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Thought leadership and innovation for the Pharmaceutical Industry

If we want innovation we must be bolder at what we do, Bernard Munos argues in the first of his new monthly columns for eyeforpharma.

By Bernard Munos on Apr 7, 2015

One of the changes that I have observed during my 35 years in the pharmaceutical industry has been a gradual shift of emphasis from bold science to safe science¹. This is problematic because breakthrough innovation – the kind most societies desire because of the value it delivers – rests upon breakthrough science.

For much of the last century, the pharmaceutical industry grew into one of the most successful and respected sectors of the economy because of its ability to bring a steady flow of stunning biomedical advances to society. We take many of those for granted but the development of the iconic therapies that transformed public health – e.g., insulin, antibiotics, many vaccines, and biopharmaceuticals – happened because the leaders of the industry at the time were willing to repeatedly stake their companies’ fate on turning breakthrough scientific discoveries into novel therapies. They did not need to do it. They could have chosen the easy path of concentrating on their “marketing franchises”, which included vast arrays of proprietary preparations. Many of these leaders, however, were scientists who could recognize scientific breakthroughs, and what they meant for patients. Their business model, which we now call “translational research” – was to turn these breakthroughs into commercial products.

That model, however, carries daunting risks. Translation requires companies to venture into uncharted territory and do things that have never been attempted before. Think about what it took to turn rDNA technology into drugs, and the scientific and engineering challenges that had to be overcome. To better the odds, companies recruited the smartest people they could find, and hoped for the best. If they succeeded, it meant decades of prosperity. Eli Lilly still sells $1.4 billion a year of Humulin, a human insulin that was launched in 1982, and was the world’s first recombinant drug. If they failed, on the other hand, companies disappeared – usually in the clutches of acquirers. Remember Syntex, Upjohn, Sterling, Hoechst, Searle, and dozens of others?

Low risk – low rewards

It is a high-stakes game that scientists are comfortable playing because they understand that this is what cutting-edge science is about. As long as they dominated the leadership of the industry, it remained a high-risk, high-return business – for the winners. Trouble developed in the 1990s when the leadership of many companies passed to non-scientists, who were often uncomfortable with the bet-the-house culture that pervaded the industry. Gradually, they undertook to change this by lowering their companies’ risk profile. It was a grand experiment to industrialize innovation and make it predictable by eliminating its randomness. Scientists no longer drove innovation by translating great new discoveries. They were instead asked to respond to the needs of the market, as they were prioritized by the marketers. R&D investment was no longer guided by scientific opportunity, but by the need to defend “marketing franchises” and find follow-on molecules to replace aging blockbusters. Complex processes were put in place to calculate how much innovation was needed each year, and scientists were asked to supply it on demand. They became operators in an assembly line where process trumped creativity, and opportunities to innovate were regularly dismissed for being outside the companies’ “core technologies”, which is ironically what defines innovation.

Not all the “Big Pharma” embraced the new mantra. Some such as Novartis and Genentech, which continued to be led by scientists, stayed the course and did quite well. The rest saw their new drug output plummet to reach a nadir of six new molecular entities in 2005, and again in 2010 – far too few to replace the sales lost to patent expiration.Meanwhile, R&D costs soared out of control. In the U.S., the dearth of new drugs caused the share of prescriptions filled by generics to nearly double from 45% in 2000 to 85% in 2014.

Boards of directors reacted belatedly by replacing underperforming CEOs. The new leaders have not all been successful in reversing the decline, but promising models have emerged to rekindle innovation. Companies such as J&J, Novartis, Roche, and GSK now routinely deliver one new drug per year or more. More importantly, some of these new models such as J&J’s J-Labs, Pfizer’s Centers for Therapeutic Innovation, or the California Institute for Biomedical Research (Calibr) – supported by Merck and the Gates Foundation, among others – address a critical weakness of the biomedical innovation ecosystem – the funding and translation of early breakthrough discoveries.

Plenty of money

There is no shortage of money overall to fund biomedical research. Each year, industry alone spends about $140 billion on R&D². The National Institutes of Health (NIH) add another $31 billion –U.S. Congress permitting. When venture philanthropy and non-US governments are factored in, the total rises well above $200 billion, which is not trivial. The issue is not so much the spending as the return on this investment. Even if we take the recent uptick in approvals for granted, 45 new drugs per year is not a great return for society.

The problem is that most of that money (~70%) is spent on clinical research, and ends up funding the development of late-stage failures – i.e. mediocre compounds that have neither the efficacy nor the safety to be approved, yet made their way through the pipeline because of the industry’s lingering focus on quantity (“shots on goals”) over quality. Even the money that goes toward early research tends to support safe projects whose impact is at best modest. The sad truth, however, is that, if you are an innovator with a great transformative idea, you are usually on your own. There is some money available to support you, but not enough. Venture capitalists have been burned so often that many no longer consider such opportunities. With a few exceptions, big pharma companies no longer have much appetite for disruption, and public-funded research uses a peer-review process that is ill-suited to appraise breakthroughs. Innovators, by definition, have no peers; so, asking peer-review committees to evaluate their projects is difficult.

Disruption vs. evolution

The paradox is that most folks like disruptive innovation – smart phones, self-driving cars, the promise of gene editing or stem-cell therapy – but, complex organizations don’t like to be disrupted. They prefer evolution, which is why disruption always comes from the outside. Complex systems, such as companies or industries, evolve until they are misshapen, and squander resources on a scale that is no longer tenable – examples of which can be found in the $100,000 pill, or the sad state of the U.S. healthcare system. Then the disrupters roll in, enabled by new technology, and attracted by the lure of vast wealth creation that always accompanies the replacement of “the whole tangled mess”. It’s the creative destruction process that has been documented since Schumpeter, and is responsible for the Innovator’s Dilemma.

Given that, how can we design a model that funds disruptive innovation adequately? We need it to translate the accelerating flow of breakthrough discoveries coming from academia and early startups. Take biopharmaceuticals: for the last 30 years, they’ve comprised mostly peptides and monoclonal antibodies. During the next 10, they could include CAR T-cells, RNA therapeutics, stem cell therapies, gene editing, synthetic biology, tissue engineering, bioprinting, and more – if we can fund it. At the moment, three models are helping enable disruptive innovation:

1. Outsiders on a mission. They include Bill Gates, Calico, 23andMe, FasterCures, Apple, crowdfunders, venture philanthropists, open-source R&D pioneers, disease foundations, and patient organizations who do not accept that innovation should be slow, expensive, and incremental. They bring new eyes and skills to the challenge, along with passion, and sometimes significant resources. Some of them have already changed the world once and are ready to do it again. They are guided by a vision and doing what’s right, like the pharmaceutical pioneers, not by the contrived processes and useless analytics³ embraced by many of their successors.
2. Insiders with a vision. Happily, after nearly two decades of often feeble leadership, the industry is producing talented leaders again, who understand the problems and have chosen to be among the disrupters. This is remarkable, as few industries have ever been able to disrupt from within. A key plank in their strategies is to reach out to disruptive scientists, the clever zealots working on game-changing research, who frequently operate on the margin of a system wary of their bold ideas. There are several examples of such outreach models. One of the most interesting for its ambition is J-Labs, funded by J&J, which supports dozens of disruptive entrepreneurs at its rapidly expanding chain of incubators and innovation centers. Not all of them will succeed, but those that do will likely have a momentous impact on J&J’s innovative output, and indirectly on the rest of us. Best of all, the model scales easily and economically.
3. Government. As unexpected as this may be in today’s contentious political climate, the U.S. government has an impressive record of fostering breakthrough innovation. And remarkably, it does it on a shoestring. Its approach stems from the observation that, in large organizations, short-term priorities always favor marginal innovation at the expense of major change. Therefore, organizations that depend upon breakthrough innovation must create independent units that are entirely devoted to it. One example is the Defense Advanced Research Project Agency (DARPA), a group of about 140 scientists, who operate with a budget of about $2.9 billion – comparable to the R&D spending of a mid-size pharmaceutical company. To carry out its mission DARPA, by law, can only fund disruptive innovation, but, within that remit, is free from bureaucratic impediments: it can hire whom it wants, and initiate or terminate programs at will. Its decisions are final. No peer-review, and no second-guessing by a higher authority. This autonomy allows it to act boldly to support cutting-edge science, and has produced extraordinary results that have literally changed the world – from the internet to the GPS, night-vision, high-speed computing, new materials, and even brain-driven prostheses. There are non-US examples as well. In Israel, for instance, the government 's policies and demand for advanced technologies have fashioned a high-tech superpower from a small country of 8 million people with no natural resources.

We now better understand the importance of investing in bold science, but are hampered by the lack of mechanisms to do so. We need to rebalance our vast investment in drug R&D to allow more spending on emerging technologies that hold great promise but are too disruptive to attract industry or venture capitalists. 

So, why don’t we have a DARPA-like organization for drug R&D – one that would fund bold, transformative science to the point where it has been reduced to practice and can be brought to market by industry? It could be part of NIH, just like DARPA is part of the Department of Defense. Its funding needs would be modest in regard to the total NIH budget – 1%, or about $310 million, would seem quite a reasonable target. There might be concerns that such initiative would compete with industry, but this has not happened with DARPA. Just the opposite, it has created synergies that have spawned vast new markets. One of pharma’s challenges is that it’s impossible to forecast success. On average only 25% of blockbuster hopefuls meet expectations, but breakthrough therapies are much more likely to do so. This could be the fuel the industry needs to renew itself on an on-going basis, and avoid getting stuck in a rut. It could also help address a festering problem: the aging of U.S. biomedical research and the lack of funds to support young investigators with great ideas. Many of them cannot afford to wait until age 42 to get their first grant. It might keep many of them from moving to other careers from which they never return.

There is no low-risk in drug R&D. For much of the last two decades, a mistaken belief in the contrary has set the industry on a course that has damaged its capacity to innovate, and, in many instances, pushed the return on drug R&D into negative territory. But this setback has also provided an impetus to better comprehend the dynamics of innovation. We now better understand the importance of investing in bold science, but are hampered by the lack of mechanisms to do so. We need to rebalance our vast investment in drug R&D to allow more spending on emerging technologies that hold great promise but are too disruptive to attract industry or venture capitalists. For nearly 60 years, the U.S. military has dealt with a similar challenge by operating an extraordinary innovation engine whose civilian applications have transformed society while creating enormous wealth. We need to bring some of that experience to bear upon biomedical innovation by allowing NIH and other funding agencies to shift some of their funding from safe science to bold science.

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Bernard Munos studies pharmaceutical innovation, what causes it and how to get more of it. Several of his papers, published in Nature & Science have helped stimulate a rethinking of the industry business model. In 2012, FiercePharma named him one of the 25 most influential people in biopharma. In 2013, he became a Senior Fellow at FasterCures (a center of the Milken Institute). Besides doing research, he spent a lot of time helping organizations – big, small, public, private, US and non-US – become better innovators. He learned his trade in the 30 years he spent in the industry at Eli Lilly. Before that, he trained as an animal scientist in France and earned additional degrees in business and economics from Stanford and UC-Davis. Bernard serves on various boards and advisory bodies, including at NCATS, the Institute of Medicine, Glenmark Pharmaceuticals, think tanks and foundations.

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 1. Safe science in this blog means low-risk, unimaginative science. It does not relate to lab safety in any way.
2.  EvaluatePharma, World Preview 2014, Outlook to 2020 (June 2014)
3. Data analysis uses powerful mathematical tools to provide unparalleled insights into complex data. With some exceptions, the pharmaceutical industry has been slow to recognize the usefulness of these tools – and of the people who know how to use them.The quality of its analytics has suffered as a result.