Open Innovation and Consortiums to Improve R and D Productivity, and Accelerating Drug Discovery

In recent years major pharmaceutical companies have re-organized their R&D structure by forging external partnerships, mergers, and acquisitions, out-sourcing and open innovation. Pharmaceutical companies have been laggards in terms of acceptance of open innovation as compared to other industries. Even though the outsourcing model has been extensively used in the pharmaceutical industry, late adoption of the open innovation model could be associated with the risk of loss of intellectual property which is an integral part of drug life-cycle management. The primary reasons for pharma and biotech companies to adopt open innovation model are commercial success and risks related to bringing first-in-class therapies to the market, R&D cost and time, patent expiration of the existing blockbuster drugs, and to win over the competition.

The open innovation model not only helps in commercial success but also, aids in exploring new horizons in partnership opportunities like pharma-pharma, pharma-medtech, pharma-biotech, pharma-consumer health, and others. A decade ago there were less than 20 drug discovery centers in the USA as compared to more than 100 today. Open innovation offers many advantages to all the stakeholders:

• Large pharmaceutical organizations are benefited from improved efficiency, quality of research, and wider participation of scientific/patient communities
• Smaller organizations have access to a vast knowledge base, talented individuals, established commercial channels, etc. for developing high quality and reliable innovation

With open innovation, the operational boundaries of all entities expand in terms of geography, technologies, corporate culture, etc. which otherwise would have been restricted. With legal as well as pre-competitive partnerships in place, collaboration with open innovation helps in the reduction of cost, shortening product development cycles. This in turn leads to a higher return on investment when compared to complete dependence on in-house development.

One of the key models of open innovation is consortium formation. By forming open consortiums the pharmaceutical companies pre-competitively collaborate in knowledge, data, and resource as well as IP and revenue sharing for specific indications. These consortiums often consist of large pharmaceutical companies on one hand and government agencies, non-profit or academic institutions on the other. A recent example being 15 pharmaceutical companies joining Bill & Melinda Gates Foundation to form a consortium “COVID-19 Therapeutics Accelerator”. This association will work on the accelerated development of vaccines, diagnostics, and treatment for COVID-19 across the globe.

Many big pharmaceutical companies are using open innovation; AstraZeneca and Eli Lilly were the early adaptors of open innovation. AstraZeneca in 2012 shut down its entire neuroscience project and created a new “Virtual Neuroscience Innovative Medicines Unit”. This new unit was tasked with identifying and developing external drug discovery opportunities with shared cost, risk, and reward. Similarly, Eli Lilly’s OIDD platform enables phenotypic and target-based screening of the biologically active molecules or compounds on open innovation principles.

Open innovation is being adopted by major companies facing roadblocks or bottlenecks in their pipeline products, and collaborative innovation centers have been established by companies such as Pfizer, GSK, Merck, Bayer, and Janssen.

Problems faced by Closed Innovation

The fuel for the growth of the pharma industry is innovation. Innovation in pharmaceuticals is characterized by high developmental cost, higher failure rates of prospective NMEs, and lengthy developmental cycles as given in Exhibit 1.1 and Exhibit 1.2. Eventually, these factors result in low R&D productivity. The pharmaceutical industry over the past few decades has experienced stagnated R&D growth. The industry has tried to overcome the dryness of pipelines through external innovation, M&A, partnership formation, and other means but this has not solved the problem. Therefore industry has followed the non-traditional means of R&D growth of open innovation. This eventually would result in speed to market with shared resources and joint IP protection can increase available commercial windows.

• Spending on R&D has gone >$180 billion annually
• 31 of CDER’s 53 novel drug approvals, (58%) were approved to treat rare or “orphan” diseases
• According to industry experts, the pre-tax cost of developing a drug can range anywhere between $43.4 million to $4.3 billion excluding the post-trial marketing costs.
• Longer drug development timelines of 10 to 15 years with existing failure rates of ~ 96%.
• R&D productivity in terms of NMEs receiving FDA approval for the past 10 years has been 41 NME’s per year on an average.
• Despite these substantial investments, overall R&D productivity remains low.
• Due to the higher cost burden and increased risk of drug failure, many players have downsized their R&D operations, especially in early drug discovery which have significantly higher failure risk.

When total spending in R&D is compared across industries, the pharmaceutical industry is a worldwide top investor in R&D and it is predicted that it will keep its role as a leading R&D stakeholder in the future with an investment of up to USD 227 billion by 2025. It is predicted that the top 10 companies will invest more than $100 billion in R&D in the year 2020. Despite the pharmaceutical industry investing heavily in R&D, the ROI is declining.

Advantages of Open Innovation

Open innovation amalgamates external knowledge and expertise into the company’s innovative program and facilitates effective management of risk while cutting cost. The major advantage of this model is, it accelerates technological development and enhances the absorptive capacity of the firm as depicted in Exhibit 2.

• Spending on R&D has gone >$180 billion annually
• 31 of CDER’s 53 novel drug approvals, (58%) were approved to treat rare or “orphan” diseases
• According to industry experts, the pre-tax cost of developing a drug can range anywhere between $43.4 million to $4.3 billion excluding the post-trial marketing costs.
• Longer drug development timelines of 10 to 15 years with existing failure rates of ~ 96%.
• R&D productivity in terms of NMEs receiving FDA approval for the past 10 years has been 41 NME’s per year on an average.
• Despite these substantial investments, overall R&D productivity remains low.
• Due to the higher cost burden and increased risk of drug failure, many players have downsized their R&D operations, especially in early drug discovery which have significantly higher failure risk.

When total spending in R&D is compared across industries, the pharmaceutical industry is a worldwide top investor in R&D and it is predicted that it will keep its role as a leading R&D stakeholder in the future with an investment of up to USD 227 billion by 2025. It is predicted that the top 10 companies will invest more than $100 billion in R&D in the year 2020. Despite the pharmaceutical industry investing heavily in R&D, the ROI is declining.

Advantages of Open Innovation

Open innovation amalgamates external knowledge and expertise into the company’s innovative program and facilitates effective management of risk while cutting the cost. The major advantage of this model is, it accelerates technological development and enhances the absorptive capacity of the firm as depicted in Exhibit 2.

Some other advantages of open innovation for accelerated drug discovery are as follows:

• Through strategic partnerships, companies can access the expertise of talented individuals from within the organization as well as from external collaborators. This can help expand the knowledge base and create a conducive environment for innovations while curtailing fixed costs to a single company.
• Project delivery is ramped up as shared knowledge and resources help speed up the research process
• The company can maximize returns on its R&D investment with multiple projects running simultaneously as well as through the use of shared facilities.
• The complex nature of diseases leads to niche R&D focus by smaller companies in specific areas; this can, in turn, be used in a collaborative open innovation model to access the resources of big pharma companies thereby bringing new drugs to market quicker.

Although open innovation has now been accepted in the pharmaceutical industry, key organizational challenges still remain. For successful implementation of open innovation, an organization needs the following:

• Bringing about a significant cultural change from the top down: the whole organization must embrace external innovation and talent to avoid conflicts.
• Introduction of reward and recognition for value-adding behavior and measures
• Alignment of open innovation to organizational growth strategy and monitor the value created

Existing Open Innovation Platform

Today, there are many pharmaceutical companies that provide open innovation platforms focusing on evaluating external partners’ compounds. Some examples of open innovation platforms by early adaptors in the pharmaceutical industry are detailed in Exhibit 3. Further collaboration or in-licensing, compounds that are compatible with internal R&D is achieved using these platforms.

Existing Consortiums

Tackling the problems that hamper pharmaceutical R&D and the high attrition of new drug compounds are the key challenges faced by companies today. This has led big pharma to increasingly embrace precompetitive collaborations by means of consortia formation. Exhibit 4.1 and Exhibit 4.2 present some key consortium and information including type, partners, and their purpose.

Consortiums have been formed in recent years to tackle challenges in specific diseases or processes related to the pharmaceutical industry. Industry (both pharma and biotech) has been a pillar of these consortiums with other partners being either academic institutes, Government, or not-for-profit organizations(NPO). There are consortiums made of solely Industry partners such as EPOC in which member pharma and biotech companies tackle challenges related to oligonucleotide development. Other types of consortiums include Industry+ Accademia, Industry + NPO, Industry + Govt, Industry+ Accedemia+ Govt, and others. Details of some of the different consortiums, their types, partners, and the purpose of formation of these consortiums are listed in Exhibit 4.2.

Not just consortia formation, Pharma companies are also reaching out to form partnerships with leading technology companies to leverage their expertise in solving the key challenges faced in drug discovery. Some of the important partnerships between Pharma companies and major IT companies are as follows

• Boehringer Ingelheim partnered with Google in Jan 2021 to bring Quantum computing with the power of data, AI, and ML to accelerate R&D.
• UCB has partnered with Microsoft to use their computational services including cloud and AI capabilities for Drug discovery and development.
• Novartis and Microsoft partnered to transform medicine with artificial intelligence in 2019
• Pfizer collaborated with IBM in 2016 to accelerate drug discovery

The next steps

The incorporation of open innovation within pharmaceutical companies is a challenge. In the next few years, these open innovation platforms will be tweaked and optimized according to the need of the companies and it will be made sure that these innovation incorporated in the traditional R&D process brings a significant impact on the productivity and output. Some basic parameters of the open innovation model will also be tested such as degree of openness, legal and business terms, as well as the collaborative business model to provide a mutually beneficial and productive open innovation platform.

Currently, efforts are being made to establish a connection between the company and external resources via ‘Innovation centers’. This innovation center is an advancement of the traditional research collaboration, as it doesn’t focus on a specific project task or technology transfer, but on the long-term integration of external competencies usually provided by a world-class academic institution. Access to external innovation was made easy by the presence of these innovation centers in the local environment which makes integration with the local academics, biotech, and venture ecosystems an easy job. These innovation centers are sufficiently autonomous to simplify and expedite the decision and deal-making process.

Few examples of innovation centers

Pfizer’s ‘Centers for Therapeutic Innovation’, GSK’s ‘The Center of Excellence for External Drug Discovery, and Takeda’s ‘Center for IPS Cell Research Application’ at Kyoto University are some examples of the industry adopting open innovation by center creation.

Bayer Healthcare, Merck, or Johnson & Johnson, have also experimented with this concept by opening innovation centers in the U.S. and Germany. Novartis had a pioneering role being the early adaptors of open innovation with long-lasting partnerships with the Massachusetts Institute of Technology (MIT) and the Dana-Farber Cancer Institute.

In the future, the increased openness of the pharmaceutical open innovation platforms will help the open innovation model to reach the full potential of collaborative science. For pharmaceutical industries, small molecules will remain one of the strong focal points to be explored via open innovation platforms. However, with open innovation exploration of alternative disease-modifying agents such as natural and synthetic versions of peptides, antibodies, and RNA-interference as well as more novel approaches such as cell therapy, gene editing, and nanotechnology-based therapeutics.

The pharmaceutical industry will be able to boost innovation tremendously with the help of online cooperative science, highly specialized small and medium-sized enterprises, and academic drug discovery units as evident from evolving innovation scenario presented in Exhibit 5. Provided the needs of pharmaceutical companies are communicated.

Conclusion

By expanding the boundaries of an organization with open innovation, companies can tap knowledge and skillset available in academies, small companies, and start-ups. Open innovation includes crowdsourcing, public-private partnerships, dedicated innovation centers, research alliances, etc.

The open innovation model has many advantages. Few major advantages include quicker availability of new molecules, reduced risk of failures, earlier time to market & economic viability. These advantages are beneficial for pharmaceutical companies in the future where innovation and time to market are the essential factors for success.

Although there are multiple challenges related to open innovation such as IP protection, structural and cultural changes, etc. Open innovation models are being increasingly adopted in big companies. Examples of such companies include Eli Lilly’s OIDD platform, Bayer’s Grants4Leads, Grants4Targets, Merck’s open compound sourcing.

Pharmaceutical players’ have adopted a more open and collaborative R&D innovation model as evident from:

• Establishment of specific collaborations with academic centers of excellence
• Joint ventures with government, not-for-profit organizations, and public-private partnerships (PPP) as a source of open innovative collaborations
• Adoption of crowdsourcing and virtual R&D by some pharma companies

Consortium such as COVID-19 Therapeutic Accelerator has the backing of Bill & Malinda Gates Foundation, Welcome, and MasterCard with seed funding of $125 million to offset R&D costs. Some other consortiums which work on a specific disease, bring together knowledge from different companies under one umbrella such as DIAN-TU Pharma Consortium for Alzheimer’s disease (Biogene, Lilly/Avid, Roche/Genetech, others), The Critical Path for Parkinson’s (AbbVie, AstraZeneca, Biogen, Eli Lilly, Pfizer, others), Coalition Against Major Diseases (Abbott, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, J&J, Novartis, others) to name a few.

In the next few years, it is expected that the pharmaceutical industry will custom fit the open innovation model according to its need, and move towards a more collaborative approach to enhance productivity. The establishment of the innovation centers into the heart of the life-science hubs is one of the steps which are being taken for addressing the challenges in pharmaceutical R&D.

References

1. FDA News
2. Schumacher A. et al. (2016)
3. Wang L. et al. (2015)