Accessing external innovation in drug discovery and development.

Review

Accessing external innovation in drug discovery and development Pierre Tuffery 1.

Introduction

University Paris-Diderot, INSERM UMR-S 973, Paris, France

2.

Why race for external innovation? A context

3.

Revisiting the relation

Introduction: A decline in the productivity of the pharmaceutical industry research and development (R&D) pipeline has highlighted the need to reconsider the classical strategies of drug discovery and development, which are based on internal resources, and to identify new means to improve the drug discovery process. Accepting that the combination of internal and external ideas can improve innovation, ways to access external innovation, that is, opening projects to external contributions, have recently been sought. Areas covered: In this review, the authors look at a number of external innovation opportunities. These include increased interactions with academia via academic centers of excellence/innovation centers, better communication on projects using crowdsourcing or social media and new models centered on external providers such as built-to-buy startups or virtual pharmaceutical companies. Expert opinion: The buzz for accessing external innovation relies on the pharmaceutical industry’s major challenge to improve R&D productivity, a conjuncture favorable to increase interactions with academia and new business models supporting access to external innovation. So far, access to external innovation has mostly been considered during early stages of drug development, and there is room for enhancement. First outcomes suggest that external innovation should become part of drug development in the long term. However, the balance between internal and external developments in drug discovery can vary largely depending on the company strategies.

between academia and

Expert Opin. Drug Discov. Downloaded from informahealthcare.com by Kainan University on 04/28/15. For personal use only.

pharmaceutical industry 4.

Communication to promote access to external innovation

5.

Rethinking the R&D model to favor external innovation

6.

Conclusion

7.

Expert opinion

Keywords: drug development, external innovation, partnership, research and development productivity Expert Opin. Drug Discov. [Early Online]

1.

Introduction

Recent years have seen a paradigm shift in pharmaceutical research and development (R&D). Decreasing productivity, increasing development costs, declining incomes due to patent expiration, coupled with the emergence of new actors in the early stages of drug development have stressed the need to reconsider the traditional R&D strategy. The tendency to entirely or predominantly use internal know-how and resources when managing R&D activities is being questioned. Accepting that the internally driven R&D model might become unsustainable, more open and externally driven ways of thinking are being considered [1-3]. New models including external contributions to drive efficient innovation are emerging [4-7]. Alternatives to mergers and acquisitions such as outsourcing to contract research organizations (CROs) or establishing collaborations with academia, suppliers and other drug development companies have gained attention [8,9]. Accessing external innovation, that is, opening R&D to external contributions, is expected to deeply impact the drug discovery process, to result in more efficient R&D pipelines, with a better validation of targets, a better understanding of the biology underlying diseases. It is also expected to be an opportunity to consider more diverse or new categories of chemical compounds, encompassing both biologics and chemicals, and finally to 10.1517/17460441.2015.1040759 © 2015 Informa UK, Ltd. ISSN 1746-0441, e-ISSN 1746-045X All rights reserved: reproduction in whole or in part not permitted

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Article highlights. . .

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The decline of innovation motivates pharmaceutical industry to revisit its R&D pipeline to improve efficiency. Pharmaceutical industry is looking for ways to access external innovation, that is, to open projects to external contributions. Increased interactions with academia are considered through innovation centers and academic centers of excellence. Company communication is changing, encouraging external contributions mostly using crowdsourcing. New models such as built-to-buy startups or virtual private companies are used to externalize developments.

studies, know-hows and to finally facilitate the identification of relevant partners. Thus, not surprisingly, promoting external innovation is also tightly coupled with the concept of open innovation in which it is the combination of both internal and external ideas that leads to innovation, and ways to identify relevant partners, locations, technologies are particularly important. A third consideration is about practical means to ease collaborative drug development and increase efficiency. This in turn poses questions related to intellectual property (IP) but also stresses the need to define new models to establish a more flexible, dynamic, trusted collaboration between the actors (Figure 1).

This box summarizes key points contained in the article.

target a larger spectrum of diseases, including neglected or rare diseases, shifting from blockbusters to specialty products [3]. Accessing external innovation is only one part of the global change that is at work to improve the R&D pipeline. In particular, strategies related to lowering costs have led to offshoring [10], outsourcing strategies [11,12] or peer-shared risk partnerships. Due to the competitive nature of their efforts, collaborations between pharmaceutical companies tend to be more complex than public--private partnerships. When some examples of interactions between companies to share cost and risk in Phase III clinical development have been reported, collaboration on early stages of drug discovery tends to be rather rare. A recent example of such collaboration has been the announcement in 2014 of a collaboration between Sanofi and Union Chimique Belgique on the development of anti-inflammatory drugs. In the following sections we will focus on the emerging trends related to external innovation based on the noticeable evolution of pharmaceutical R&D processes in the past years. Reaching external innovation in drug discovery comes within a context, and it comes with challenges that imply several evolutions. First the relationship between industry and academia has since long been difficult due to divergent approaches and goals. Conversely, the relationship between industry and biotechnological companies has long been formalized since it is based on profit and intellectual properties. However, reconsidering the relationship between industry and academia is timely since the need for pharmaceutical industry to improve R&D productivity comes at a time when public funding is low. This opens opportunities for both sides. Geographic localization of research also matters and can be reconsidered. New opportunities may arise from new actors in the field such as in eastern countries. A second issue is the shift in the way pharmaceutical industry managers communicate on projects and seek partners. The question of where the relevant expertise and know-how are becomes critical. This implies that pharmaceutical companies must make visible at least some of their expectations and plans, so as to make it possible to set up some panorama on actors, ongoing 2

Why race for external innovation? A context

2.

Decline of innovation Over the past decade, how to improve the productivity of R&D has become a major issue for the pharmaceutical industry. Although the pharmaceutical industry remains the biggest investor in R&D, before sectors such as “Technology hardware and equipment” or “Automobiles and parts”, with R&D investments of close to US$140 billion in 2012 [13], the rate of discovery of new molecular entities (including chemical entities and biologics) remains low. It varied between 25 only and 42 in the period between 2007 and 2012 [13]. Overall, the average cost of bringing a drug from concept to market is estimated at over US$1 billion, but importantly, the number of compounds that are discontinued at some level of the drug development pipeline is also high. In December 2011, there were on the order of 17,000 projects in development, among which 9000 in preclinical development, only close to 1100 in Phase III, and only 94 approved but not yet marketed [14]. Multiple reasons appear behind this narrow funnel toward success. They encompass poor efficacy, toxicological issues, adverse effects, manufacturing issues, strengthened requirements from control agencies, to cite some, but the chances, when starting a project, to bring it to market are on the order of only 1 over 24 [1,15]. It is clear that later failures are associated with higher losses (Phases I -- III are estimated to account for ~ 63% of the cost for each new molecular entity launched, and preclinical development to account for only 32%). At the same time, the cost of the expiry of key patents (estimated at US$113 billion lost to generic substitution between 2010 and 2014) made Paul et al. warn in 2010 that “without a dramatic increase in R&D productivity, today’s pharmaceutical industry cannot sustain sufficient innovation to replace the loss of revenues due to patent expirations for successful products” [1]. Clearly, means to reduce development cycle times, late-stage failures and complexity of R&D pipelines so as to reduce development costs are needed. 2.1

Expert Opin. Drug Discov. (2015) 10(6)

Accessing external innovation in drug discovery and development

External know-hows

Communication Resource Identification Open innovation

Academy CROs Biotechs


Pharmaceutical R&D

Co-funding

Model Management Intellectual property

Venture capital Government agencies

Figure 1. Flow diagram showing the external innovation in drug discovery. Accessing external know-hows requires communication and media to ease the identification of the best providers. Models accounting for the external resource management and intellectual property are needed, making possible risk sharing with external investors. CRO: Contract research organizations; R&D: Research and development.

Revisiting the R&D pipeline to improve efficiency Between basic discovery and late-stage development lies the critical step of proving the utility of a proposed drug often referred to as the “valley of death”. To anticipate failure, a classical strategy is to start with a large panel of projects in preclinical phase and to rapidly discontinue projects that do not meet pre-established standards. Improving the lead generation process and its efficiency has repeatedly been pointed out as a possible direction. Indeed, technological progress including in silico techniques, such as structure-guided fragment-based drug design, virtual screening using focused compound libraries assisted by experimental techniques such as X-ray crystallography or high-throughput screening, can now greatly assist hit detection. Moving from hit to lead also takes advantage of better absorption, distribution, metabolism, and excretion/tox filtering, scaffold hoping, emerging fields of chemogenomics [16], systems pharmacology [17] and systems chemical biology [18,19] or selectivity and safety screens. However, the multiplicity of the techniques involved in such a process also has consequences when thinking of the resources necessary to maintain internal innovation. The strategy of increasing the size of R&D by internalizing new skills and technologies is not necessarily relevant and has been reported to often disrupt creativity and initiative [20,21]. Instead, strategies to close the gap between basic research and clinical research by accepting to shift some R&D externally through 2.2

collaborations with academy or biotechnology companies are getting more and more consideration. Academy and CROs have now largely invested in the fields of early drug development, making it likely for industry that collaborating with external entities, although under given conditions, is an alternative to consider. Clearly, some schemes emerge, where early research on drug discovery can take advantage of the academy focus on the in-depth understanding of the biological processes involved in pathology, on their molecular characterization and probing. Indeed, the fundamental discoveries leading to new therapies often emerge from academia. Not only early phases of drug discovery but also later stages of drug development can be questioned to assess critical efficacy and safety parameters as early as possible. Typically, experiments that help to reach a go/no-go decision on a clinical molecule, in order to cease development as early as possible and reach cost-effective clinical proof of concept, have been pushed forward. Lilly’s Chorus model [22] is an example of a small independent entity designed to improve productivity in drug development from candidate selection to clinical proof of concept, typically before Phase II. It works using the quick-win, fast-fail model proposed by Paul et al., in which the goal is to reduce the number of new molecular entities that will advance to Phase II and Phase III, but with a higher probability of success. To address operational effectiveness, it is remarkable that the Chorus model relies on an entity of a small size, where the goal is to focus on decision-making relative to development continuation, but instead of relying on strategic supplier relationships, it favors placing work with best performing vendors, which allows to accommodate for varied studies and methodologies and to consider the most cost-effective strategy to address toxicology and early clinical trials. Future of drug development Finally, other upstream considerations occur when questioning the R&D pipeline. The chemical space and the nature of the compounds are two such considerations. There is more and more evidence that targeting protein--protein interactions can be a promising direction for drug development [23], but clearly, characterizing the chemical space of the compounds that could target such interactions opens new challenges. Similarly, it has been suggested that new biological drugs have a higher probability of launch than small-molecule drugs [24,25]. The field of biologics has substantially grown with the development of many new product types, which now includes, in addition to large peptides and recombinant proteins, antibodies, nanobodies, recombinant DNA, immunoconjugates, synthetic vaccines, to cite some. The total sales in prescriptions have increased from 12% in 2004 to 19% in 2011, and expectations are that biologics could reach 23% of the total sales by 2016 and correspond to 52% of the top pharmaceutical product sales by 2020 [26]. Further motivation comes from a better probability of success: 24% of biologics that enter preclinical testing reach the market, when the 2.3


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Academy

Biotechs start-ups

Pharmaceutical industry

Contract research organizations Early discovery Hit, lead

Preclinical development

Proof of concept


Innovation centers/ academic centers of excellence

3.1

Phase III

Figure 2. Illustration showing the increasing partnerships with academy and startups for improved proof of concept validation.

success rate for small molecules is of only 7%. Thus, another important consideration is a probable shift from the type of molecular entities that will require new expertise, and again R&D could benefit from external innovation [27]. Similar considerations can be repeated at the level of target identification/validation where breakthroughs can be expected from considering genetics [28], natural products [29] or from progress in targeted drug delivery [30,31], to cite some. So clearly, additional motivation to access external ideas to create added value can be found in the diversity and the multiplicity of the emerging technologies, in which future standards have to be identified (Figure 2).

Revisiting the relation between academia and pharmaceutical industry 3.

Although academia and the pharmaceutical industry have a long history of interaction, they also have cultural differences. Particularly, sharing data and knowledge is part of the missions of academia, when industry, within the competitive business model, has a much more protective approach [4]. When traditionally pharmaceutical companies have been funding academic research to get access to some interesting science, it was often based on an ad hoc or opportunistic basis, starting from a personal relationship between individuals. A more systematic approach to identify valuable partnerships is needed. Positions are moving though. Publicly funded drug development programs are expanding [9]. It is now commonly accepted that academia is probably the best skilled for early stages of drug discovery, with biggest contributions in the deep mechanistic knowledge of disease biology and big data techniques. It seems also best suited to coordinate, process and model data output, when the pharmaceutical industry has unparalleled expertise in all the stages of drug formulation, delivery, marketing and survey. Presently, the pharmaceutical companies mostly access external know-how by outsourcing, either to fulfill the demand on reduced development time and costs or to access external knowledge and know-how that they do not have or do not want to have within their organizations [6]. New ways to improve and rationalize interactions between industry and academia, moves 4

toward peer-to-peer interactions and toward networks of interactions for the benefit of drug discovery, are under consideration.

Apart from collaborations established with targeted academic investigators or groups, or targeted biotechs, new trends include the development of facilities to make possible multiple and simultaneous collaborations to focus on one objective, where not only connections between the companies and the external scientists are promoted but also more general interactions between all actors. The physical co-localization of experienced drug discovery scientists can promote collaborations and ease the search for efficiency in deal making. Academic centers of excellence and innovations centers are two concepts that have been promoted recently and that correspond to two faces of this idea. Academic centers of excellence can be seen as an answer to the wish of pharmaceutical companies to identify highly skilled academic sites where it is possible to take advantage of the potential synergy among multiple investigators in the institution to increase the efficiency of the drug discovery process. With such sites, master agreements can be set up, including the hosting of scientists from pharmaceutical companies to facilitate collaborations. Interestingly, this model has in turn stimulated academy to identify and promote candidate sites reconsidering their strategies to rationalize the establishment of partnerships with industry. German Universities Excellence Initiative, or French IA Infrastructure initiative to develop national infrastructures in Biology and Health addresses this goal, not to cite a long tradition in UK, US and many others countries that push in that direction. Perhaps one of the most emblematic examples of such an evolution has been the efforts by the University of California at San Francisco (UCSF), to develop UCSF Innovation, Technology and Alliances [32], which, in conjunction with efforts at the California Institute for Quantitative Biosciences [33], has led to the formation of many strategic alliances with companies such as Bayer or Sanofi, on R&D agreements or on focused research (oncology, brain trauma, diabetes). In parallel, the Pfizer’s initiative on Centers for Therapeutic Innovation has been launched in 2010 and is now set up as a network involving over 23 academic institutions located in Boston, California and New York. These centers are conceived as hubs that enable Pfizer and academic teams to work side by side, focusing on a variety of disease areas, ranging from expanding drug discovery capabilities to pediatric research or Alzheimer’s disease [34]. Many other such alliances have been established by Boehringer Ingelheim, Novartis, Roche, Johnson & Johnson, AstraZeneca to cite some [7]. In 2012, over 20 such alliances have been started between major pharmaceutical companies and academy [35]. Not only largest companies have established such partnerships, for example,



Promote startup creation, licensing and merger activities by keeping a pool of representatives on a site

Examples

Bayer/ Sanofi -- UCSF (oncology, brain, diabetes) Pfizer Centers for Therapeutic Innovations(disease biology, targets and patient populations) AstraZeneca -- Karolinska Institutes (cardiometabolic research) AstraZeneca/ INSERM (oncology, inflammatory, autoimmune diseases) Boehringer Ingelheim -- Harvard (translational research) Novo Nordisk -- Copenhagen University (protein research, basic metabolic research) Many others Bayer’s Healthcare Colocator program Novartis Institutes for Medical Research Johnson & Johnson Innovation Centers (California, Boston, London, Shanghai) Roche RNA therapeutics Research (Copenhagen) Merck Innovation Center (Heidelberg, Darmstadt) Sanofi French-German Advanced Translational Drug Discovery Center (Strasbourg) Innovation centers

Open innovation is a concept that has emerged in the early 2000s [39]. It assumes a flexible business model in which a new product originates from both internal and external ideas. It accepts that it is possible to source expertise or know-hows externally for the benefit of development, often through collaborations. Reciprocally, it also accepts that internal ideas can be exploited outside. Realizing that their historical fully integrated model might become unsustainable, big pharmaceutical companies are considering new approaches that mix contributions by large and small companies, government

Co-locate experienced scientists from industry and academia on a focused problematic

Open innovation: information wanted on running projects, know-hows and technologies to promote collaborations

4.1

Academic centers of excellence

Communication to promote access to external innovation

4.

Objectives

Novo Nordisk together with Copenhagen University has created centers for protein research, basic metabolic research, and a center for biosustainability with the Technical University of Denmark [36-38]. Similar alliances have also been set up with non-academic public research institutions, such as the AstraZeneca Medimune and INSERM strategic partnership started in 2011 on oncology, respiratory, inflammatory and autoimmune diseases, and even larger alliances seem to be under way (Table 1). Innovation centers address the same goals, but industrydriven centers are designed as hubs to facilitate interactions not only with academia but also with biotechs, with the aim to promote their creation, licensing and merger activities by keeping local representatives on a site. Innovation centers also usually host incubator facilities so as to support the development of startups in life science, with the perspective of a preferred partner access. The Bayer’s HeathCare CoLocator program is one such initiative, with the first opening of an innovation center in San Francisco in 2012, followed by one in Berlin in 2014. Novartis has launched institutes for medical research (Novartis Institutes for BioMedical Research). Johnson & Johnson have in turn set up innovation centers in California (2012), Boston (2013), London (2013) and Shanghai (2014). Roche has set up innovation centers in Copenhagen (RNA Therapeutics Research) and Merck has announced such facilities in Heidelberg (2013) and Darmstadt (2014). The dimension of these centers varies largely. The numerous science parks deployed in UK (Judd 2013) to bring together actors are of rather small sizes. On the opposite, Sanofi has for instance recently announced (October 2014) the creation of the French-German Advanced Translational Drug Discovery Center, a joint center in Strasbourg involving Inserm, Strasbourg University, Mannheim medical faculty, the Deutsch center of research against cancer (DKFZ), Alsace BioValley and the BioPro cluster, in total, a project bringing together public partners and over 200 biotechs or small companies.

Table 1. Academic centers of excellence and innovation centers to co-locate expertise, biotechs, startups and ease cross-disciplinary, cross-technology partnerships.



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Crowd sourcing A company publishes a challenge on internet. External contributors can apply. New collaborations are setup. Example: Grants4Targets

Dedicated portal One site provides means to engage communities to communicate on a challenge and identify ways to solve problems Example: Innocentive

Social medias Individuals exchange on a topic. A community of interest is identified. Trends/needs can be drawn. Example: Pharma social media

Model of domain concepts Search engine A community models its activity. An ontology is defined. A registry of know-hows and technologies is coupled to a search engine to identify partners.

Figure 3. Illustration showing the ways to ease access to external innovation.

and academic institutions [40]. Conversely, financial pressure has pushed academic biomedicine to accept that the pharmaceutical industry has tools and technologies that can assist the development of their ideas and research toward clinical application. This creates a favorable context to increase exchanges [7]. The context of large-scale biological data production that corresponds to both large amounts of data and an increased diversity of data types, creates the bases on which novel models for pre-competitive collaboration are expected. Importantly however, open innovation does not imply open access, and IP is a key feature of open innovation. Open innovation relies rather on the consideration that solely owned and derived property does not automatically lead to success and added commercial value. Open innovation favors risk-sharing deals and is thus expected to benefit not only the pharmaceutical industry but also academic institutions and biotechs. However, fostering partnership implies having means to identify partners. Possibly, a key issue to develop open innovation could be about having a clear overview of existing knowledge, associated data and know-hows to process them, so as to create the conditions to ease precompetitive connections, interactions between companies and stimulate partnering (Figure 3). Internet as a media to foster collaborative initiatives

4.2

Presently, the most popular media closely related to open innovation is crowdsourcing. It is generally acknowledged to be when a challenge is posted on the internet and anyone is invited to provide a solution. The solution can either be transparent or be more often confidential to ensure that novelty is retained. This approach goes largely beyond the 6

pharmaceutical industry. An open list of crowdsourcing projects [41] reports over 150 such projects today. The initiatives by pharmaceutical companies cover a broad spectrum. In 2009, Lilly launched its Phenotypic Drug Discovery Initiative making assays and expertise available to academics to source new collaborations and compounds. In 2009 also, Pfizer started its Compound Transfer program by which it allows other organizations to screen against their internal compound library. The same year, the Sage Bionetworks [42] launched a call to build complex, predictive models of diseases using open innovation model. It was initiated by comprehensive data donated by Merck. It has been followed by many other calls, one of the latest being the DREAM olfaction prediction challenge, whose goal is to map the chemical properties of odors to predict a given subject’s behavioral responses. A pool for open innovation against neglected tropical diseases is administered by BioVentures and was initiated by GlaxoSmithKline (GSK) that launched a 800 patent pool to remove IP barriers to research into treatments for neglected diseases. It was followed by Alnylam Pharmaceuticals that added 1500 more patents, and other partners have since joined. The Bayer HealthCare initiative is to provide new treatment options for diseases with high unmet medical needs. It focuses on funding early stage projects via Grants4Targets [43]. Other projects focus on more narrow applications such as TIGEM’s on rare diseases, WIPRO’s search on tropical disease targets, GSK on malaria, joint MRC-AstraZenica on Alzheimer’s, cancer and rare diseases. A further step on top of initiatives to invite collaborations is the design of centralized entry points to organize and promote exchanges and collaborations. An emblematic representative of such an open innovation hub is the Lilly’s InnoCentive initiative [44]. Started during a session that was focused on




exploring application of the internet to business, it has become an internet problem-solving platform designed to connect companies with research challenges to potential solution providers. In January 2015, it accounted for over 355,000 users from nearly 200 countries, with over 2000 external challenges posted. The European Innovative Medicines Initiative [45] is another example of organizing precompetitive consortia globally. It focuses on integrative knowledge management, including data evaluation and integration, ontologies and standards, data and information sharing as well as data sustainability. More focused initiatives are also being developed. Collaborative drug discovery, for instance [46], is a media designed to host biological and chemical databases, securely managing private and external data, and to facilitate data finding, analyzing and sharing. Intriguingly, social media that could have been expected to contribute largely to open innovation seem so far not to have reached the expected critical mass to have some impact [47], but things might evolve rapidly. Early 2015, Lilly has announced its willingness to promote open innovation in clinical development for patients to stay connected after clinical trials via a Pharma Social Media initiative. Its objective is to create means to meet patients where they are, to provide the right channels to gather feedback from them and to share about their clinical trials in the patient’s context [48]. Based on the realizations in unrelated domains, further approaches to promote exchanges, idea sharing and the identification of useful resources and technologies could be imagined. Integrative knowledge management remains a concept that could benefit to external innovation. Domain modeling using controlled vocabulary to set up a domain ontology, associated with some kind of directory of actors coupled to a search engine, could provide a general panorama of the pharmaceutical industry, CROs, biotechnological companies, startups and academic skills. To the best of present knowledge, no such initiative seems presently on-going, which is possibly related to the competitive nature of the domain and the fact that actors may wish to preserve confidentiality on technologies in development.

Rethinking the R&D model to favor external innovation

5.

The traditional way for industry to access external innovation via the licensing, mergers and acquisition model is still active and will certainly continue depending on the long-term strategy of the pharmaceutical companies. In 2013, M&A’s investments accounted for over US$80 billion [49], but compared to 2009 where over 90% transactions had involved big pharmaceutical companies, big Pharma share fell below 20% in 2013, when specialty pharma, big biotechs and generics accounted for over 80%. We discuss further two new concepts that have emerged recently to access external know-hows and improve innovation.

Built-to-buy startup co-creation with venture capital

5.1

Several pharmaceutical companies have built venture capital funds so as to not only get the possibility to invest in early technology but also, and more generally, establish a strategic partnership model that seeks to invest in early stage opportunities. A recent concept is that of built-to-buy startups. Compared with the classical startups that can spend years to validate their technologies or clinical candidates before they can be acquired by larger companies, the built-to-buy startups created are directly tied to the investing company, and terms of acquisition in case of success can be defined. This strategy has advantages in terms of risk-sharing and in terms of outcome in case of success, the startup being reintegrated in the company. Other advantages are low risks concerning IP management, the company possibly out-licensing the concept to test, and a larger flexibility in terms of development. The startup is not necessarily bound to the originating company for the choice of providers, suppliers and strategies, although some support from the company is usually provided. Overall, this strategy seems to provide a flexible model for the survey or testing of technologies and concepts before a final decision is taken based on a pre-established agenda. Quanticel, one of the first built-to-buy company was created in 2011 by Versant Venture and Celgene. It was created to develop a technology enabling isolation, characterization and targeting of the individual tumor cells that are responsible for cancer recurrence. In exchange for US$45 million support, Celgene has received an equity stake in the startup and the possibility to acquire it in 2015. Another pioneering example is that of Arteaus, launched in 2011 with the aim to develop the calcitonin gene-related peptide ready antibody LY2951742 from Lilly’s vault up to Phase II. Arteaus licensed LY2951742 from Lilly, which participated with other venture capitalist partners to fund the startup, with the agreement that Lilly would acquire Arteaus if Phase IIa milestone was reached [50]. During the program, Arteaus could benefit from Lilly’s Chorus group expertise and was able to fulfill the terms of the development with a single full-time employee, before being acquired by Lilly in early 2014. Lessons from such experience are that it is possible to fully externalize investigational new drug development, sharing risks with other partners, while making chances of success higher by providing access to the platforms of large pharmaceutical companies such as Lilly. Other companies are exploring variations of such a model. Sanofi’s Sunrise program of coinvestment with venture companies has presently a portfolio of three projects in drug delivery technology (Portal Instruments -- 2014 -- PBJ Capital), the identification of natural products using genomic approaches (Wrap Drive Bio -- 2012 -- Third Rock Ventures and Greylock) and the development of novel therapies for cardiomyopathy (MyoCardia -- 2014 -- Rock Ventures). In Sunrise, Sanofi commits resources and expert capabilities to support the


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Table 2. Emerging models to support external innovation.


Objectives Built-tobuy startups

Controlled development of disruptive technology, proof of concept, with objectives and milestones

VPCs

Flexible and cost--effective development based on ad-hoc external resources

Pros

Cons

Intellectual property can be out then re-in-licensed Startup benefits from company guidance Risk sharing, cost--effective innovation Limit internal resources to management

Development fails Negative pressure for results depending on investor plans leads to premature end

External contractor can fail Control over intellectual property to secure Management complex

VPC: Virtual private companies.

project. Other companies have experimented or are experimenting such model. Inception Sciences is a drug discovery engine cofounded by Versant Ventures in 2011 that has now formed multiple companies around discovery programs subject to built-to-buy agreements, including Inception 1 (partnered with Shire), Inception 3 (partnered with Roche), Inception 4 (partnered with Bayer) and Inception 5 (partnered with Roche). GSK and Avalon Ventures have recently launched Silarus Therapeutics and Thyritope Biosciences, focusing on therapeutics targeting the hormone erythroferrone for the treatment of iron deficiency and iron overload disorder (Silarus) and autoimmune-generated antibodies that cause Graves’ hyperthyroidism -- the primary trigger for hyperthyroidism -- and Graves’ orbitopathy (Thyritope). Sitari Pharmaceuticals was launched in November 2013. It focuses on the treatment of an intestinal disorder called celiac disease. In Europe, there has been the launch of a new e150 million (US$199 million) venture capital fund from Index Ventures -- with backing and active involvement from two pharmaceutical partners -- GSK and Johnson & Johnson -- to specialize in investing in early stage companies. Wellcome Trust, of London, said it was setting up a £200 milllion (US$318 million) fund to invest in biotech startups, followed by the charity Cancer Research UK announcing that it, too, was forming a fund to invest in early stage assets [51] (Table 2). Virtual private companies: a fully externalized model

5.2

Probably the most formal concept associated with external innovation is the concept of virtual private companies (VPC). This concept addresses both the needs for flexibility in R&D and the perspective of low cost drug development. It can be opposed to the traditional internal R&D pipeline, where company internally owned silos are favored to drive discovery. VPCs are a concept that emerged in the 1990s. A VPC has a reduced management and consulting core that coordinates and monitors a set of service providers that perform operational activities to develop drug candidates [52-54]. The virtual term stems from the fact that because of the 8

absence of internal production or development, all activities are performed by external providers. The goal of VPCs is to reach fast proof of concept at a modest cost. Their expected advantage is in terms of development speed and flexibility to choose the most suitable resources and contractors for each project and the absence of fixed assets that lowers costs. One major weakness of VPCs is the total dependence on external suppliers. Indeed, a complete project can be at risk if a supplier fails to deliver the service. Confidentiality issues are also, in theory, to be the object of tighter control due to the multiplicity of external contractors. Interactions between pharmaceutical companies and VPCs can occur in different ways, including in licensing proof of concepts developed by VPCs, founding or investing in VPCs, out-licensing the development of compounds to VPCs until the proof of concept is reached, with or without options to re-in-license. Overall, the VPC formalism meets the concept of built-to-buy startups on different aspects. It was pioneered by Roche that founded Protodigm Ltd, although the company has since been closed. Lilly’s Chorus can certainly be considered as one of the first operational VPC internally founded. Having a reduced management team, accepting to externalize to best providers aspects of product development with the aim to pursue more leads at a fraction of the time and cost usually required, Chorus has recently proven able to deliver in half of the time and at a reduced cost molecules for late Phase II trials [22]. Flexion Therapeutics, founded in 2007 by executives who had previously led Chorus, and supported by the venture capital group of Pfizer, is an example of VPC to which companies can outsource the development of compounds [55]. Transparency Life Sciences, a member of the Roche group, is another virtual biopharmaceutical company that invites patients, providers and scientists to join in the design and execution of clinical trials. Volvox Therapeutics is a private virtual biotechnology development company focusing on the areas of hematology/ oncology and immunology. Celtic therapeutics, rebranded as Auven Therapeutics in 2013, was designed as a VPC, acquiring or investing in novel therapeutic candidates to bridge the gap between discovery and preclinical development and late




phase clinical/trials/approval, and planning to fill a portion of its portfolio with promising drug candidates for a wide range of therapeutic indications including cancer, ophthalmic conditions, women’s health and orphan diseases. Some companies have moved for this model. For instance, Cystic Fibrosis Foundation Therapeutics, originally a diseaseoriented foundation has progressively turned into a VPC, establishing partnerships with companies and lowering their risk of development when developing drugs for rare disorders, providing access to experts and the network of Cystic Fibrosis Care Centers to facilitate clinical trials. Noteworthily, the low cost of setting up VPCs seems also well suited to such develop companies in emerging countries. For instance, Virtual Pharmaceutical Private Ltd is a private company incorporated on 26 December 2007, classified as an Indian non-governmental company. 6.

Conclusion

The pharmaceutical industry is facing a major challenge to improve the productivity of its R&D pipeline and is considering the option that the combination of internal and external ideas can improve innovation. Accessing external innovation means opening some internal projects to external contributions to improve chances of success. It can also mean externalizing parts of a project, keeping control over IP. Probably owing to the fact that the relationships with startups, biotechs or CROs have been formalized since long, the major shift that has started largely reconsiders the relationship with academia. The different new strategies considered include the creation of facilities to favor physical proximity of researchers on a project -- innovation centers and academic centers of excellence increased communication about projects using media such as crowdsourcing to identify partners. New models such as built-to-buy startups or VPCs support this evolution and facilitate the externalization of R&D on focused projects. The question of the generalization of such a tendency on the long term remains, however, an open question. 7.

Expert opinion

What motivates the pharmaceutical industry to consider external innovation? It is claimed that the traditional model of internal development by pharmaceutical companies might become unsustainable. Ways to fill the R&D pipeline while lowering the costs have to be identified. A survey of recent advances in accessing external innovation clearly shows that the concept has mostly targeted the early stages of development, up to the proof of concept -- a recent analysis of trends in healthcare investments and exits corroborates largely that pharmaceutical companies and ventures bolster early stage companies in preclinical or Phase I, although this includes both external and internal innovations [56]. Indeed, increased partnerships with academia, small companies, startups or biotechs target the deep understanding of

the mechanisms of diseases, early stage of development and technological issues up to the level of proof of concept. Further phases remain the domain of pharmaceutical internal development. Access to external innovation in conjunction with academia is timely, since low funding of public research makes the search for financial support critical, and since academia has better skills to decipher the molecular determinants of disease. For the industry, it offers a long-term perspective in terms of a better theoretical knowledge about toxicological issues, drug adverse effects and new possibilities for personalized medicine, for instance. Consequences can also been expected on the spectrum of pathologies addressed, including neglected, orphan and rare diseases. So the opening of projects to a larger audience including academia addresses the matter of filling the R&D pipeline by providing new perspectives. At the same time, the new models that have emerged to access external innovation via built-to-buy startups or VPCs address in essence the issue of lowering costs while preserving IP during the phase pushing a project to the proof of concept. Indeed, the flexibility offered in the management of drug development -- at a lower cost -- makes it possible to maintain a rather large basket of projects to fill the development pipeline at later stages -- Phase III and above. Overall however, given that preclinical development accounts for close to only one-third of the total development cost, it would seem desirable to reconsider later stages also. Extending the concept of external innovation to later stages of development is still largely unexplored, although some attempts to mutualize information about cohorts have been reported, but it is also certainly more challenging due to the specificity of the processing of these stages. Overall, access to external innovation is expected to lead to win--win partnerships, but it is not without challenges. First, foreseen academia-strengthened contribution poses the question of the evolution of this contribution in the future, in a context where technological evolution is moving fast. Probably, technology transfers and the repartition of the outcomes could be questioned depending on new innovations. Probably, one could expect them to evolve toward a more “profit together” statement. Second, for the developments related to the preclinical and proof-of-concept validation, models of externalizing drug development are still facing the limit of financial pressure for results, although to a lower extent if one anticipates on better productivity. Third, communication about projects cannot be fully open in a competitive context relying on IP. Probably, however, integrative knowledge management [45], together with focus on data evolution, integration, sustainability, ontologies and standards, could be expected to contribute significantly to ease partner identification. In any case, pushing forward external innovation should be profitable to drug development since recent evolutions suggest that it should a formidable way to assess, develop new concepts and ease the emergence of breakthrough technologies and processes. Indeed, the race for accessing external innovation has led to numerous initiatives during the past 5 years,


9


ry P. Tuffe

and there is still room for improvement. However, the future of external innovation mostly depends on the plans of the pharmaceutical industry, the world first actor in R&D. Schuhmacher et al. [6] stated that currently the industry R&D of multinational pharmaceutical companies have a portfolio with close to 50% externally generated projects but with a tendency to entirely or predominantly use internal know-hows and resources when managing R&D activities, which highlights the space left for more open and external driven ways of thinking. Strategies among companies are diverse, from companies favoring internal knowledge, knowhow and skills up to the most predominantly extroverted kind of innovation management to source ideas, know-hows from the outside. Thinking of ways to access external innovation is still in its infancy. Depending on the outcome of Bibliography Papers of special note have been highlighted as either of interest () or of considerable interest () to readers. 1.

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