Shaking Up Biotech/Pharma: Can Cues Be Taken from the Tech Industry?

Abstract

The biotech and pharma (biotech/pharma) industry is in dire need of finding ways to increase efficacy, efficiency, and affordability of its products. The information and technology industry (“tech”) industry, which is an industry similarly founded on inventions and innovation, may provide some food for thought. This perspective will demonstrate the shift that biotech/pharma is already making and will propose that the industry has an opportunity to compel change by adopting some aspects of the tech industry with regards to models for technology/product development and leadership attributes.

The biotech and pharma (biotech/pharma) industry as a whole needs an upgrade. While science and technology innovation has grown leaps and bounds since the sequencing of the human genome, the number of new products on the market has not grown in the same proportion, with the cost of developing a new therapeutic product ever increasing and estimated at more than $2B USD as of 2014. ¹ Efficacy, efficiency, and affordability, while maintaining innovation and meeting unmet medical needs, are three areas that still need work and could potentially be improved by decreasing the amount of time to market. How can the industry achieve this? Reducing regulatory review time while maintaining a sufficient safety margin would help shorten the overall product life cycle of these new and repurposed biotech and pharma products, and the recent approval of the 21st Century Cures Acts could help in this respect. While extremely important, influencing regulatory bodies to reach a solution that the industry agrees on could still take a significant amount of time due to the need for balancing risk aversion and risk taking. Meanwhile, perhaps a source of inspiration could come from the information and technology industry (hereafter referred to as the “tech” industry), in terms of both the models used for technology/product development and leadership attributes that may compel change in the biotech/pharma industry. This perspective will propose that biotech/pharma has an opportunity to progress forward by adopting some aspects of the tech industry in these two areas.

Fundamentally, new therapeutics and devices, similar to products of the tech industry, are driven by inventions (defined as idea or knowledge generation) and innovation (defined as a process that begins with an invention and leads to the introduction of a new product through development of an invention). ² However, the two industries differ significantly in that the biotech/pharma industry is highly regulated by government agencies, with new therapeutic products requiring at least 10–15 years to reach the market after an initial discovery is made. Medical devices, which may take a shorter amount of time to reach the market, still take 3–5 years to reach the market. In contrast, a product launch in the tech industry could be achieved in months to a year’s time, with constant iterations being made on the product prior to and after launch. In addition, new inventions in the tech industry can occur much faster due to the ability to constantly iterate and having limited restrictions on the use and manipulation of software and hardware. This can result in more frequent disruptive innovations, leading to constant change in the industry. In the biotech/pharma industry, because many of the inventions and innovations are dependent on biological systems to become validated (e.g., cell-based assays, animal models, clinical trials), developing new products takes more time.

Aside from inherent advantages of technology that may allow for faster product development and launch, tech products and various components of these products can often be developed in parallel and through a horizontally integrated mechanism. This allows many individual companies to focus on single aspects of a product at the same time, which may then be integrated by one company into the final product. This method of product development is also a way to reduce development timelines. Pharma companies have traditionally developed products through vertical integration, with one company dedicated to all development activities of the product from beginning to end in fully integrated pharmaceutical companies (FIPCOs). However, this model of product development in pharma has also been changing, and the industry has been adopting development practices that are moving toward the horizontally integrated network similar to that of the tech industry.

Starting in the mid- to late-1990s, the merging and acquiring of companies became commonplace as therapeutic pipelines started to dry up and companies began to look beyond their own four walls for innovative technologies and cost-saving methods, including how to decrease the R&D budget. In aligning with this trend, the landscape of the drug development industry has moved away from building FIPCOs for product development. Instead, companies are building strong networks and leveraging the technical expertise of each partner within these networks to produce desired new therapeutics. These networks include collaborations and partnerships among academia, small biotech, and larger pharma that share the common goal of conducting translational sciences effectively at the necessary high standards of quality for drug approvals. By doing so, the industry is shifting toward horizontal integration, with fewer companies building out all the needed infrastructure within one organization, as done in vertically integrated FIPCOs. Having minimal infrastructure reduces costs, which is a major advantage of the virtually operating company, a business model that is more and more common in the biotech/pharma industry.

The virtually operating company, or virtual pharma, can make do with a small core team and less investment in conventional R&D infrastructure, ³ such as lab space or lab equipment, resulting in minimal to no in-house development. Instead, they outsource and manage these development activities through different contract research organizations (CROs) and contract manufacturing organizations (CMOs). The services offered by these contract companies can range from discovery-type work, such as drug discovery and screening, to preclinical and clinical trial work, among others. The key to the virtual company is having an experienced core team capable of selecting the appropriate CROs and CMOs that can help minimize the human resources necessary to manage them and ensure the highest quality required to develop a product. This is the main contributor to the capital efficiency of the virtual company. The FIPCO, on the other hand, has many more people and much more infrastructure due to in-house activities from discovery all the way through sales, marketing, and launch of the product. This type of operation not only results in much higher costs for the fully integrated company but can also hinder the ability to move nimbly and make decisions faster, potentially leading to slower time lines.

Aside from the aforementioned advantages, virtual pharma may also focus on a particular area of the development value chain to contain costs and improve productivity, choosing a quick-win, fast-fail model that also allows for iterative drug development approaches that are difficult for larger pharma to conduct. In this particular model, more energy is focused on finding candidates that are more likely to succeed in the clinic; those candidates that are seen as potential failures are weeded out earlier. This leads to the candidates that do progress forward having a higher probability of success, which ultimately results in lower cost since the candidates more likely to fail do not advance to the later, more expensive clinical stages.

An example of a melding of the virtual pharma and this idea of quick-win, fast-fail models is the Chorus model. ⁴ The Chorus model was initiated by Eli Lilly in 2002 as a small, operationally independent development organization that was focused on lean proof of concept (PoC) drug development from candidate selection to clinical PoC. The mission was to reach PoC at a low cost with production of pharma-quality assets. This was achieved with a small team of experienced members (~40) from various functional areas (medicine; clinical pharmacology; patient safety; chemistry, manufacturing, and controls; toxicology; pharmacokinetics; bioanalysis; asset project management; procurement; quality; information technology; regulatory affairs; and statistics) and a network of external vendors to design and execute the work through PoC. One of the key things that Chorus focused on was devising a development plan that led to the “killer experiment,” which enabled the team to decide whether to move forward or terminate the project. This also meant that until this plan was determined, no other downstream investment would be committed, which would limit the amount of cost.

The Chorus portfolio included 41 programs funded by Lilly, with 35 programs reaching completion. Chorus did not limit its scope of work with regards to indication, small molecule or large molecule, although a majority of the disease indication focus was in neuroscience, and 80% of the work was with small molecules. Of the 35 completed programs, 23% (8 programs) had positive outcomes, either in proof of mechanism, which was often designated as after Ph I, or in PoC, which was designated after Ph IIa or IIb; however, it is unclear how many of these programs have moved on to market approval.

Overall, the average Chorus program took about 800–900 days (2.2–2.5 years) and a little more than $6M USD. Most exits occurred after proof of mechanism, resulting in around 2 years of time and around $5MUSD. The next common exit was after PoC, which took closer to 2.5 years and closer to $7M USD. Finally, the fewest projects exited at toxicology, which took closer to 500 days (1.4 years) and about $3M USD. The currently active programs have been ongoing for more than 1500 days (more than 4 years), with a median development cost of $11M USD (average of ~$13M USD).

From all this data, the Chorus model tells us that reaching proof of mechanism and PoC can be done relatively quickly (less than 3 years) and for an average of $7M USD from the lead candidate. In addition, it shows that almost 25% of candidates can be considered successful when using this mechanism, which may increase the overall probability of success and productivity, and at a reduction in overall development cost of about 50% compared to traditional pharma methods. Therefore, this model serves as a data point for validating the quick-win, fast-fail method and the use of the virtually operating pharma model over the traditional FIPCO model for progressing through development effectively.

Of course, there are other approaches to attempt to address the issues of efficacy, efficiency, and affordability in this growing horizontally integrated network, including a slew of partnership programs that have popped up between industry and academia. These include Pfizer’s Centers for Therapeutic Innovation, ⁵ Merck’s California Institute for Biomedical Research, ⁶ Johnson & Johnson Innovation centers, ⁷ and GSK’s CEEDD. ⁸ AstraZeneca did not start its own separate partnering/outsourcing group, but it looked to tidy up its own internal R&D by creating a framework known as “the 5 Rs” to help tighten its performance. ⁹ Finally, PureTech ¹⁰ is a nontraditional biotechnology firm that develops programs around unique solutions to health care problems that act at a systems level. These solutions are created together by cross-disciplinary experts and then pushed through pilot and PoC studies. The reader is directed to the references or websites for further reading on these models.

In addition to adopting some similar practices in how product development is conducted, is it possible for biotech/pharma to also take notes on certain leadership attributes from the tech industry? Many tech companies, such as Facebook and Google, are led by younger, more technologically savvy individuals as they are most in tune with newer technologies/approaches, the market, and what users may want. Although biotech/pharma is not making products that are necessarily dependent on user experience or interface in a consumer sense, the use of technology, specifically social media and digital tools, is an area that could be improved upon to help companies better connect with their employees internally, ¹¹ as well as interact with and streamline processes with external partners and patients and even help with some forms of personalized medicine (e.g., use of phones as personal diagnostic tools). In this respect, there may be something to be said about looking for younger talent within biotech/pharma leadership.

There are various nuances in how biotech and pharma companies may need to be run with regard to size of the company and stage of development of the product ¹² that can also play into the type of leadership that is needed. For example, larger pharma may need more tried and experienced business executives who have managed larger companies with established processes and substantial use of delegation. However, these executives, who are essentially general managers, may be less well-versed in science or the pharmaceutical industry, which makes them less attuned to the differences and subtleties of the industry. Based on an analysis by Russell Reynolds & Associates, 72% of the top 25 pharma companies have CEOs who have nonscientific qualifications, and 80% have had no previous R&D pharmaceutical industry experience. ¹³ In contrast, biotech may look for those individuals with intrinsic executive potential but who have yet to prove their leadership capability—those who are more willing to take risk and be directly involved in the day-to-day scientific experiments and nitty-gritty company operations.

Despite these potential leadership differences between pharma and biotech, if greater representation from younger talent can be included into the mix of leadership roles to ensure that their voices and views may be heard and, when appropriate, acted upon, this increase in diversity may help the company’s mental shift in strategies but also the bottom line. A 2015 report from McKinsey that looked at 366 public companies across a range of industries in Canada, the United States, Latin America, and the United Kingdom demonstrated that companies in the top quartile for racial and ethnic diversity were 35% more likely to have financial returns greater than their national industry medians, and companies in the top quartile for gender diversity were 15% more likely to have financial returns greater than their national industry medians. ¹⁴ Although this report did not look specifically at age diversity, it may be extrapolated that added diversity, such as in age, would only add to the bottom line. As of 2016, the median age of top biopharma board seats was 64, with 42% of board members being 65+ years of age and 26% being younger than 58 years of age. ¹¹ In technology and e-commerce, the prevalence of directors younger than 60 years of age was similar to that of directors who are 65+ years of age (25% and 21%, respectively). ¹⁵ Although tech companies may have younger leaders than does the biotech/pharma industry, both industries still need to work on improving overall diversity, with leadership within even biotech and pharma needing to be more specifically tailored to accommodate the company needs while still enabling forward progress.

The biotech/pharma industry is ripe for change given the poor efficiency of new therapeutic production, the need for more effective drugs, and the exorbitant cost of these new products. One aspect of change that may help in all three areas may be the reduction in the product life cycle time. Cues may be taken from the tech industry in how to achieve this, given that both tech and biotech/pharma are founded on innovation. With the biotech/pharma industry moving toward horizontal integration to develop products, similar to tech, strengths of individual companies may be leveraged during the process of bringing products to market, instead of needing to develop all functional areas in-house. This shift, in addition to the continued effort to increase diversity in the leadership of biotech/pharma companies (including expertise and age), may help push the industry in a positive direction by increasing productivity and company bottom lines. By integrating particular aspects of the tech industry, biotech/pharma companies can harness successful approaches toward improving efficiency, increasing profitability, and, ultimately, making a greater impact on patient health.