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Summary articles Management Life Sciences Innovations (GEO3-2220)

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Summary of the articles that are required to be read during the course Management Life Sciences Innovations about innovation and the way to manage it in the pharmaceutical sector.

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  • 30 januari 2021
  • 30
  • 2020/2021
  • Samenvatting
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Door: laurentomassen2001 • 10 maanden geleden

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2.1 Innovating in large life sciences companies
Lessons from 60 years of pharmaceutical innovation - Munos (2009)
New molecular entities ​(NME) ​=​ medication with active ingredient that has not been previously
approved for marketing in any form in USA → ​small-molecule drugs​ → in this article the term
includes ​biologics​ (all therapeutic proteins) → NME output differs widely with different firms.
Rate of production of NMEs​ by companies responsible for output has been constant.
→ (a) raises questions about sustainability R&D, (b) challenges rationale for major mergers and
acquisitions (​M&A​), (c) suggests drug companies need to be bolder in redesigning research.
→ M&A is not an effective way to promote an innovation culture/remedy a deficit of innovation.
Prescription Drug User Fee Act​ (PDUFA) = US law (1992) that allows the FDA to collect fees from
drug manufacturers to fund the new-drug approval process.
Blockbuster = ​NME with peak sales that exceed $1 billion, expressed in year-2000 dollars.
Large pharmaceutical companies:​ the top 15 drug companies, or their predecessors and joint
ventures → need to produce 2–3 NMEs per year to meet growth objectives (none have) → all
other companies, including biotech companies, are small pharma companies.
Sustainable innovation possible by:​ focussing on particular disease area or therapeutic strategy.
- Some sell products and services ​in addition to drugs​ → some are anchored in their ​home
country market​ → some are ​conglomerates​ → some concentrate on ​generics​.
Larger number of companies​ accelerates the
acquisition of knowledge, creating a​ spillover​ =
industry-wide benefit that enables all
companies to be more productive.
Cost of NME:​ average cost per NME was
$802 million in 2000 for small molecules
and $1,318 million in 2005 for biologics (do
not include post-approval costs, ​phase 4​) → ​NME
costs: ​dividing company’s annual R&D spending by its rate of NME production.
Countries with demanding ​regulatory apparatus​ (UK, US) promote more innovative, competitive
pharma industry → force companies to be more selective in choosing compounds for marketing.
Increase in NME output of small companies​ driven by 2 factors:​ (1) rise in ​number of small
companies​ producing NMEs, (2) ​mean annual NME output​ of small companies has increased.
→ decline in output large companies driven by decreasing number of large pharma companies.
Orphan drugs =​ drugs specifically developed for diseases affecting fewer than 200.000 patients.
What’s next?​ (​ 1) ​scaling patent cliffs:​ discovery NMEs is elusive (ongrijpbaar) and sales prospects
are nearly zero → reduces odds of obtaining a return on investment in R&D → ​solution;​ combine
knowledge of drug innovation and new-product sales with patent expirations to model how
firms survive large revenue losses due to patent expiration of blockbuster drugs (​patent cliffs​).
(2) ​choosing a course:​ industry must embrace more radical change and seize the opportunity to
redesign the model → ​4 points of improvement/redesign for pharma industry;
1. Change its innovation dynamics​ to move beyond constant NME output → R&D
productivity is the number one issue → it is not fixed.
2. Ursing radical and successful experiments​ as building blocks → FEX. ​public– private
partnerships​ (PPPs), innovation networks and ​open-source R&D =​ virtual network of
volunteers that uses online tools to address a problem of shared interest → ​advantages
open architecture for R&D;​ heightened competition, reduced costs, increase in ability to
initiate and terminate projects and makes it easier to manage ​disruptive innovation =

, turn cutting-edge science into novel products with superior features to create new
markets, which unsettles established products and tech.
3. Short-term priorities​ to encourage marginal innovation → more reliable returns on
investment, at the expense of major changes→ a separate, protected area to generate
disruptive innovation​ for companies relying on breakthrough discoveries.
4. Rethink industry’s process culture​ → success depends on random occurrence of ​black
swan products =​ rare events of key importance, reshaping markets, industries, societies.
Jean-Pierre Garnier​: R&D assumed as ​scalable​, could be ​industrialized​ and ​driven by detailed
statistics​ and ​automation​ → ​result;​ loss of personal accountability, transparency and passion of
scientists in discovery and development.


Diagnosing the decline in pharmaceutical R&D efficiency - Scannell et al. (2012)
Advances in R&D (​high-throughput screening​ (HTS), X-ray, identification drug targets), new
inventions (biotech, transgenic mice) and advances in scientific knowledge (biomarkers).
R&D efficiency =​ measured by number of new drugs brought to
market by global biotech and pharmaceutical industries per billion
US dollars of R&D spending → ​declined steadily​.
Moore’s law =​ techs that improve exponentially over time → ​Eroom’s
law =​ powerful forces have outweighed scientific, technical and
managerial improvements → ​unpleasant consequences;​ there will be
fewer new drugs​ and/or drugs will ​become expensive​.
→ explaining Eroom’s Law should address 2 things:​ (1) progressive
nature of R&D decline in the number of new drugs per billion US dollars of R&D spending, and (2)
scale of decline. ​Primary causes Eroom’s law (innovation struggles)​:
1. “Better than the Beatles” problem​: hard to achieve commercial success with new pop
songs if it has to be better than the Beatles → ​yesterday’s blockbuster​ is today’s generic
→ increases complexity and hurdles for approval, adoption and reimbursement.
→ ​“Low-hanging fruit” problem​ as fifth, less important cause of Eroom’s law → gradual
exploitation of more manageable drug targets → easy-to-pick fruit ​is gone​, while “better than
the Beatles” problem argues fruit that has been picked ​reduces the value​ of the fruit that is left.
2. “Cautious regulator” problem​: lowering the risk tolerance by regulatory agencies raises
the bar for the intro of new drugs and increases R&D costs → medicines have to
demonstrate ​efficacy​, s​ afety hurdles​ are increased → ​rise in R&D efficiency in 90s due to
2 regulatory factors:​ (1) clearing the regulatory ​backlog​ (getting rid of the accumulation of
uncompleted work) and (2) rapid development and approval of HIV drugs.
→ ​follows the “better than the Beatles” problem​ → regulator is more risk-tolerant when few good
treatment options exist → availability safe, effective drugs raises regulatory bar for other drugs.
3. “Throw money at it” tendency​: tendency to add ​resources​ to R&D, because it is believed
every dollar spent gives a return → ​due to​; (a) good ​returns on investment​ in R&D, (b)
poorly understood and ​stochastic innovation process​ (sequence of random outcomes),
(c) ​long pay-off periods​ and ​intense competition​ between marketed drugs.
4. “Basic research–brute force” bias​: tendency to ​overestimate​ advances in ​basic research
and ​brute force screening methods​ to ​increase​ probability of a safe, effective molecule in
clinical trials → drug discovery and development sound more prospective than really are.
→ ​(4) dominates drug research, because;​ (a) ​slowing pace​ of pharmaceutical innovation (new drugs
had only modest incremental benefit over generics). (b) ​older approaches​ for early stage drug
R&D seemed to yield less (​molecular reductionism =​ genetics and molecular biology provide the

, best, most fundamental understandings of biological systems). (c) ​matches the opinion​ of many
commercial managers, management consultants and investors → ​(4) manageable in several ways:
A. Analysing the ​better systems-level insights​, (sets of) targets and candidate drugs of
research from other therapeutic areas.
B. Putting ​more emphasis on​ iterative approaches, animal-based screening or early proof of
clinical efficacy in humans → ​less on​ predictive power of molecules from a static library.
C. Stop believing in ​predictive ability​ “basic research–brute force” screening approaches
and putting molecules into clinical trials without more validity of the hypothesis.
How can parts of R&D process improve, but overall
efficiency decline? → i​ ndustry industrialized and
optimized the wrong set of F&D activities.
2 potential problems:​ (1) much of R&D is now ​based
on idea​ that high-affinity binding to a single target
linked to a disease will lead to medical benefit in humans (no attention to ​off-target effects​). (2)
shift from ​iterative processes​ to serial filtering (with HTS) of a static compound library against a
target (directed iteration may be more efficient).
Signal-to-noise ratio = ​chosen drug candidates should demonstrate effectiveness and safety in
clinical trials successfully → comparing level of desired signal to level of background noise.
→ improve signal-to-noise ratio by:​ (a) a detailed understanding of why drugs fail, (b) leading to
discovery of common failure modes and (c) using this to change early stages of the R&D process.
Secondary symptoms Eroom’s law:
- Narrow clinical search problem​: shift from broad focus on ​therapeutic potential​ in
active agents to a focus on ​precise effects​ from molecules designed with a single target.
- Big clinical trial problem​: ​expansion of patients in clinical trials results from​; (1) “better
than the Beatles” problem ​increases trial size​ (if the effect size halves, 4 times as many
patients have to be recruited). (2) phase III trials are ​messy mixture​ of science,
regulation, public relations and marketing (trying to satisfy multiple constraints inflates
size + cost).
- Multiple clinical trial problem​: ​increased complexity​ of medical practice and ​many
different treatment options​ means narrower indications and more clinical trials per drug.
- Long cycle time problem​: increase in duration of clinical trials between 60s and 80s.
Solution:​ ​Chief Dead Drug Officer​ (CDDO) =​ someone who focuses on drug failure at all stages of
R&D → has fixed time to compose a detailed report with the explanation of the causes of ​Eroom’s
Law​ → this gets submitted to the board of the company and health institutes (FDA in the USA).
→ advantages:​ (1) CDDO has no incentive to be ​irrationally optimistic​. (2) R&D costs dominated
by ​cost of failure​ (lot of time spent on failed molecules). (3) CDDO has ​expertise in drug failure​.
Other solutions: ​reorganization of R&D (smaller/larger R&D units, outsourcing to lower-cost
countries) - ​quick-kill strategies​ (sudden and rapid victory) - mergers - connect with science
(universities at frontrow for new scientific discoveries) - radical experiments (PPPs).
Prognosis Eroom’s law:​ (A) ​amount spent on R&D​ will not increase (“throw money at it” tackled by
most companies). (B) ​cumbersome biosimilar approval​ pathway in US (causes endless conflicts).
(C) ​signal-to-noise ratio​ may improve among compounds developed for oncology.
→ declining R&D costs, oncology drugs, more orphan drugs and biosimilars can put an end to
Eroom’s Law at an industry level.


2.2 Project-based innovation

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