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The right prescription

Strategist Team 

Rahul Kashyap & Sriram Shrinivasan
Rahul Kashyap & Sriram Shrinivasan

Indian pharma companies have been in the news lately either because of quality problems or for compliance issues. These are symptoms that the bigger issue is a lack of investment in R&D and new drug development. So where should we start? Is collaboration an answer? Globally, open innovation is a standard practice in companies such as
Novartis that treats innovation as a relay race rather than a marathon. Should Indian companies follow suit?

Rahul Kashyap
Founder, StratSol Consultancy

Unfortunately, the answer currently is no. Not because the chances of success are bleak, but because the molecule developed through open innovation may not get patent protection, thereby, limiting the profits. Notwithstanding the drying pipeline of potential blockbuster molecules, competition from generic drug makers and a stringent auditing process, multinational pharmaceutical companies simply are not inclined to follow this novel model called 'open source'. The reasons are more than obvious.

Open source by definition encourages a collaborative research platform where research being done on a particular molecule can be accessed by anyone, that too free-of-charge. This 'openness' of the model is the biggest barrier when it comes to multi-national drug companies participating in such a project. The idea is to start from the basic, where innovation is encouraged but not patenting. For this sole reason, companies do not see it as lucrative as it may simply not boost the revenues that they desire. We, as humans, default to an open way of interacting with each other, but such practices can be overridden where there is some advantage in keeping secrets.

The novel idea, though, got eminent scientists and experts into a debate on how could it be put into practice and help mankind by expediting research and development while keeping the cost as low as possible. But 'un-patentability' of drugs discovered through this model became its biggest weakness. The majority of drug research and development performed globally is essentially for the needs and consumption of high-income countries. It is a known fact that 90 per cent of all health research and development investment is spent on areas that concern only 10 per cent of the world's population. What adds to the existing problem is also the fact that the medical needs of high-income countries are not the same as low-income countries.

Companies do invest money, time and employ best of brains to do drug research in potential areas. They know that one blockbuster discovery could fetch them money that would be more than enough to plough back for research and also maintain the growth of company's bottom line. High-income countries have the resources to pay, either publicly or privately, a price which gives the innovator a profitable return on investment.

Bypassing the open innovation model, many companies have tied up with educational institutes, scientists, and public and private hospitals to do the research for them. A few of them have adopted public-private partnerships and have achieved notable success in bringing new drugs to the market. But the same companies are shying away from this novel idea on open sourcing because it would not reap the desired returns on the time, energy and money they invest in the research.

Having said all negative things about the novel idea, one should not feel that the idea should be thrown into the dustbin and offer no value. The model, for all practical reasons, will not be implemented by companies that look at boosting profits in much less time. But the idea can certainly bear potential for developing new and inexpensive drugs to combat diseases that disproportionally affect the poor.

By opening a project to as many contributors, the research capacity significantly increases. In the context of drug discovery it means that all virtual and laboratory results are published with as much of the raw data available as possible. This would also help medical and scientist community share their experience on the process. It is anticipated that a majority of the researchers will contribute on a volunteer basis, thereby reducing the cost of the project.

Publishing ongoing data and results of drug discovery process is positive in the context of neglected diseases. These are neglected because the market does not offer sufficient purchasing power. By employing such a model in low-income countries, one not only facilitates open collaboration while pre-empting the chances to patent any results but also de-links the research and development costs from the sales price of the end product. Currently, there are only a handful of open source research and development projects that focus on neglected diseases.

The open source model could be followed in areas where nobody wants to invest (which essentially is directly proportional to the market size of probable drugs), but for medical ailments which occur in wider geographies, it is simply not practical. Despite all the talk of care and humanity, ultimately companies do care about profit margins.

Sriram Shrinivasan
MD, Life Sciences Practice, Accenture India

Over the last decade, the Indian pharmaceutical industry has increased its R&D spend in its efforts to transform itself from 'generics centric' to an 'innovation driven' industry capable of developing new chemical / molecular entities (NCEs/ NMEs). However, besides the launch of an anti-malaria drug in 2012 and an anti-psoriasis drug recently, we do not have many success stories to talk about. Global productivity with regard to new drug discovery over the past decade has been crashing as well. The R&D spend of the US pharma industry may have increased from approximately $40 billion in 2001 to about $70 billion now. But, NCE approvals have actually come down leading to a rapid rise in the cost of new drug development from less than a billion dollars in early 2000s to about $1.8 billion per drug in 2010.

The rising cost of drug discovery makes it pertinent to look at alternate models to approach innovation. 'Open innovation model' has emerged as an interesting alternative. It is based upon openness and collaboration, which is in complete contrast to closely guarded and internally focused traditional R&D models typically seen in the pharmaceutical industry. An open innovation model enables organisations to exchange ideas and thoughts from outside in a structured manner, thus potentially augmenting capacity, providing massive parallel processing and improving the innovation funnel. The model is generally most beneficial for industries where the industry as a whole innovates faster than any single company; its value chain has flexible participants (like academic institutions, mid-tier to large corporates, public players, venture funds etc) and monetising the final innovation is worth more than intellectual property (IP) enforced control.

The pharmaceutical industry meets all of these criteria and therefore the open innovation-based R&D approach could potentially be a game-changer for pharma. A pharma player could deploy an open innovation model in multiple ways. It could be early stage research collaboration where a group of players can pool in their resources. No party owns any IP until research reaches a pre-determined stage and any data generated until this point is available for everyone to use. This approach can help pharma players bring down the cost of basic research in this low value stage where most molecules are anyway discarded.

Another form of open innovation is achieved through networking with academic institutions. An economic survey report earlier this year pointed out that despite India possessing strong public sector scientific research infrastructure, not much has translated into commercial ventures. Collaboration between public sector institutions and private sector enterprises based upon principles of open innovation could be the answer to this problem. Such institutes often have some of the brightest scientists who have great ideas but lack support in other areas such as formulation, pharmacokinetics, and pharmacodynamics etc, which is critical in taking a drug to clinical trials stage. There can be several other variations of this model but the basic premise remains the same - leveraging external capabilities as much as internal to improve the productivity of the drug discovery process.

Several leading western pharma players have already started realigning their R&D efforts based on the philosophy of open innovation. Pfizer, the world's leading pharmaceutical company, has formed open innovation-based alliances with several leading academic medical centres across the US to discover novel biotherapeutics. Referred as 'Centres for Therapeutic Innovation', Pfizer aims to maximise the value out of its research initiatives by engaging in a spider web of activities and interactions that incubates propositions, which can be evaluated in a range of risk and investment modes beyond conventional binary decisions.

Indian players can also look at adopting open innovation based R&D models and avoid some of the expensive mistakes global companies have made. Major Indian pharma players should probably take a lead in taking this forward. They could create a consortium of public/private players to expand their network, pool in their resources in terms of talent, infrastructure and funding and collectively pursue the innovation puzzle. Of course, there are a host of challenges which needs to be addressed as companies go down this path. First, companies need to have a 'strategic clarity basis' which could define the expectations and boundaries of such a programme. Second, one needs to 'define the operating model,' including details on IP management, governance mechanism and funding before kick-starting such an alliance. Most important, the participants need to trust each other and show faith in capabilities of fellow companies while they march towards a common goal.

First Published: Mon, October 07 2013. 00:15 IST