What Big Pharma Can Learn from Biotechs
The biotech industry has thrived on innovation and breakthrough research. Now Big Pharma is adopting the best practices of its smaller brethren.
Big Pharma is writing itself a prescription for change. Long synonymous with blockbuster drugs, commercialization and vigorous marketing, large pharmaceutical companies are rethinking their approach to drug discovery and development as they face a host of financial and market pressures. They’re shedding staff, considering splits and streamlining R&D budgets, while implementing some of the best practices of the biotech industry to become more nimble, creative and efficient.
This shift in mindset and culture is driving a greater focus on science and innovation. The goal is to move beyond incremental advances in established products and improve time-to-market for bringing transformative therapies to patients.
Big Pharma has often relied on the biotech industry as a de facto feeder system. Through M&As and partnering, drug manufacturers have acquired new products for further development or to bring to market. That strategy is still in place despite a slowdown in M&A activity in 2016 and 2017 compared to past years. Experts say 2018 may bring a renewal as Big Pharma and biotechs take advantage of the reduction in the U.S. corporate tax rate of 35 percent and repatriate an estimated $171 billion they hold overseas.
Whether that occurs or not, Big Pharma is increasingly contending with economic headwinds. Among them are:
- Competition from the biotech industry for talent and funding
- Increasing shareholder demands
- The continued emergence of biosimilar drugs, a new class of highly effective medicines that are cheaper to produce than branded biologics
- Continued patent expirations of highly profitable brand-name drugs
This last point is particularly acute. When brand-name drugs lose their exclusivity, lower-cost generic versions rush in to claim a share of the market. By one estimate, the arrival of a generic drops sales revenue of a brand-name drug by as much as 90 percent. Some 18 branded drugs, totaling an estimated $26.5 billion in annual sales, were expected to lose their patents in 2017.
Learning from Biotechs is Key
To compete (and replace revenue), Big Pharma is targeting smaller patient populations and prioritizing innovation to produce more niche medicines. One recent example is Pfizer’s “Xalkori,” which came to market in 2015; the drug treats non-small-cell lung cancer in patients with a specific genetic defect found in the tumors of only 3 to 5 percent of those afflicted.
Biotechs, with their entrepreneurial mindset, have this approach down pat. They typically operate free from corporate bureaucracy and without the burden of producing immediate bottom-line results. Some pharmaceutical giants recognize these advantages and have already responded by launching their own incubation labs (see No. 1 below).
To be sure, Big Pharma has its own advantages that form a solid foundation for change, such as industry relationships, deep pockets, infrastructure and insight that can facilitate the FDA approval process. By combining these advantages with those of biotech, the giants can better position themselves for the future. Here’s what they need to do:
1. Establish Stand-Alone Incubator Labs
Biotechs thrive on autonomy. To ramp up innovation, large pharmaceuticals should consider creating their own incubators free of corporate reach to establish independence from the bureaucracy that often impedes large corporations. One model includes JLABS, an incubator launched by Johnson & Johnson in 2012 that is staffed with scientists and researchers not employed by J&J. JLABS is incubating about 140 startups in six different locations, including an Asia-Pacific branch in Shanghai with satellite offices in Singapore, Australia and Japan.
2. Embrace Failure
A successful biotech goes through hundreds and hundreds of hours of trial and error. Big Pharma must be willing to fail and… celebrate the learnings from those failures. “Fail early, fail cheap,” is becoming the mantra at many Big Pharmas. This mindset encourages a culture of risk taking. And in an industry where about 92 percent of compounds in the R&D stage do not make it to the preclinical stage (and hence never reach market), it offers important insights to inform future research.
3. Continue Redefining the R&D Function
The culture of a biotech encourages an agile approach to R&D focused on innovation and problem solving. Within Big Pharma, many companies are mirroring this approach by shaking up their R&D functions. (Indeed, many Big Pharmas have newly-named heads of R&D.) Some have narrowed their therapeutic focus or terminated clinical trials earlier in the process when successful results do not materialize. Others have broadened their product offerings. Whatever the action, Big Pharma is striving to be more efficient throughout the drug discovery and development process to accelerate its ability to bring drugs to market faster.
4. Match Medicine with Technology
Apps and digital technology form the backbone of today’s vendor-consumer relationship, putting more information into the hands of consumers. Pharmaceutical companies must embrace this trend; digital startups have the advantage of connecting directly to consumers, which allows for direct feedback on products and outcomes as well as data collection. (Think activity trackers such as Fitbit.) Though the trend is still evolving, big data drawn from the consumer base can provide insights into the patient experience and shape future product development.
5. Tap Into the Minds of Doctors
Beyond the medical expertise they bring, there are a few reasons biotechs like to hire doctors. For one, they think like entrepreneurs; additionally, their experience in patient treatment gives them the kind of direct experience that can help them anticipate new products that might appeal to the public. They are also used to dealing with uncertainty of outcomes. Finally, doctors deal with a wide variety of people, including suppliers, customers and other medicals professionals.
As Big Pharma looks to the future, adhering to its prescription for change will be imperative. Can these giants successfully transform themselves for the sake of speed, innovation and bottom line health?
Senior Managing Director