This paper aims to study various strategies adopted by pharmaceutical companies to boost innovation. These strategies are usually overlapping and must not be viewed as watertight initiatives. The penetration of the aforesaid strategies may differ with each pharma. However, on a superficial level it is safe to say that pharmas will largely look outside its own company for drug innovation and early development requirements. This trend will also be enhanced by the fact that most of the late stage drug candidates have already been licensed, and hence the focus will shift to an early stage. The success of these strategies will depend on how many potential drugs will be approved after clinical trials for commercialization.

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Emerging Strategies in Drug Innovation
WHITEPAPER | AUGUST | 2012

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Pharmaceutical research and development (R&D) is currently facing uncertainty due to impending patent cliffs.
Lack of promising compounds to replace declining blockbuster revenues and receding pipelines are major concerns
for pharmaceutical companies.This reduced R&D productivity has to be addressed to minimize the negative effects
and proactively face generic competition.
Discovery and development of new molecules for potential drugs that can treat various therapeutic targets, like
neurology and immunology, is the need of the hour. Such promising innovation is the key to the pharma sector’s
current woes. In addition, pharma companies are also cognizant of the fact that innovation can occur outside
boundaries of the company.To assist such open innovation, companies in the pharma sector are undertaking many
strategies.
This paper aims to study various strategies adopted by pharmaceutical companies to boost innovation. These
strategies are usually overlapping and must not be viewed as watertight initiatives.
The initiatives adopted by large pharma companies range from internal restructuring to focussing on complex
therapeutic areas,like oncology and cancer.The current trends also indicate growing interest in addressing neglected
and rare diseases. Novartis has set two specialist units,The Novartis Institute for Tropical Diseases (NITD) and
The Novartis Vaccines Institute for Global Health (NVGH) to target rare diseases. Pharma companies are also
moving towards drug repurposing and creating awareness on personalized medicines. Biologics is also seen as an
upcoming area in the R&D.
Note:
Direct: The strategy will have a direct effect on the internal innovation model
Indirect: The strategy may have a ripple effect, seen as an additional strategy to aid drug innovation
Internal Restructuring
Large pharmas are aiming to establish an autonomous,
small biotech culture within its own business models
to boost innovation. Lately, many small biotechs
have been successful in drug discovery. For example,
Merrimack has 5 drugs in clinical trials and Concordia
Pharmaceuticals licensed its Phase II cancer drug to
Japan’s Ono Pharmaceutical.
GSKestablishedmini-biotechsorDiscoveryPerformance
Units (DPUs) to create an entrepreneurial research
environment in which multi-disciplined teams of
scientists are responsible for discovering new medicines
and presenting a 3-year business plan to bid for funding
of USD 1 billion until 2014.
Roche has kept Genentech’s Research and Early
Development (gRED) independent from its own
Pharma Research and Early Development (pRED).
It was basically done to keep Genentech’s innovation
environment free from the processes of a larger pharma
company. Both these units have its own budget, targets
and therapeutic areas to focus on.The early development
is done separately until proof-of-concept.
Janssen is focussed on 5 therapeutic areas: oncology,
immunology and inflammation, infectious disease
and vaccines, neurology/pain, and cardiovascular/
metabolism. These 5 areas function as self-contained
small companies, structured from discovery to
registration.
Corporate Venture Funding
It is believed that venture capitalists prefer investing in
compounds that are in late stages of development, as
these compounds being closer to market, significantly
reduce the risk of failure. Although most compounds in
late stages are already licensed, the interest is shifting
towards early stages of drug development. Pharma
companies are actively setting up venture funds to
invest in companies for drug discovery.
Merck invested USD 35 million in the Merck Lumira
Biosciences Fund to provide capital in support of early
stage innovation in Quebec. Lilly established the Mirror
Portfolio with a total commitment of USD 150 million
to fund external researchers and get access to innovation
through independent investment funds.

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Out-licensing
Large pharma companies are following the strategy
of out-licensing compounds that are not in its active
development path or are not of strategic interest. Lilly’s
Chorus managed to generate data from molecules that
Lilly was not developing. Janssen and BMS are other
companies that are mining internal compounds and
outlicensing those programs that it does not wish to
pursue in-house. Pharmas greatly benefit from such a
strategy as it may not require paying for the development
costs of the compound and may still hold the right to
in-license the compound back, if promising data is
generated. NovaLead is another company that works on
shelved compounds through drug repurposing.
In-licensing
Licensing discoveries is a highly adopted strategy.
Licensing is undertaken from discovery to clinical
development of the pharmaceutical value chain.
VDDI Pharmaceuticals, for example, licenses early
stage compounds and after phase II clinical studies,
seeks equity financing based on royalty and milestone
payments. Concordia Pharmaceuticals is another
company that develops compounds until Phase II after
which it licenses the compound to a pharma company.
Both these companies follow a highly virtual model.
Pharmas also license compounds discovered at
universities, Lilly collaborated with University of
Cambridge and GSK collaborated with University of
Edinburgh in 2011 for acute pancreatitis. Pharma
companies may also co-develop compounds,for example
in Pfizer’s Centers for Therapeutic Innovation, wherein
the pharma will provide funding, technical support
and infrastructure to the primary investigator of the
university.
Pre-competitive Model
Pharma companies are collaborating with competitors
and suppliers alike to speed innovation, leverage
complementary capabilities, and distribute costs of
innovation and development. Merck Serono is a part
of NEU², a consortium dedicated to innovation in
neurology.
In the BioPontis Alliance, Pfizer, Merck and Johnson
& Johnson have collaborated with 10 universities and
suppliers where pharma companies provide guidance to
universities. Suppliers help in the initial development of
the compounds discovered by the university.
Not for Profit Organizations
These kinds of organizations basically aim at areas of
unmet medical needs and can be based out of public or
private organizations.
Structural Genomics Consortium’s funders include
GSK, Lilly and Pfizer along with the Novartis Research
Foundation. The consortium has been awarded a fund
greater than USD 50 million.
Merck established California Institute for Biomedical
Research (Calibr) in 2012. This is an independent
not for profit organization that would collaborate
with academic scientists to advance discoveries up to
preclinical proof-of-concept.
The Wellcome Trust recently launched a £200 million
business to invest directly in health-care and life-
sciences companies.
Lilly launched a not-for-profit initiative called the TB
Drug Discovery Initiative in 2011.The unit would screen
molecules for potential activity under tuberculosis.
Open Innovation: Crowdsourcing
Crowdsourcing is the use of collective intelligence of
the larger public domain to perform business tasks that
a company would have ideally performed in-house or
outsourced to a third party.
Sanofi has used this model to treat diabetes.It launched
the Open Innovation Challenge for diabetes in 2012.
This is a 5 step process that would award USD 200,000
in prize money and grants to entrepreneurial innovators
and health experts. Sanofi uses crowdsourcing to not
only use external ideas and product designs, but it also
uses this medium to identify diabetes care requiring
most repairs. Sanofi initially launched this approach in
2011.

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Virtual Model
Pharma companies now believe that there is no need to
be vertically integrated to discover and develop drugs.
Biotech investors are not interested in a company’s
building infrastructure. At the same time, large pharma
companies have reduced their internal capacity in terms
of both human capital and physical infrastructure.
Hence, these companies may not be too keen on
acquiring facilities of other biopharma companies
during acquisitions.
Roche was an early adopter of this model, when it
established Protodigm, a virtual drug development
company in 1996. Protodigm identified a potential
molecule discovered in a university lab. Protodigm
selected most qualified subcontractor for every stage of
R&D, in order to cut down R&D costs by 40%.
Lilly’s Chorus experiment is another such example of a
streamlined and flexible virtual model. Established in
2002,Chorus is a team of 30 experts in multidisciplinary
fields, responsible to generate proof-of-concept data
faster and more cost effectively.As of early 2011,Chorus
had delivered data on 17 molecules, 6 of which resulted
in positive proof of concept clinical data. Following
this success, Lilly established Chorus Resonance in
Indianapolis and Chorus Europe.
Lately advancements in in-silico technologies and
computational chemistry for compound screening have
made it easier to virtualize drug discovery and early
development.
Outlook
The penetration of the aforesaid strategies may differ
with each pharma. However, on a superficial level it is
safe to say that pharmas will largely look outside its
own company for drug innovation and early development
requirements. This trend will also be enhanced by the
fact that most of the late stage drug candidates have
already been licensed, and hence the focus will shift
to an early stage. The success of these strategies will
depend on how many potential drugs will be approved
after clinical trials for commercialization.
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For more information, please contact info@beroe-inc.com.
Author:
Ridhima Agarwal | Senior Research Analyst
Source:
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