As drug development becomes ever more complex, no company can go it alone
Traditionally, complex diseases such as cancer have been treated with small molecule compounds that tend to lack cell-specific targeting. Their non-specific effects – combined with prolonged multi-dose administration and systemic exposure – yield severe side effects and reduce patient adherence.
More recently, biologics such as cancer immunotherapeutics have countered these limitations by enhancing an existing therapeutic resource – the patient's own immune system – to elicit a sustained response or deliver potent anti-cancer therapeutics with greater specificity.
The shift from small molecules to complex biologics – fuelled by breakthroughs in the understanding of complex diseases and technical advances – is revolutionising healthcare. As biologics typically generate higher profits per dose, the stakes are incredibly high for research-based pharma, with many readjusting their R&D strategies to match the shifting therapeutic technology landscape, ultimately redefining the industry.
As research focuses increasingly on the molecular level of more complex diseases and more targeted, personalised treatments, companies are realising they need higher degrees of specialisation and expertise. In fact, it has become extremely difficult for an individual company to possess all the necessary ingredients for success.
In response, larger players are increasingly in-licensing innovative technologies at early stages of development from smaller, specialised companies, where high productivity and innovation has blossomed in recent years.
As such, a new R&D model is emerging, with large companies assuming the role of network integrator and pharmaceutical development becoming a more inclusive and collaborative process.
At many small and medium enterprises (SMEs), the R&D focus is narrow and there is freedom of decision-making, especially in early-stage research. One example is Galena Biopharma, a successful and highly innovative SME focusing on cancer immunotherapies. Its most advanced clinical trial combines its proprietary NeuVax (nelipepimut-S) technology with established biologic Genentech's Herceptin (trastuzumab), already licensed for the treatment of HER-2 overexpressing breast cancer.
Another company with a strong R&D focus and tight collaboration is French SME, Innate Pharma, currently partnered with Bristol-Myers Squibb to study its lirilumab technology in four phase II clinical trials in different cancer indications, including as a monotherapy against acute myeloid leukaemia.
Some SMEs have built their business models around offering development services to companies with patented technologies. One example is British group, Abzena, which has been successful in providing a wide range of complementary services and technologies to research-based companies to optimise the development of therapeutic proteins, antibodies and antibody-drug conjugates. The group consists of four wholly-owned subsidiaries focusing on biologics formulation, screening, manufacturing and chemical manipulation. Another example is British company Lonza, which has expertise in both small molecule and biologic development and manufacturing.
Other companies have focused on the development of platform technologies that can be out-licensed to larger players, especially those experienced at late-stage clinical development. This kind of external innovation is a chief source of revenue for a growing number of SMEs including US company, Aduro Biotech, whose proprietary method for engineering Listeria monocytogenes bacteria into therapeutic agents is used to stimulate targeted immune response to specific tumour antigens. The worldwide licence of product candidates based on this technology platform for the treatment of lung and prostate cancer has been granted to Janssen Biotech.
While many innovative, smaller companies thrive, many large companies struggle to remain competitive and there are many reasons why they fall behind; increasing pricing pressures, regulatory requirements, legal tie-ups, and growth of the generics market have all made generating satisfying R&D revenues challenging and significantly strangled innovation in the last 10-15 years.
Since late 1990s, the number of peer-reviewed papers published by R&D laboratories has declined, especially in Europe, a sign of lower levels of R&D activity across the industry. Moreover, in 2015, total revenue of 14 out of the 15 top pharma companies was at 2013 levels, while the year before only a handful of big companies showed modest increases (eg, Johnson & Johnson, Roche, Amgen) while the majority stagnated. Pfizer revenues decreased by almost $2 billion (3.8 percent), Merck $1.8 billion (4 percent), GSK $3.65 billion (8.8 percent) and Lilly $3.5 billion (15 percent).
Big pharma companies that are embracing change include Swiss giant, Roche, with an approach to R&D that reflects the models cultivated at successful smaller companies. By focusing on insight, understanding and the quality of people rather than on scale and standardisation in its early-stage research, the company has given greater freedom to its R&D teams, ultimately enabling breakthrough innovations. While this approach may allow partial overlaps in research activities, it promotes scientific inquiry and creativity.
In this evolving business environment, where smaller, agile companies deliver higher R&D efficiency and profits, large multinational enterprises are gradually recognising the urgent need to transform their R&D strategies and achieve more freedom at research inquiry and operational flexibility, especially at early stages of drug development. While more nimble and narrow R&D clearly facilitates much needed productivity and innovation, advantages to size do exist. For example, large enterprises can leverage their global presence to perform more comprehensive clinical trials while their large capital can help access critical technologies to enable cutting-edge early-stage research. It is the balance between small-scale operational flexibility and the global-scale execution that is most likely to make today's pharma giants keep their position of influence.
In this evolving business environment, where smaller, agile companies deliver higher R&D efficiency and profits, large multinational enterprises are gradually recognising the urgent need to transform their R&D strategies and achieve more freedom at research inquiry and operational flexibility, especially at early stages of drug development.
Michal Wlodarski is an associate at Cambridge Innovation Consulting (CamIn). He can be contacted at firstname.lastname@example.org