LONDON – Much attention has been focused in recent years on the pharmaceutical industry’s slowness to develop new drugs and lack of productivity. But this crisis of innovation is also affecting the biotechnology firms upon which the large pharmaceutical companies now rely as the pipeline for developing new drugs.
This has prompted an examination of all aspects of the biomedical research and development process, as companies try to cut costs and improve efficiency and productivity. The result has been corporate mergers, reorganizations, and tens of thousands of job losses in the industry. None of this change, however, seems to have led to the radical shift required for companies to survive and thrive.
What might such a shift look like? Some propose abandoning the current system of patented drugs altogether and funding pharmaceutical R&D through taxation or prize-based systems.
Another approach to solving problems of innovation – adopted by the computer software industry, for example – is pre-competitive openness and collaboration.
Many large pharmaceutical companies are now espousing the virtue of these strategies, but will they work if adopted inconsistently by the industry and not at all by academia and funders?
Both approaches need strong senior management support, because they can succeed only in a culture very different from the more controlling, hierarchical R&D environment that remains prevalent today. They also require much more active management of, and communication about, a company’s unused intellectual property (IP).
Few companies, however, have demonstrated that they are prepared to commit the time, effort, and resources to embrace a radically different way of operating. Yet the tangible and intangible benefits of adopting new forms of collaboration – reducing the cost of failure, leveraging unused IP and external funding mechanisms, increasing access to networks of talent, and establishing greater trust among patients and other stakeholders – could be extensive. Moreover, these benefits would be realized not only by pharmaceutical companies, but also by academics and other collaborators.
One way to experiment with these new approaches is to try them out internally first. The challenge for large organizations is to harness their employees’ knowledge by breaking down barriers and bringing people together to share insights and information. The advent of computing platforms such as Microsoft’s SharePoint have facilitated data-sharing and exchange, and pharmaceutical companies would do well to emulate companies from other sectors, such as Arup, which has developed excellent systems for accessing knowledge across its entire organization.
Some pharmaceutical companies like Lilly and Pfizer have demonstrated the power of this approach by implementing internal systems to seek solutions to problems organization-wide. But it is clear that many of the challenges of the drug-development process are too large and complex for a single company or institution to solve internally.
This has led to an increase in pre-competitive and other forms of collaboration to access external innovation and tackle the bottlenecks in drug discovery and development. But pharmaceutical companies continue to hold assumptions about the boundaries of pre-competitive collaboration that need to be challenged.
At first sight, it seems counterintuitive that companies would want to share data and potentially give away competitive advantages. But this presupposes that the possession of such data does indeed imply a competitive advantage, and that a closed operating model is financially sustainable.
Drugs that make it to market have to fund the cost of failure of those that did not make it to the market. As a recent Morgan Stanley report pointed out, the pharmaceutical industry’s current success rates are not sufficient to sustain large internal R&D organizations, making the industry’s current operating model financially non-viable. Thus, companies must either improve success rates or decrease the cost of failure.
The two major causes of drug failure are lack of efficacy in humans and unexpected toxicity. So it is not surprising that the main areas of collaboration have been in the development of tools and technologies for target validation and the discovery and validation of biomarkers for efficacy and toxicity. Many large public-private consortia have been formed, including the Innovative Medicines Initiative and the Serious Adverse Events Consortium, but these efforts need to be coordinated and integrated in order to obtain the greatest possible benefit.
In the future, the most effective pharmaceutical companies will be hubs at the center of a network of collaborators and suppliers, focusing internally on their core competencies, which might include medicinal chemistry, execution of clinical trials, or sales and marketing. They will facilitate interactions across their network to stimulate the development of innovation ecosystems.
The resulting opportunities to expand beyond traditional products and markets will enable pharmaceutical companies to evolve into companies that offer a range of health-care solutions. These will include not only prescription medicines, but also diagnostics, branded generics, and technologies that support personalized medicine, as well as so-called “neutraceuticals” and other “wellness options.”
Although the size of many R&D organizations is bound to be reduced by such reforms, the complexities of managing and maximizing the impact of this external web of relationships will demand new skills and capabilities over and above those of excellent science. Developing and rewarding employees who possess such skills will be an additional, but welcome, challenge. By doing this the pharmaceutical industry might not become open source, but will become more open for innovation.