockbusters.

“That’s why people are asking for innovation. And that’s why I term it as collaboration, because as we are aging as a population and living longer thanks to our drugs; the cost of care is going up; and how we pay for that is going to be a challenge. Combine that with the fact that drugs are under more scrutiny from a regulatory perspective, and that creates a bottleneck.”

Ken Jones, COO of Astellas Pharma Europe, has seen the trend toward collaboration developing worldwide. “What you’re seeing more and more now is a huge network of collaboration, be it with biotech companies or academic institutions, and even with sometimes key thinkers in some of the disease areas. There’s a lot of collaboration going on.

“Given the current financial environment, some of the venture capital money that’s supporting these companies has been cut back, and we as an industry have been able to tap into that as well in order to get access to technology. Going forward, those collaborations will become increasingly important.”

Astellas – formed from the merger of Fujisawa and Yamanouchi in 2005 – has put this idea into practice with a cross-functional, cross-regional team called STAR (Strategy Team for Therapeutic Area Reinforcement). “The whole idea,” says Jones, “is to look at everything from greater collaboration and dialogue to the clinical and commercial sectors of the business. At the same time, we moved our global development out of Japan to the US, to leverage global talent, recognizing that to be successful globally you need to be successful in the US and Europe.

“The real dilemmas companies have is making sure that their research is working,” he continues. “You need to make sure it’s giving you potential compounds, but it’s also the speed in which you decide to kill a project or the speed at which you decide to move the project along and put resources against it and start bolstering the support for a molecule that you think has a higher chance of survival.

“This is where a lot of companies have struggled. In our case what we’re trying to focus on is to make sure that we make those decisions at the right time as quickly and efficiently as possible.”

Need for speed

What else does the industry need to do to save itself? PwC’s Mentesana believes the problem is being tackled, but perhaps not quickly as it should be. “Maybe we’re not fixing it fast enough. I think there are things that both pharma and biotechnology companies can do to fix their operational efficiency. It’s well known what some of the other large pharmaceuticals have been doing to attack their internal cost structure to try to reduce costs. There are definitely some organizations that have cracked the code on this and there are some that are still working on tackling operational efficiencies.

“It’s my contention that the operational issues don’t mean anything if the science isn’t there. And the fact that we spend a majority of our research and development dollars in the development space is important, because we need to make sure that we have efficacy and that we follow the protocols properly.”

He believes that what is needed is a more holistic approach: “We need to understand as an industry more around the pathophysiology of drugs. We need to understand how drugs flow through the body and how they interconnect; for example, I need to be able to look at the entire renal system and see it for itself as opposed to just focusing on the kidneys and how to fix them.

“The challenge is operational and scientific. The scientific side can be divided into two parts: the balance of where we spend our money, and the collaborative piece. Pharma, biotech and AMCs will work more and more in collaboration. That’s where the innovation will come from. It’s going to stop being a serendipitous event – a lot of drugs over the last two decades have been fueled by serendipity in terms of how they have been formed.

“I personally don’t feel there’s a major deficit in innovation. I believe it’s an evolution of the industry and of how we will develop drugs in the future.”

New model

What does all this grand talk of far-reaching change boil down to in practical terms? In the case of Astellas, says Ken Jones, it’s based on project teams being globally and functionally integrated, so that the right people are making key decisions.

“You have to bring down the silos and make sure that you have the holistic view of what we think has potential, and of the risks, and just being more efficient and effective in making those decisions. The biggest challenge is knowing when to cut projects; sometimes in R&D projects seem to linger on longer and longer and finally they get killed. But if you think about it, you’ve wasted five years and millions of dollars trying to keep some of these projects alive when they should have been killed earlier.

“What we’re trying to do is make sure that we’re being more ruthless in identifying those molecules that we should continue to support and those that we should cut.”

Mike Mentesana points out that companies themselves will change shape so that in the future the industry will look vastly different from the current model of huge companies carrying out a range of functions – research, development, marketing, sales, manufacturing – across the globe. While big companies will still exist, they will need to pursue different business models and try new methods to achieve the right balance.

“I don’t think we’re going to see one model anymore,” he says. “I don’t think there will be one way to do it. Some companies will be looking at becoming more research-based organizations, some will be focusing on their experts in development, and some will have expertise in marketing.

“You’re going to see the fragmentation that creates the evolved model. And the final element in the interconnectivity is technology, specifically with AMCs and hospitals and with pharma companies and biotechs. There’s talk about having a Google for the health space; Google is working on it right now, and so are Microsoft and other big players. Whoever cracks the code on information sharing, that will be one of the catalysts that will inform this evolution.”

Innovation in pharma’s top 10

What are the big pharma companies doing on open innovation and external collaboration? Do they have specific point of entry platforms/portals for external collaboration in the pharma industry, or other initiatives?

Below are the results of an online survey on the 10 largest pharma companies by revenue carried out by Stefan Lindegaard of 15inno. Lindegaard looked at the companies’ point of entry platforms/portals for open innovation or external collaboration (if they had any), the number of Google hits related to open innovation and the number of current employees having open innovation in their titles.

This is what he found (companies are listed in order of revenue):

1. Johnson & Johnson

Point of entry: Did not find any. Standard R&D site.
Google hits (J&J, open innovation): 19,800
Number of employees with open innovation in their title (LinkedIn search): 0

2. Pfizer

Point of entry: Standard site on Licensing & Alliances.
Google hits (Pfizer, open innovation): 7,670
Number of employees with open innovation in their title (LinkedIn search): 0

3. Roche

Point of entry: Did not find any. Standard Partnering site.
Google hits (Roche + “open innovation”): 14,000
Number of employees with open innovation in their title (LinkedIn search): 0

4. GlaxoSmithKline

Point of entry: Innovation at GSK – a well-developed site.
Google hits (GSK + “open innovation”): 10,100
Number of employees with open innovation in their title (LinkedIn search): 4

5. Novartis

Point of entry: Did not find any. Standard R&D site.
Google hits (Novartis + “open innovation”): 24,100
Number of employees with open innovation in their title (LinkedIn search): 0

6. Sanofi-Aventis

Point of entry: Did not find any. Standard R&D site.
Google hits (Sanofi-Aventis + “open innovation”): 2,000
Number of employees with open innovation in their title (LinkedIn search): 0

7. AstraZeneca

Point of entry: Did not find any. Standard R&D site.
Google hits (AstraZeneca + “open innovation”): 3,530
Number of employees with open innovation in their title (LinkedIn search): 0

8. Abbott Laboratories

Point of entry: Standard site on Global Licensing.
Google hits (Abott Laboraties, open innovation): 6,450
Number of employees with open innovation in their title (LinkedIn search): 0

9. Merck & Co.

Point of entry: Did not find any. Standard R&D site.
Google hits (Merck, open innovation): 7,640
Number of employees with open innovation in their title (LinkedIn search): 0

10. Bristol-Myers Squibb

Point of entry: Did not find any. Standard R&D site.
Google hits (Bristol-Myers, open innovation): 2,440
Number of employees with open innovation in their title (LinkedIn search): 0


While Novaris and Johnson & Johnson scored highest in number of hits, only GSK had employees with the term ‘open innovation’ in their titles.


Credit: Used with the permission of Stefan Lindegaard, www.15inno.com, stefanlindegaard@me.com

Sanofi steps up

In June of last year, sanofi-aventis presented a new R&D model aimed at increasing innovation, as the first pillar of its new strategy under recently arrived CEO Chris Viehbacher.

“The objective of this new R&D model is to propose innovative solutions that respond to specific, unmet needs of patients and continue our success in a very competitive international environment,” Viehbacher said at the time. “It is centered on the real needs of patients, the development of scientific networks and openness toward outside entities to strengthen creativity, and a flexible and entrepreneurial approach to research.”

Sanofi gave as its ambitious goal to have in place the most effective R&D organization in the pharmaceutical industry by 2013, as a way of anticipating the consequences of the “rapid evolution of the scientific environment”.

Under the new model, researchers will be grouped in more productive structures and engage in recruiting and training to adapt the profiles and skills of its collaborators to the demands of these mutations. The model also includes strengthening “exploratory structures” that work in close collaboration with outside entities and deploying reactive entrepreneurial units to encourage the emergence of innovation and accelerate the marketing of innovative products.

Marc Cluzel, sanofi’s SVP of R&D, points out that, “We are living through radical times of change for Research. Given the increasing complexity of the world of science, we need to change our approach to the patient, make use of novel technologies and create new concepts. Tomorrow’s research will be carried out through networks. We will be open to knowledge from outside sources, becoming a key partner. We need to reinvent R&D.”

As a step in this direction, sanofi has initiated a strategic alliance agreement with the Massachusetts Institute of Technology Center for Biomedical Innovation, known as the Sanofi-Aventis Biomedical Innovation Program (SABIP).

Open innovation

Open innovation is a term coined by Henry Chesbrough in his book Open Innovation: The new imperative for creating and profiting from technology. Chesbrough is a professor and executive director at the Center for Open Innovation at UC Berkeley.

Open innovation assumes that the boundaries between a firm and its environment will become more permeable, thereby allowing innovations to transfer easily both inward and outward. The concept’s central tenet is that in a world of widely distributed knowledge, companies can no longer afford to rely entirely on their own research. Instead, they must buy or license processes or inventions (for example, patents) from other companies.

The flipside is that products invented internally that are not needed by the business can be taken outside the company, through licensing, joint ventures and spin-offs.