What can Ontario learn from “Lessons from 60 years of pharmaceutical innovation” ?

It’s the title of a very insightful analytical paper by Bernard Munos (Nature Reviews, Dec-2009). He applied statistical analysis techniques to the aggregate inputs and outputs of the pharmaceutical industry.

The most stunning insights from his analysis are:

1.   Average annual output of the industry is constant and has been so for 60 years, despite consistent increase in R&D investment ($50 billion/year). Practically, it means that the output of the industry is not depressed, as commonly thought, but simply reflects the innovative capacity of the established R&D model.

In this light, new approaches, such as the open innovation paradigm, public-private partnerships and industry consortia hold a lot of promise. In our own backyard, MaRS Innovation is the one to watch.

2.   If the NME (New Molecular Entity) output is constant, the only way to grow is to increase the number of companies, which goes contrary to the 2009 wave of large M&As. However, Bernard Munos’ analysis shows that, broadly speaking, the impact of M&A in the pharmaceutical industry on R&D is “1+1=1”, which is consistent with other analysis (Grabowski, Kyle in “The Economics of Corporate Governance and Mergers”, p.262-287, 2008). A more nuanced view reveals that for small companies nearly 80% of acquisitions increased the NME output while for large companies the proportions were roughly reversed: 70% of acquisitions reduced NME output whereas 30% of acquisitions increased NME output.

3.   Let’s forget the rate of innovation and focus on sales instead. After all, customer knowledge, efficient sales infrastructure and disease expertise are the core competencies of major industry players. Every commercial decision and development step that can be codified and turned into a predictable process already has been done.  However, sales forecasts for new products are inaccurate nearly 80% of the time and portfolio management techniques have failed to protect the industry from patent cliffs. Munos’ analysis shows that the probability that an NME will achieve blockbuster status is about 21%, a success rate that has not changed in 20 years.

Solution? Bernard Munos’ recommendations point to the need to rethink process and culture. Quoting  CEO of GSK, Jean-Pierre Garnier: “The leaders of major corporations have incorrectly assumed that R&D was scalable, could be industrialized and could be driven by detailed metrics and automation. The grand result: a loss of personal accountability, transparency and the passion of scientists in discovery and development.”

Igniting passion for discovery is a tricky task for a large corporation. However, I am confident the veritable fireworks of passion for medical discovery will be on display at MaRS on May 27th-28th, during the International Symposium on Gazeous Neurotransmitters. Top thinkers from different disciplines will gather on the neutral ground of MaRS to discuss the breakthroughs in this exciting and highly promising field.

Veronika Litinski

Veronika Litinski provides advisory services to entrepreneurs and high growth companies, with a special focus on life sciences markets, specializing in corporate finance and business development. See more…