Is Crowdsourcing the New Route to Pharma Drug Development?
Posted December 15th, 2011
What’s wrong with the traditional pharmaceutical drug development process? Why is it so expensive and inefficient? Critics of the industry blame thinning drug pipelines, escalating development costs and a lack of innovation. Many pharma company executives blame increased regulatory scrutiny, burgeoning labor costs and downward drug pricing pressures due to the generic drug market.
A new theory suggests that big pharma’s current woes stem from flawed business practices that the industry has followed for the past 60 years.
From 1950 to 2008, the FDA approved 1,222 new drugs and biologics. Over the same period, the annual investment into new drug R&D dramatically increased — growing at an average compounded rate of 12.3% per year to roughly $50 billion per year. Despite this massive R&D investment, the number of new drugs approved each year over the past 50 years has remained fairly constant: averaging 25 to 30 per year.
Therefore, spending more money on R&D initiatives did not help to improve innovation or drug development productivity in the life sciences industry.
Today’s pharmaceutical industry faces several major financial and business challenges.
• Longer R&D cycles and increasing regulatory scrutiny are causing R&D costs to spiral out of control.
• The impending patent expiry of many blockbuster drugs threatens to cut total drug sales revenues by as much as 41% by 2015.
• By the end of 2012, 20% of big pharma’s current sale revenues will be susceptible to generic drug encroachment.
• Generic prescription drugs are predicted to take a bigger chunk out of total global pharmaceutical sales by 2014.
• Healthcare reform legislation and downward pricing pressures imposed by insurance companies and third-party payors are driving down drug reimbursement costs and squeezing the margins of many branded prescription drugs.
Drug makers have attempted to control costs through job cuts, corporate restructuring and M&As. Over the past four years alone, the world’s 10 largest pharmaceutical companies have eliminated over 200,000 jobs. During the same period, M&A activity has skyrocketed as big pharma companies rush to bolster their biotechnology product offerings. While both strategies are likely to help to control costs and boost company stock prices in the short term, neither is likely to help to improve productivity or spark innovation.
The Blockbuster Drug Business Model – No Longer Viable
The blockbuster drug business model is no longer viable or sustainable in today’s marketplace. There is general agreement among most industry analysts that big pharma companies must change to remain productive and relevant. These changes include:
• improved R&D productivity
• a continuation of drastic cost-cutting measures
• a strategy to rapidly garner market share in emerging markets.
While some analysts contend that conventional M&A strategies can address these issues, there is a growing consensus that fundamental changes to big pharma’s business model are necessary to ensure its survival.
Open Innovation
Historically, the life sciences industry has operated by using a “closed innovation” business model, which is mainly driven and protected by patents and IP, and product development is frequently done internally and secretly without much input from external sources.
An open innovation model — such as those used by software developers and information technology companies — is nimble and flexible and relies on both internal and external resources for product development and commercialization. Otherwise known as “crowdsourcing,” this business model leverages the collective external expertise of a network of contributors (the “crowd”) to help develop products that originated as internal ideas.
While most of crowdsourcing’s better-known successes have been realized in the software industry, like Linux software and the Google Android operating system, the possibility of applying it to pharmaceutical R&D is gaining support. Over the past few years, several big pharma companies have begun to apply the crowdsourcing concept to early drug discovery and development.
A Novel Idea: Crowdsourcing Clinical Drug Development
Most of big pharma’s experiments with open innovation have focused on drug discovery, most likely because it’s the least regulated part of the drug commercialization process. But, although substantial financial investment is required for discovery research and preclinical drug development, the most expensive part of the process is usually human clinical trials. And human clinical trial costs are rising, mainly because of regulatory agencies’ increased emphasis on drug safety.
Challenges
There is no question that open innovation drug discovery models are gaining traction at several major pharmaceutical companies. However, wholesale adoption or “buy in” of the open innovation model by the pharmaceutical industry faces several major challenges:
• the open innovation model would likely elevate the regulatory requirements associated with drug development because of the increased number and diversity of contributors to the process.
• implementation of the model would require careful design, ongoing and regular contact with regulators
• a large investment and commitment of overhead in project management and information technology support would be required.
• how will patents and other intellectual property generated during the open innovation process be handled and managed? Who will own the patents?
• Open innovation will require an unusually complex reward system for contributors that include fees for service, fees for success, and milestone and royalty payments
• As big pharma companies continue to become increasingly risk-averse, it isn’t clear what percentage of risk they will be willing to assume in open innovation drug development projects.
