Abstract
Continuous innovation is one of the pharmaceutical industry’s most defining characteristics. New medications can be crucial for maintaining the quality of human life, and may even affect its duration. The sales potential is staggering: the global pharmaceutical market is expected to reach $1.1 trillion by 2015. The pressure to succeed is tremendous. Yet, pharmaceutical innovation is hardly an orderly, predictable process. It follows a technology-push model dependent on a meandering path of scientific breakthroughs with uneven timing and hard to foresee outcomes. Technological competency, decades of rigorous research, and profound understanding of unmet customer needs, while necessary, may prove insufficient for market success as the critical decision for commercialization remains outside the firm.
Drug innovation as a business process requires savvy strategic, organizational, and managerial decisions. It is already enjoying intensive research coverage, giving rise to abundant but relatively dispersed knowledge of the mechanisms driving drug discovery and development. In this chapter, we present a comprehensive overview of the process of drug innovation from a business and academic perspective. We discuss the evolving organizational forms and models for collaboration, summarize significant empirical regularities, and highlight differences in market positions related to firms’ strategic orientation, innovation emphasis, attitudes to risk, and specialized resources. As a guide to future research, critical drivers and modes for drug innovation are systematized in a unifying framework of characteristics and process decisions, and multiple areas in need of further scrutiny, analysis, and optimization are suggested. Because of its rich potential and high significance, research on drug innovation seems poised to gain increasing momentum in the years to come.
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- 1.
The National Institutes of Health (NIH), part of the U.S. Department of Health and Human Services, is the nation’s leading medical research agency. It is also the largest source of funding for medical research in the world. More than 80 % of the NIH’s funding is awarded through about 50,000 competitive grants to more than 325,000 researchers at over 3,000 universities, medical schools, and other research institutions across the USA (Source: NIH website, www.nih.gov).
- 2.
It is hardly surprising that the innovation pipeline of the US pharmaceutical firms is primarily composed of drugs corresponding to the therapeutic categories with the largest sales in the USA: oncologics ($22.3 billion), respiratory agents ($19.3 billion), lipid regulators ($18.8 billion), antidiabetes ($16.9 billion), and antipsychotics ($16.1 billion). Sources: IMS Institute for Healthcare Informatics, Adis R&D Insight Database, PhRMA Pharmaceutical Industry Profile 2011.
- 3.
Some estimates indicate that 64 % of all research on new drugs approved in the last 10 years was done in the USA, making it the most relevant target of scrutiny.
- 4.
Two key events have come to be recognized as critical for the revolutionary union of genetics with biotechnology. One was the 1953 discovery of the structure of DNA by James D. Watson and Francis Crick, and the other was the 1973 discovery by Stanley N. Cohen and Herbert Boyer of a recombinant DNA (rDNA) technique by which a section of DNA from one organism (e.g., bacterium) could be transferred into the DNA of another, so that the latter could be induced to produce a specific protein. Popularly referred to as genetic engineering, this technique has come to define the foundations of modern biotechnology.
- 5.
If the medical drugs are created by biological processes, rather than being chemically synthesized, they are referred to as biopharmaceuticals or biologics. Recombinant DNA technology (rDNA), whereby scientists are bringing together genetic material from multiple sources to create sequences that may not otherwise be found in biological organisms (e.g., joining plant DNA with bacterial DNA), is often the technology used to derive them. Pioneered by Genentech, this is the main method for obtaining insulin nowadays, having replaced the animal sources previously used in the process. The technology has found many other applications—e.g., in HIV diagnosis, for the creation of growth hormones or blood-clotting proteins.
- 6.
In vitro tests are experiments conducted in the lab, usually carried out in test tubes and beakers. In vivo studies are those in living cell cultures and experimental animals, conducted to gauge the effects of the drug candidate on the metabolism and the systems of intact living organisms.
- 7.
The IND application outlines the results of the preclinical work, the candidate drug’s chemical structure and how it is thought to work in the body, a listing of the expected side effects, and information about the manufacturing process. The IND also contains a detailed test plan specifying how, where, and by whom the clinical studies will be performed.
- 8.
This was the case with Vioxx®, the anti-inflammatory drug developed by Merck, which was voluntarily taken off the market in 2004 because of findings about elevated risks for a heart attack or stroke. The unexpected risks were unveiled during a follow-up study designed to test the efficacy of its active ingredient for the prevention of colorectal cancer (Cockburn 2007).
- 9.
For at least one therapeutic category (antibiotics), there is definite value in the presence of more drug diversity per se. It is well known that bacteria mutate and can become resistant to the most common existing drugs, necessitating a wide variety of medication choices.
- 10.
There is an ongoing argument about raising the standards for late entrants so that a demonstration of performance superiority, or at least, non-inferiority compared to existing therapies is demanded before obtaining market approval (Angell 2004; Hollis 2004). However, such changes might considerably complicate and prolong the development process, and are likely to be fervently opposed by the industry. Essentially, adopting them will place the innovation race contenders in a position to chase after a moving target. The front-runner will be the only exception as it is competing against a placebo, or in some cases, against the conventional treatment.
- 11.
Although such a range of variation seems perfectly acceptable for many treatments and conditions, there are situations where severe adverse effects can occur if the drug concentrations exceed or fall below those ruled as safe and efficacious—for instance, when a precise calibration of a process is necessary (e.g., in the treatment of seizures, for regulating blood pressure, blood clotting and blood thinning, heart rhythm, thyroid activity). FDA will find it necessary to apply much stricter standards in these cases, which can explain its reluctance to publicly acknowledge the often-cited 80–125 % bioequivalence range.
- 12.
Pfizer discovered the key compound in what was to become the blockbuster hit Viagra® during Phase 1 of clinical trials for two totally different indications—high blood pressure and ischemic heart disease. When its efficacy for erectile dysfunction became apparent, Pfizer was quick to change research directions and made Viagra® one of the most successful drugs in history.
- 13.
For instance, Hoffmann-La Roche’s Pharma division has established a department called International Project Management. It is entrusted with the coordination of a resource pool of about 50 highly qualified project managers overseeing the firm’s dispersed R&D sites around the world, with the purpose of maintaining quality standards and ensuring consistency in procedures (Gassmann and von Zedtwitz 1998). Upon project completion, these project managers can be immediately reassigned to projects in other locations, thus enacting fast and seamless transfer of managerial experience, knowledge, and expertise within the firm.
- 14.
Nowadays, the US biotech firms account for 80 % of the world’s R&D investment in biotechnology. The US culture of encouraging entrepreneurship and innovation has been conducive to the creation of such firms. This tendency can be traced back to several noteworthy factors identified in Cockburn and Henderson (2001a): (a) strong intellectual property protection; (b) favorable financial climate with robust and vigorous venture capital industry (both of which are relatively uncertain in many European countries); (c) regulatory climate that is not restrictive of genetic experimentation; (d) strong scientific and medical establishment with developed infrastructure and access to the latest technologies to supplement the limited resources of fledging small firms; and (e) the existence of strong and facilitating academic and cultural norms that permit the rapid translation of academic results from the originating institutions (often in the public domain) to the private sector, with commercial purposes.
- 15.
In an exploratory study of biotech firms (Khulji et al. 2006), their managers—mostly scientists-turned-entrepreneurs—reveal the conflicting tensions they most frequently grapple with: the desire to retain leverage, control, and confidentiality by keeping the invention close to their chest for as long as they can, and the realization that to advance and be effective, they need to collaborate and attract partners who have greater access to capital, more business contacts, better organizational capabilities, and understanding of marketplace dynamics. Trust issues, insufficient alignment of interests, and coordination problems in asset deployment are some of the areas that introduce challenges in such arrangements.
- 16.
For example, the eradication of the smallpox virus was made possible, thanks to the efforts of the World Health Organization, which mounted a global vaccination program.
- 17.
For example, a firm that has serendipitously made a discovery in a non-focal area can partner up with a company whose research focus matches the discovery in question so that they can jointly take the new drug to market.
- 18.
Prior to its acquisition by Roche in 2009, Genentech, the company considered to be the first biotech firm, remained focused almost exclusively on large molecules, using partnerships to augment its core research and to increase its access to capital. Other companies have also chosen to restrict their R&D to few carefully selected areas, e.g., Biogen Idec Inc. is specializing in drugs for neurological disorders, autoimmune disorders, and cancer.
- 19.
In fact, by the late 1990s, the large pharmaceutical firms were marketing seven out of the ten top-selling biotech drugs, although none of the drugs had been developed by them. Those seven drugs accounted for two-thirds of the revenues from the top ten drugs at the time (Rothaermel 2001b). In 2000, more than half of the drugs in the pipelines of Schering-Plough, Bristol-Myers Squibb, and Johnson and Johnson were products of in-licensing agreements (Simonet 2002).
- 20.
The first firm to apply biotechnology in drug discovery was Genentech. Using recombinant DNA technology, it created synthetic human insulin, heralded as the first-ever approved genetically engineered therapeutic product. But Genentech didn’t take that revolutionary product to market. Instead, it licensed Eli Lilly to navigate the FDA approval process.
- 21.
A recent example for an international alliance of large pharmaceutical firms is that of Boehringer-Ingelheim and Pfizer for the joint manufacturing and marketing of Spiriva®, a treatment for chronic obstructive pulmonary disease.
- 22.
In 2009, Schering-Plough got acquired by Merck, while American Home Products was taken over by Pfizer.
- 23.
The onset of extensive interfirm cooperative arrangements in the pharmaceutical industry in the early 1980s coincides with the time of its sweeping transition from chemical to biological compounds, which had also triggered the emergence of biotech firms in the late 1970s. The confluence of several critical factors created favorable conditions that fostered such cooperation: the Supreme Court passed a decision that live forms could be patented, the Patent and Trademark Act allowed universities to patent discoveries funded with federal dollars, and the first biotech firm, Genentech, went through a very successful IPO, drawing the industry’s attention to the creative potential of such firms (Hoang and Rothaermel 2005). The trend toward strategic alliances got an extra boost in the 1990s in the wake of several biotech firms’ stock market failures that underscored the advantages of partnering with large pharmaceutical firms. Around the same time, drastic healthcare reforms curtailed the growth potential of large pharmaceutical firms and sent them scrambling for faster innovation. This precipitated the need for cooperation on their part.
- 24.
Eli Lilly has established a dedicated function called Office of Alliance Management to serve as an “integrator, intermediary, and catalyst for best practice performance” (Hoang and Rothaermel 2005). This move is consistent with the suggested need for intraorganizational streamlining of diverse alliance experiences.
- 25.
As reported by the IMS Institute for Healthcare Informatics, in 2009–2010 the combined worth of branded drugs set to face generic market competition due to patent loss was estimated as $32.1 billion (an all-time high). Major blockbusters such as Lipitor®, Plavix®, Zyprexa®, and Levaquin®—which have accounted for more than 93 million prescriptions in 2010 and generated a total of $17 billion in sales—may soon lose market exclusivity in the USA. This trend appears to hold worldwide as, over the next 5 years, branded drugs worth a total of $142 billion in sales are likely to see their patents expire in major developed markets. Two-thirds of that loss, or $98 billion, will be from forgone sales in the US market.
- 26.
For example, the FDA has recently approved Merck’s combination drug Juvisync, intended for the joint therapy of type 2 diabetes and high cholesterol. Enhanced patient compliance and better prevention are expected from the convenience of taking a single pill.
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Petrova, E. (2014). Innovation in the Pharmaceutical Industry: The Process of Drug Discovery and Development. In: Ding, M., Eliashberg, J., Stremersch, S. (eds) Innovation and Marketing in the Pharmaceutical Industry. International Series in Quantitative Marketing, vol 20. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7801-0_2
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