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  1. 1. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmaAn Economist Intelligence Unit reportSponsored by Quintiles
  2. 2. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmaContentsPreface 2Acknowledgments 3Executive summary 4Introduction: The innovation drought6Stuck in the old ways 8Lessons from the best innovators13Conclusion: The industry can do better20Appendix: Survey results221 Economist Intelligence Unit Limited 2011
  3. 3. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmaPrefaceThe innovation imperative in biopharma is the rst in a series of three reports by the EconomistIntelligence Unit. It is part of the Reinventing biopharma: Strategies for an evolving marketplaceprogramme, sponsored by Quintiles. The Economist Intelligence Unit conducted the survey and analysisand wrote the report. The ndings and views expressed in this report do not necessarily reect the viewsof the sponsor. The author was Dr Paul Kielstra. The editors were James Watson and Rozina Ali, and Mike Kenny wasresponsible for layout.June 2011 About the survey globally, with 32% based in the Asia-Pacic region,31% in North America, 26% in Western Europe, and The report is based on a survey of 282 senior executives the balance from the rest of the world. Respondents from the life sciences industry, including respondents hail from rms of all sizes: 43% represent companies from pharmaceutical and biotech companies (39% with more than US$1bn in annual revenue; 24% work and 21%, respectively), medical device manufacturers for companies with more than US$5bn. To complement (22%) and service providers (14%), among others. the survey ndings, eight in-depth interviews were Survey respondents are relatively senior, with 58% conducted with senior industry executives and experts, representing the C-suite or above. They are distributedalong with extensive desk research.2 Economist Intelligence Unit Limited 2011
  4. 4. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmaAcknowledgmentsThe Economist Intelligence Unit would like to thank Stephen S. Tang, PhD, MBAthe following for their invaluable contribution to ourPresident & Chief Executive Ofcer, University Cityresearch. Their insights enriched our analysis, but the Science CentreEconomist Intelligence Unit bears sole responsibility forChad Womack, PhDthe ndings of this report.President & Chair, TBED21 Inc.Advisory Board AttendeesIntervieweesLawton Robert Burnes, PhD, MBAWolfgang Soehngen, MDProfessor of Health Care Management, Director,Chief Executive Ofcer, PaionWharton Centre for Health Management & Economics,University of PennsylvaniaDiego Olego, PhDChief Technology Ofcer, Philips HealthcareHerbert Chase, MD, MAProfessor of Clinical Medicine (in Biomedical Mervyn Turner, PhDInformatics), College of Physicians and Surgeons, Chief Strategy Ofcer, Merck & Co.Columbia University Kazunori Hirokawa, MD, PhDBrian Daniels Head of R&D Division and Director, Daiichi SankyoSenior Vice-president, Global Development and Medical Company, LimitedAffairs, Research and Development, Bristol-Myers Squibb Peter Hngaard AndersenAlso interviewed for this report. Executive Vice-president and Head of Research,Gregory Geba, MD, MPH Lundbeck A/SDeputy Chief Medical Ofcer, Sano-Aventis US John Kotter, PhDPhilip P. Gerbino, PharmD Emeritus Konosuke Matsushita Professor of Leadership,President, University of the Sciences Harvard Business SchoolAlso interviewed for this report. Anders Ekblom, MD, PhDJames F. McLeod, MD Executive Vice-president for Global MedicinesVice-president and Experimental Medicine Department Development, AstraZenecaHead, Merck Research LaboratoriesUwe Schoenbeck, PhDChief Scientic Ofcer, External R&D Innovation (ERDI),Pzer Worldwide Research & DevelopmentAlso interviewed for this report.3 Economist Intelligence Unit Limited 2011
  5. 5. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmaExecutive summaryIts not easy being a life sciences rm today. Companies in the sector have seen rising research and development (R&D) costs, in exchange for at, or even diminishing, innovation returns. Many arestaring over the edge of a patent cliff, the loss of intellectual property protection on drugs that arecurrently bringing tens of billions of dollars in sales and that subsidise expensive R&D efforts. Thisconcern is greatest for the biopharmaceutical sector, but other life sciences rms are suffering as well:medical device rms, for example, are also experiencing difculties with their innovation programmes. How severe is this problem? And what can be done to ease these pressures and reinvigorate innovationefforts within the life sciences industry? These are the questions that this Economist Intelligence Unitstudy examines, based on a wide-ranging survey and in-depth interviews with senior executives at globalrms across the life sciences sector. Its key ndings include:Right now thel Executives in the industry are ambivalent about the quality of their existing innovationindustry is veryprogrammes. Industry experts and other analysts have been harsh about the ability of the lifemuch driven bysciences companies, especially biopharma, to innovate. Thomas Lnngren, former head of thefear rather than by European Medicines Agency, estimates that a staggering US$60bn of the industrys US$85bn R&D spending is wasted. Surveyed executives are not as critical, but give a tepid endorsementDr Wolfgang Soehngen, of their own innovation programme. Less than one-half (47%) say that their R&D model is capable ofCEO, Paionmeeting their companys needs, while a similar proportion of respondents (49%) rank their overallinnovation strategy as just moderately effective at best. More worrying, just 42% say that this strategyis more than moderately successful at restocking the product pipeline as biopharma in particular goesover the patent cliff.l Companies often are not rising to the challenge. Although almost every company is tryingsomething to improve innovation, only 54% of respondents overallincluding those who admit thattheir companies have poor or ineffective innovation strategiessay their companies consider changeto innovation processes a leading priority. Moreover, for those who plan such changes, survival ratherthan growth may be the guiding rationale. Right now the industry is very much driven by fear ratherthan by ambition, says Dr Wolfgang Soehngen, CEO of Paion, a biopharmaceutical rm.4 Economist Intelligence Unit Limited 2011
  6. 6. Reinventing biopharma:Strategies for an evolving marketplaceThe innovation imperative in biopharmal Culture is the primary barrier to improved innovation among the most laggard rms. The lifesciences industry faces several impediments to innovation that are less common in other elds. Theleading ones cited by survey respondents are costs (especially for smaller companies), R&D timescales and regulation. But among companies with the worst innovation record, cultural attachment toexisting practices is cited as their leading problem. Dr Philip Gerbino, president of Philadelphia-basedUniversity of the Sciences, believes that improvement in how companies innovate has been slowbecause there is a great amount of entropy in the ideology of what the industry must do with researchprogrammes.l Leading life sciences innovators create the right culture, are more engaged in open innovationand make better use of data. The one in ve companies surveyed who call their innovationprogrammes very effective typically produce about twice as many new products as others. Theyalso act differently than the rest in several key ways. One is that they work hard to create the rightenvironment, by nding appropriate ways to recognise and reward efforts, without penalisingfailure. A second is that they are more engaged in open innovation, with a more exible perspectiveon intellectual property (IP), embracing a wider range of new ideas and ways to benet from theirdiscoveries. A third is that they make better use of data, both internally and externally, to supporttheir efforts, thereby helping to improve research, development and use of existing IP.5 Economist Intelligence Unit Limited 2011
  7. 7. Reinventing biopharma: Strategies for an evolving marketplace The innovation imperative in biopharma Introduction: The innovation droughtThe past was moreabout bringing Life sciences companies need effective innovation strategies like never before. In thebiopharmaceutical sector in particular, companies have reached the long-anticipated patent cliff,new technology towith seven of the worlds 15 top-selling drugs in 2009, that collectively account for nearly US$50bn inmarket. Today it sales, due to lose patent protection in 2011 and 2012. Other products that together also represent anis how do we useaggregate market in the billions will be joining them. Generics makers are ready and waiting: most wouldthat technology to agree with the 2010 Annual Report of Dr Reddys Laboratories, a pharmaceutical rm based in India, thatdeliver better carethe coming loss of patent protection will be a major catalyst for the growth of generic pharmaceuticalat lower prices? companies, and many have products ready for sale as soon as the relevant IP protection disappears.Dr Diego Olego, chief Companies across the life sciences sector will need to create new products to replace their soon totechnology ofcer, PhilipsHealthcare expire blockbusters. This is nothing new: in practice, because of the time still needed for development after a patent is led, products typically enjoy only about a dozen years of protection on the market out of the complete patent length of 20 years. But innovation programmes are not deliv