Alexander Schuhmacher

Changing R&D models in research-based pharmaceutical companies

New drugs serving unmet medical needs are one of the key value drivers of research-based pharmaceutical companies. The efficiency of research and development (R&D), defined as the successful approval and launch of new medicines (output) in the rate of the monetary investments required for R&D (input), has declined since decades. We aimed to identify, analyze and describe the factors that impact the R&D efficiency. Based on publicly available information, we reviewed the R&D models of major research-based pharmaceutical companies and analyzed the key challenges and success factors of a sustainable R&D output. We calculated that the R&D efficiencies of major research-based pharmaceutical companies were in the range of USD 3.2–32.3 billion (2006–2014). As these numbers challenge the model of an innovation-driven pharmaceutical industry, we analyzed the concepts that companies are following to increase their R&D efficiencies: (A) Activities to reduce portfolio and project risk, (B) activities to reduce R&D costs, and (C) activities to increase the innovation potential. While category A comprises measures such as portfolio management and licensing, measures grouped in category B are outsourcing and risk-sharing in late-stage development. Companies made diverse steps to increase their innovation potential and open innovation, exemplified by open source, innovation centers, or crowdsourcing, plays a key role in doing so. In conclusion, research-based pharmaceutical companies need to be aware of the key factors, which impact the rate of innovation, R&D cost and probability of success. Depending on their company strategy and their R&D set-up they can opt for one of the following open innovators: knowledge creator, knowledge integrator or knowledge leverager.

Value Creation in the Pharmaceutical IndustryThe Critical Path to Innovation

A team of editors and authors with extensive experience in academia and industry and at some of the most prestigious business schools in Europe discusses in detail the innovation process in pharma as well as common and new research and innovation strategies. In doing so, they cover collaboration and partnerships, open innovation, biopharmaceuticals, translational medicine, good manufacturing practice, regulatory affairs, and portfolio management. Each chapter covers controversial aspects of recent developments in the pharmaceutical industry, with the aim of stimulating productive debates on the most effective and efficient innovation processes.

Innovation: Key to Success in the Pharmaceutical Industry

The traditional model of innovation in the pharmaceutical industry is being challenged by an explosion of costs for R&D, a strengthened voice of the customer and regulatory bodies in the development of new medicines, and the vanishing of easy targets. An overview is given of established and emerging pharma companies, the cost structures for pharma innovation, and the nature of the productivity gap. We describe the blockbuster imperative and the pervasive concerns about risk and safety in pharma R&D, and conclude with a brief outlook on the main themes to be discussed in the remainder of the book.

The Make-or-Buy Challenge: How to In- and Outsource Innovation

The formerly fully integrated pharma value chain is disaggregating given the emergence of highly capable and specialized research and clinical development service providers. The options range from outsourcing, out-licensing, and in-licensing, strategic partnerships and co-development. These concepts are discussed in detail and illustrated with cases from industry. We conclude with an example of how a breakthrough innovation can best be commercialized by a small pharma company using those make-or-buy options.

The Open Innovation Challenge: How to Partner for Innovation

The business models of major pharmaceutical companies increasingly include external R&D elements that range from the acquisition of drug projects, traditional collaborations with academic institutions, multi-year research partnerships, crowdsourcing, centers for R&D excellence, open source innovation, virtual R&D and public private partnerships. Commonly known as “open innovation”, these new virtual forms of organizing innovation processes challenge the traditional, established inhouse-only R&D paradigm. An outlook of the rise of corporate venture funds in the pharma industry illustrates how important the management and valuation of intellectual property is in the life science industry.

The Internationalization Challenge: Where to Access Innovation

Pharma innovation is becoming increasingly global, partly due to the lure of serving new markets, partly because of the need to access early new technology and talent wherever it emerges. Apart from the established centers of innovation in the United States, Europe and Japan, India, China and Singapore are rising attractors for global life science R&D. China as a pharma market and host of pharma R&D is highlighted as a case study, both from the angle of foreign R&D investors and from the perspective of indigenous Chinese players. Given the significant cost pressures in mature markets, reverse innovation in healthcare has drawn considerable attention by local governments.

The Pipeline Challenge: How to Organize Innovation

More than in most other industries, the success of pharma R&D hinges on efficient and intelligent pipeline management. All activities and tasks in the research and development phases are highly regulated and defined with precision—a prime example of a stage-gate process. Given the long duration of the development of a new drug, and the increasing R&D costs per drug on average, the industry faces unfavorable innovation economics also known as “the innovation scissors.” The nature of the pipeline permits increasingly sophisticated portfolio analysis of drugs in development, offering pharma companies managerial options in managing individual drug candidates based on accessible competencies, risks, and expected benefits.

The Industry Challenge: Who Would Want to Be in This Business?

Although the pharma industry is primarily based on a science-driven paradigm, the industry itself is highly complex with multiple stakeholders and actors. We employ Porter’s Five-Forces industry analysis to examine the power of suppliers and buyers, potential competitors, the threat of substitute products, and rivalry among established companies. Regulators are also discussed, as they constitute a key stakeholder in the industry. We present key challenges to the traditional pharma business model, and conclude with an overview of merger & acquisition and diversification trends in the industry.

Open innovation and external sources of innovation. An opportunity to fuel the R&D pipeline and enhance decision making?

Historically, research and development (R&D) in the pharmaceutical sector has predominantly been an in-house activity. To enable investments for game changing late-stage assets and to enable better and less costly go/no-go decisions, most companies have employed a fail early paradigm through the implementation of clinical proof-of-concept organizations. To fuel their pipelines, some pioneers started to complement their internal R&D efforts through collaborations as early as the 1990s. In recent years, multiple extrinsic and intrinsic factors induced an opening for external sources of innovation and resulted in new models for open innovation, such as open sourcing, crowdsourcing, public–private partnerships, innovations centres, and the virtualization of R&D. Three factors seem to determine the breadth and depth regarding how companies approach external innovation: (1) the company’s legacy, (2) the company’s willingness and ability to take risks and (3) the company’s need to control IP and competitors. In addition, these factors often constitute the major hurdles to effectively leveraging external opportunities and assets. Conscious and differential choices of the R&D and business models for different companies and different divisions in the same company seem to best allow a company to fully exploit the potential of both internal and external innovations.

Can Innovation Still Be the Main Growth Driver of the Pharmaceutical Industry

In the period from the 1950s to 2013, the American Food and Drug Administration (FDA) approved 1346 new molecular entities (NMEs) or new biologics entities (NBEs). On average, the approval rate was 20 NMEs per year. In the past 40 years, the number of new drugs launched into the market increased slightly from 15 NMEs in the 1970s to 25–30 NMEs since the 1990s. The highest number of new drugs approved by FDA was in 1996 and 1997, which might be related to the enactment of the Prescription Drug User Fee Act (PDUFA) in 1993.