Impact of declining R&D on innovation

Successful innovation is seen as one of the most important means through which the global pharmaceutical industry competes and grows, especially in the current era of the knowledge economy. Since its inception, the industry has always aimed to achieve innovation led growth. This is because a direct causal link is often assumed between innovation and economic growth. Investors thus inherently attach great importance to innovation activities such as R&D and patent protection. It is in this context that the impact of declining R&D in the industry must be viewed.

The perceived lack of R&D productivity is not new. The industry has focused on closing the innovation gap for more than two decades through business and operating model shifts and restructuring initiatives. While the past 60 years have seen huge advances in many of the factors that should tend to raise the efficiency of R&D, the number of new drugs approved per billion US dollars spent on R&D has halved roughly every 9 years since 1950. There have been many proposed solutions to the problem of declining R&D efficiency, some of which include relying on external molecules from smaller biotech companies as sources of new products, exploring targeted therapies and patient sub-segmentation to support predictive efficacy, better attrition rates and potentially attractive pricing. However, the contrast between improving input and declining output makes one wonder about the impact of the proposed solutions and has led the industry to consider a few path-breaking initiatives.

Research through partnerships

Many senior industry executives also seem to have recognized the apparent futility of these proposed solutions, and may have resorted to balancing their time between seeking to unlock R&D productivity and focusing on operational efficiencies to retain market share and share-holders’ interests. It is now the ‘new normal’ to consider externalizing R&D activity to suitable partners, thus reducing both the internal resource crunch as well as the associated risk. Big Pharma’s evolution from a highly self-innovative business into a more pragmatic and tactical one, has created important new partnering opportunities for a wide range of small biotech start-up companies. Rather than being limited by Big Pharma’s commercial interest, these start-ups are beginning to find Big Pharma more flexible and pragmatic enough to carefully consider their product candidates if the data look promising. Around $25 billion was spent in licensing deals and other R&D alliances in 2010. This is set to continue growing over the long term as collaborations span every area of development as Big Pharma realizes that more exciting science happens outside its walls.

 Research through collaboration

The time it takes for an experiment in pharmaceutical R&D labs to proceed from hypothesis to results is simply too long making the process expensive and fraught with risk. To address this, in 2008 Pfizer, Merck and Eli Lilly collaborated to invest in technology that focused on connecting preclinical research, clinical development, and medical practice. This venture initiated programs in the areas of molecular imaging, biologics, and drug delivery to increase the ultimate likelihood of success of drugs that pass early development milestones and seem promising chemical and biological compounds better suited to human treatment. The use of technology to simulate drug discovery has reduced risk and cost by allowing tricky molecules to be abandoned early in the discovery cycle and not go the whole hog. This knowledge turn around also allows lessons from testing one hypothesis to quickly lead into other more efficient ones, thus improving the probability of success.

Research through open source initiatives

Pharmaceutical innovation is impeded by constrained communication and interaction between scientists. Applying knowledge gained from failure needs to be accelerated, and scientists in different labs need to share data and information as if working side-by-side. The need for such collaboration and the tremendous power of open innovation is being increasingly recognized, and discussed as a new way to help identify new uses for existing medications. Open source initiatives allow new indications to be developed, which are actually “discovered” by practicing clinicians who come up with their ideas on their own in order to solve a pressing clinical problem they had encountered. The success of the initiative lies in permitting those with the best understanding of the problem to actually solve the problem. Open innovation communities provide a mechanism to capture, amplify, and leverage such focused input. Big Pharma’s challenge now is to use those insights to change the world.

 The difficulty of drug development in conventional R&D lies in our inability to predict outcomes, because of both our limited understanding of disease and our imperfect understanding of the effect any new compound will have on the body. Fortunately for patients, hope may lie just round the corner. As pharma companies cut costs by outsourcing large parts of their operations, service providers have sprung up around the world to fulfil these functions. The next-generation pharma company will be a lean, agile organization able to capture, consider and rapidly develop the best scientific ideas in a wide range of disease areas and aggressively guide these towards the clinic. Small market size will not deter the pursuit of promising drugs with a comparatively inexpensive path to clinical development. The ideal portfolio will consist of an extensive collection of such molecules, cheap options that may offer unexpected benefit to patients and provide disproportionately large returns to investors. While the general perception is that the efficiency of pharmaceutical R&D has declined, it certainly has not affected the industry’s ability to innovate to save lives.

This post was originally published on Pharmaphorum

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