Management life sciences innovation Lectures
Meeting 1: Introduction lecture – 15-11-2021
Biotechnology is defined as the application of science and technology to living organisms as
well as parts, products and models thereof, to alter living or non-living materials for the
production of knowledge, goods and services. There are several biotechnology technique
functions that each have a different single definition. There is a list of biotechnology
techniques in which several examples are mentioned:
- DNA/RNA
o Genomics → the interdisciplinary field of biology focusing on the structure,
function, evolution, mapping and editing genomes. Genomes are an organism’s
complete set of DNA.
o Genetic engineering → the process of using recombinant DNA (rDNA)
technology to alter the genetic makeup of an organism.
- Proteins and other molecules
o Proteomics → the large-scale stud of proteins. Proteins are a vital part of living
organisms, with many functions.
o Sequencing of proteins and peptides → the practical process of determining the
amino acid sequence of all or parts of a protein or peptide.
- Cell and tissue culture and engineering
o Tissue engineering → the biomedical engineering discipline that uses a
combination of cells, engineering, materials methods and suitable biochemical
factors to restore maintain, improve or replace types of tissue.
o Cellular fusion
- Process biotechnology techniques
o Bioprocessing → produce products that maintain all of the quality standards of
biopharmaceutical drugs.
o Biobleaching → the bleaching of things using biological agents such as
enzymes.
- Gene and RNA vectors
o Gene therapy → experimental technique that uses genes to treat or prevent a
disease.
o Viral vectors → tools to deliver genetic material into cells.
- Bioinformatics
o Construction of databases on genomes
o Modelling complex biological processes
- Nanobiotechnology → Applies the tools and processes of nano/microfabrication to
build devices for studying biosystems and applications in, amongst others, drug
delivery and diagnostics.
Within the biotechnology, there is the red, white and green biotechnology. The red
biotechnology refers more to the cells and what is inside the body. The white biotechnology
focuses more on the pharmaceutical industry and the manufacturing of drugs and the green
biotechnology is more about innovative green processes and products.
Life sciences is a scientific field that studies living organisms, ranging from micro-organisms
to population ecology. Molecular biology and biotechnology is one of the subfields of life
sciences. It is in close connection with the pharmaceutical industry. The Netherlands
continues dedication to life sciences and health. It builds on a strong foundation of science.
,The citation impact of our scientific publications belong to the world’s best and so does our
patent productivity. There is a lot of open innovation where academia, government and
industry cooperate in public-private partnerships to reach common goals.
The revenue per sub-segment in the health industry is enormous where drug stores, pharmacy
benefit managers (PBMs) and distributors are at the top of the list followed by payers and
pharmaceuticals. Medical software is currently at the bottom of the list.
Medtech is divided into four components which are the pharma, electronics, basic engineering
and telecom and data services. Medtech, also medical technology, is every product, service or
solution using medical technology to improve people’s health. The Pharma are companies like
Roche and Johnson & Johsnon where the pharma and medtech have mutual stakeholders
including regulators and payors. A payor is the maker of a payment, in the healthcare also
called the medical insurance. In the pharma, the goal is to offer diagnostics or drug bundles
instead of drugs only. Many phaema companies pursue growth opportunities in medtech.
Electronics cover companies like Philips or Siemens where Medtech devices use high
technology and electronics. Electronic companies offer healthcare-related devices such as
imaging devices, pedometers, pulse meters and blood pressure monitors. Basic engineering
covers the expertise in for example molding, coating and other basic engineering procedures
that are needed for the production of medical devices. Medtech and engineering work together
to develop materials and manufacturing technologies. An example of such an engineering
company is Stryker which is a medical technology corporation. Telecom and data services
cover companies like AT&T where new remote healthcare solutions often require substantive
data handling and storage capabilities that these companies offer.
There are currently a lot of emerging technologies arising such as Blockchain, cyborgs,
robotics, AI technologies, digital care at distance and even more. These technologies have
changed a lot over time in which emerging technologies now are robotics and virtual reality
for example while in the future, the healthcare hopes to do more. An example of future
emerging technologies are regenerative medicine which means developing methods to
regrow, repair or replace damaged or diseased cells, organs or tissues with artificial ones.
Another example is nanorobotics where machines or robot are created which components are
at or near the scale of a nanometer, used to for example kill cancer cells.
A science-based enterprise creates science and captures value from it. A Biotech of Life
sciences firm is a fusion of science and business where science is the product of the firm’s
activity. In science-based firms, the firms rely on R&D from both in-house sources and
university research, including industries such as pharmaceuticals and electronics. Firms in this
sector develop new products and processes and have a high degree of appropriability from
patents, secrecy and tacit know-how. A science-based firm is thus right in between science
and market. This specific market is growing more and more where science is a success but the
business not. Science is becoming a business. The Bayh-Dole act, formerly known as the
Patent and Trademark Act, is a law that enables universities, nonprofit research institutions
and small business to own, patent and commercialize inventions developed under federally
funded research programs within their organization.
, Lecture 2: Innovating in large life sciences companies – 18-11-2021
Innovation in big pharma
The drug R&D process consists of several steps. First, drug discovery research is performed
in which basic research, target identification and validation, screening and lead finding and
lead optimization is performed. Then for the drug development part, there is the pre-clinical
development, the clinical development, consisting of three phases and the regulatory
approval. The last step is the product launch and post-market research. This consists of health
technology assessment, marketing, phase IV studies and manufacturing. Internal R&D is
defined as the activity of the company whereby it sets up and fulfils the research product
within itself. Examples of these companies are Lilly and Bristol-Myers Squibb
(biopharmaceutical company).
Effectiveness of big pharma
The business model of the pharma depends on productive innovation to create value by
delivering greater customer benefits. Sustainable growth and value creation depend on steady
R&D productivity with a positive return of investment to drive future revenues that can be
reinvested back into R&D. The pharma however has a serious problem with declining R&D
productivity. The return on investment in pharma R&D is rapidly declining. This is because
the number of new drugs approved per billion US dollars spent on R&D have halved roughly
every 9 years. From 1950 to 2008, the FDA has approved 1222 new drugs which are either
new molecular entities (NMEs) or new biologics (BLAs). Although the level of investment in
pharmaceutical R&D has increasing during this period, the new drugs that are approved
annually is not greater than 50 years ago. The rate or production of new drugs (NMEs) have
been constant by companies over the years. This raises questions about the sustainability of
the industry’s R&D model, as costs per NME have soared into billions of dollars.
Of the 1222 NMEs that were approved since 1960, 1103 were small molecules and 1999 are
biologics. From 1950-1980, the line for biopharmaceuticals was almost flat after which the
curve slopes gently upwards. There are more than 4300 companies that are engaged in drug
innovation but only 261 have registered at least one NME since 1950 where only 32 of these
have been in existence for the entire 59 year period. The remaining 229 have failed, merged,
been acquired or were created by M&A deals. The fact that 32 survived means that there are
ways to innovative that are sustainable. Merck is a company that is listed as most productive,
with 56 approvals, closely followed by Lilly and Roche with 51 and 50 approvals. Many large
pharmaceutical companies estimate that they need to produce 2-3 NMEs per year to meet
their growth objectives and the fact that none of them has ever approached this level of output
is concerning.
The timelines for NME approvals for the three productive companies show almost straight
lines, indicating that these companies have delivered innovation at a constant rate for almost
60 years. The outputs from less productive companies, show a similar linear pattern, although
more erratic with smaller slopes. The outputs shows that a pharmaceutical company follows
the Poisson distribution that are characterized by a constant but stochastically variable rate of
occurrence which implies that the average annual NME output is constant. The industry’s
NME output has tracked its expected values which suggests that the output may not be
depressed but may simply reflect the innovative capacity of the established R&D model.
Between 1999 and 2018, the R&D investments of the 14 leading pharmaceutical companies
have increased in absolute terms and in relative terms. These 14 companies have launched
, 270 of the 602 NMEs approved, although the R&D output of these companies fluctuated
between a minimum of 7 and a maximum of 24 NMEs per year. This indicated that some of
the 14 companies had persistently low R&D output. With respect to the relative contributions
of the three innovation sources (1. NME through own R&D, 2. NME through M&A, 3. NME
through licensing), four companies exemplify the varying R&D models. 73% and 86% of the
NMES approved in the name of Pfizer and Roche were acquired of in-licensed. While Bristol
Myers Squibb and Novartis generated the large majority of their NMEs from their own
research. The more companies invested in R&D, the higher was their output expressed as
approved NMEs. Pfizer, Merck and Novartis have outperformed their peers in NME output,
suggesting efficient use of resources in R&D. However, Novartis has sources most of its
NMEs from proprietary programs whereas Pfizer seems to have leveraged their intensive
M&A and licensing activities efficiently.
Clinical success rates have recently started to improve. The R&D transformation efforts seem
to have resulted in an improvement in overall pipeline quality, leading to a gradual increase in
Phase I and phase II success rates. The likelihood of moving from Phase I to launch has also
increased. Eroom’s law is the observation that drug discovery is becoming slower and more
expensive over time. However, there are drugs that are estimated to achieve blockbuster sales
over $1 billion dollar by 2022. Oncology drugs are also considered as blockbuster drugs
which are drugs that are extremely popular and generate $1 billion annually.
A patent cliff is what happens when a company’s revenue starts plunging or falling off a cliff,
because an established product’s patent reaches its expiration date and competitors can then
start selling that product. The sales will then massively decrease. The first patent cliff was
experienced between 2011 and 216 where large percentages of big pharma companies lost
patent protection. Data has indicated that it is better to be first-in-class than to be best-in-class.
The twelve box matrix shows the value captures by the drugs as a function of launch order
and therapeutic advantage. The drugs that are achieved best-in-class but were launched
second, captured 88% of the value created by those that were both best-in-class and first-in-
class. Being second resulted in a 12% discount in financial performance. However, drugs that
achieved middle ranking on therapeutic advantage, but were launched first, captured 92% of
the value. However, being earlier is not sufficient for success if a drug is very low in
therapeutic value.
Reorganization of R&D is needed such as smaller R&D units in comparison to larger R&D
units. Outsourcing could also be done to
lower-cost countries and management
metrics could be introduced. The leaders
of major corporations have incorrectly
assumed that R&D was scalable, could be
industrialized and could be driven by
detailed metric and automation. The
grand result was a loss of personal
accountability, transparency and the
passion of scientist in discovery and
development. Scientists should also
become more entrepreneurial.
