InnoThink

The State of Pharmaceutical Innovation Bernard Munos

Founder

InnoThink Center For Research in Biomedical Innovation

Chicago July 16, 2012

• The state of innovation

• Facts about innovation

• Where does innovation come from?

• Priorities for returning innovation to drug R&D

2

Outline

InnoThink

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

The pharma industry faces a ‘Kodak moment’

Number of NMEs

big pharma

total

40

50

60

70

80

90

100 90% Pct of prescriptions filled by generics

R² = 0.6627

0

10

20

30

40

50

60

70

80

0 2 4 6 8 10 12 14R&D spending per NME ($ billion)

2010 Sales ($ bn)

Company rank

Not enough innovation Unaffordable innovation

Undistinguished innovation

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

flat

R&D spending ($ bn)

Top 12 pharma

Death spiral or transformation? 3

Pharma now spends much of its time iterating on the same targets/scaffolds 4

Pharma has changed the business model that made it great

Turning cutting-edge discoveries into commercial products

The ‘old’ pharma model:

and creating vast new markets and value for patients

InnoThink

5

• Ethics: Pharma has paid about €20 bn in fines in last 20 years, 75% in last 5 years

(reimbursement fraud, kickbacks, off-label promotion, ghostwriting, falsification…)

• Innovation: Not enough, marginal, unaffordable

• Risk-taking: Fear to disrupt Lots of breakthroughs waiting to be translated into something useful

(synthetic bio, nanomed, tissue engineering, stem cells…)

• Patient focus: Retrenchment from Rx areas (anti-infectives, neuroscience, cardiovascular) Drug shortages Pushing patients into bankruptcy

Pharma no longer lives the values that made it great

InnoThink

6

Pharma’s triple challenge

•More innovation

•Better innovation

•Affordable innovation

InnoThink

• The state of innovation

• Facts about innovation

• Where does innovation come from?

• Priorities for returning innovation to drug R&D

7

Outline

InnoThink

8

The innovation pathways

• High-risk, unconventional research

• Patient-oriented research

• User-driven innovation

• Disruptive thinking

• (Assembly-line model)

0

5

10

15

20

25

0

1

2

3

4

5

6

7

8

9

101

98

6

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

R&D spending ($ billion) Cumulative number of NMEs

9

Innovation does not scale

Pfizer’s cumulative NMEs

Pfizer’s R&D spend

Pfizer’s trebling of R&D spending since 1999 has had no detectable impact on its rate of NME production

©InnoThink

0

5

10

15

20

25

30

35

40

45

50

1/1/50 1/3/60 1/4/70 1/6/80 1/7/90 1/9/00 1/10/10

Innovation is highly nonlinear

1/1/1950

1/3/1960

1/4/1970

1/6/1980

1/7/1990

1/9/2000

1/10/2010

0 1 2 3 4 5 6 7 8

Timing of NME approvals

1950 1960 1970 1980 1990 2000 2010

Cumulative number of NME approvals

pain

schizophrenia

depression

• Innovation comes in waves

• 10-year dry spells are not uncommon

• Long compund series are the exception, not the rule

• 34% of drugs (for CNS) have a poorly understood mode of action

©InnoThink

10

• The state of innovation

• Facts about innovation

• Where does innovation come from?

• Priorities for returning innovation to drug R&D

11

Outline

InnoThink

12

Where does high-value innovation come from?

breakthrough discoveries

creative scientists transformational

leaders open and

networked culture

+ + +

+ enabling factors

• diversity (cultural, ethnic, academic, age, etc)

• cross-disciplinary, silo-free, equalitarian culture

• few, fuzzy processes (adaptiveness)

• multiple, diversified sources of financing

• supportive authorities (policymakers, regulators)

• intense competition

13

Breakthrough discoveries

• Breakthrough must be seen through the eye of the patient (user), not the scientist Gleevec is a breakthrough… so is Augmentin, Zocor, Aranesp, Humulin Lipitor is not a breakthrough

• Breakthrough discoveries can stem from novel research, shrewd clinical observations or the recombination of existing ideas

• Most science funding does not support highly innovative work Most public and private spending supports ‘regular science’, not novel original ideas Peer-review and committees foster compromises that do not reward boldness

• Alternatives? Need greater focus and selectivity, e.g., DARPA’s disruptive focus and milestone-driven

approach (“Is this disruptive? Why?”); GSK’s Discovery Performance Units

14

Creative scientists

14

The marginal innovator The disruptive innovator

Wants to grow and nurture existing markets Wants to obliterate what’s there and replace it with

something better

Seeks competitive advantage from greater efficiency Seeks competitive advantage from changing the game

Improves and optimizes Disrupts

Aligned with the organization’s goals Orthogonal to the organization’s goals

Analytical, cautious Intuitive, bold

Sticks to process and job description Knows no boundaries

fits in sticks out

Risk-averse, change-wary Risk-taking, change-friendly

Seeks consensus Never minds being alone

The crazies, the misfits, the rebels, the troublemakers,

the square pegs…

Disruptive and marginal innovators are different species separated by a

chasm that must be bridged

Source: adapted from Munos, Clin Pharmacol Ther. 2010 May;87(5):534-6

15

Open culture

• Innovation is a by-product of culture, not a by-product of organization, six-sigma, or anything else

• Principles and values, not processes, define a corporate culture A few powerful principles are worth more than many standard-operating-

procedures

• Principles must value diversity and openness

Networked culture

• Networks are a powerful but underappreciated ingredient of innovation

• Local networks help get things done but can reinforce orthodoxies

• Global networks bring novel ideas into the fray

• Both are necessary

17

Transformational leaders

Roy Vagelos, Merck Paul Janssen, Janssen Art Levinson,

Genentech Dan Vasella, Novartis

George Rathmann, Amgen

Corporate leaders who left the most admired legacy were also passionate de-facto Chief Innovation Officers

When it comes to innovation, bolder is better, and it starts at the top

Steve Jobs Bill Gates Jeff Bezos Bill Hewlett, Dave Packard

18

Enabling factors

• diversity (cultural, ethnic, academic, age, etc)

• cross-disciplinary, silo-free, equalitarian culture

• few, fuzzy processes (adaptiveness)

• multiple, diversified sources of financing

• (supportive authorities (policymakers, regulators))

• (intense competition)

• The state of innovation

• Facts about innovation

• Where does innovation come from?

• Priorities for returning innovation to drug R&D

19

Outline

InnoThink

20

• Foster an innovation culture: welcome the curious, passionate scientist; let boldness and vision drive decision-making; make it safe to be bold

• Pick an innovation model that works. Stop doing what doesn’t.

• Forget blockbusters, chase breakthroughs: don’t let sales forecast, NPVs and ROI steer you toward the trap of marginal innovation and commoditization

• Build broad innovation networks: no matter how big you are, most great ideas come from elsewhere

• Focus on translating breakthrough science that has the potential for creating vast new markets

• Restrict clinical research to candidates that have the hallmarks of breakthroughs, backed by compelling evidence

• Speed innovation and save money: embrace precompetitive collaboration; leverage open innovation models

Priorities for returning innovation to drug R&D

©InnoThink

21