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BIOTECHNOLOGY R&D AND CORPORATE STRATEGY
Dr. Bhaswat S. Chakraborty Sr. VP & Chair, R&D Science Core
CommitteeCadila Pharmaceuticals Ltd.
Presented at the NRDC Industry Seminar, Surya Palace Hotel, Vadodara, February 9, 2015
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CONTENTS The pharmaceutical biotechnology world
Its R&D Business model & early stage funding gap
The concept of Strategy Purposes of a good strategy
Elements of R&D performance strategies
Biotech innovators’ strategy case studies
Biosimilar R&D strategy case studies
Conclusions2
TOP 10 PRODUCTS BY SALES IN 2014
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Rank Product Company Technology WW sales($m)
1 Avastin Roche Monoclonal antibody 9,232
2 Humira Abbott + Eisai Monoclonal antibody 9,134
3 Rituxan Roche Monoclonal antibody 7,815
4 Enbrel Wyeth + Amgen + Takeda Recombinant product 6,583
5 Lantus Sanofi-Aventis Recombinant product 6,386
6 Herceptin Roche Monoclonal antibody 5,796
7 Crestor AstraZeneca Small molecule chemistry 5,739
8 Spiriva Boehringer Ingelheim Small molecule chemistry 5,552
9 Remicade SGP + J&J + Mitsubishi Tanabe
Monoclonal antibody 5,220
10 Gleevec/Glivec Novartis Small molecule chemistry
5,136
PURPOSES OF A GOOD STRATEGY Three purposes
Consistency Coherence Alignment
1. Consistency Advantage is not the result of a single decision, but rather the
cumulative outcome of a series of decisions, actions, and behaviors over time
A good strategy provides a framework for making consistent decisions over time
Builds cumulatively toward a desired objective
Pisano G (2012) HBS Working Paper 12-095
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PUPOSES OF A GOOD STRATEGY..2. Coherence
In a complex organization, many decisions are to shape competitive capabilities (which projects get funded, who gets hired and promoted..)
Decisions are often made in far-flung corners of the organization and, today, in different parts of the globe
Strategy provides an integrating mechanism to ensure these tactical decisions are coherent
Organizations sometimes try to compensate for poor strategy by creating committees and others communication mechanisms to ensure decisions are integrated
Such devices are a poor and inefficient substitute for good, clear strategy.
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PUPOSES OF A GOOD STRATEGY…3. Alignment
Organizations thrive when their strategies are aligned to the realities of the environment
Or with the broader organizational context in which they operate
An R&D organization needs to have a strategy that is aligned with the broader business strategy of the organization
A strategy should help driving alignment
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R&D ELEMENTS Architecture
Centralization vs. Decentralization
Size and focus of units (by market or by technology?
Outsourcing vs. Internal
Better architecture depends organization’s “core hypotheses” about what it takes to win
For integration centralized model is better
For tapping geographically diverse knowledge bases decentralized model is the choice
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R&D ELEMENTS.. Processes
Development & decision making process
Governance and Metrics
“Best practice” and highly “structured” R&D processes with tightly specified procedures, review etc. need to be examined
May be a more “flexible” process would deliver R&D goals (highly novel & uncertain) technologies
If R&D must be tightly coordinated with other functions (like manufacturing), tightly specified process may be necessary to keep everyone on the same page 15
R&D ELEMENTS… People
Most important aspect of an R&D system Make impactful choice of resources
Right mix of generalists vs. specialists, technical backgrounds and training, work styles, career paths, lay off policies
No one best human resource strategy for R&D Comfortable with churn? May be in a technology hot-spot (e.g.,
Boston or Mumbai) If the R&D labs are geographically isolated, assurance of job security
to attract & retain talent
Portfolio Desired resource allocation across different types of R&D projects Criteria used to sort, prioritize, and select projects (should reflect the
priorities of the R&D strategy e.g., innovative biotech company wants to win by discovering its own first-
in-class drugs vs. biosimilar developers.16
A FEW BASIC QUESTIONS TO FORMULATE A GOOD STRATEGY
Have we been absolutely clear about how we intend to win?
Everyone should understand what the priorities are and what they mean for them
Are the choices we are making about architecture, processes, people, and portfolio coherent?
Are there any major conflicts between our policies?
Third, do all our choices form an integrated “system” focused on the key priorities (how we intend to win)?
Finally, because a strategy is a “hypothesis”, we need to evaluate our R&D strategy against performance data
when the time has come to reject our initial hypothesis & change strategies, do so 17
INNOVATION R&D STRATEGY: CASE STUDY 1 – GSK Key strategy: Breaking R&D up into smaller units
In 2000 GSK restructured its R&D focused on therapeutic area units, cancer, neurology, etc., called Centers of Excellence in Drug Discovery (CEDD)
Each CEDD was responsible for the development of molecules in its designated therapeutic realm, from discovery through PoC
Early discovery (target identification and molecule discovery) and late stage development (Phase III trials, registration, etc.) was still centralized
CEDDs had complete autonomy over their own portfolio management After PoC, the CEDD would present programs to a centralized senior
management from R&D, business units, and corporate headquarters) for a “go/no-go” decision for full development.
Core Hypothesis (Architectural): Smaller, focused, autonomous, and more accountable units would make more efficient decisions regarding portfolio advancement
An attempt to create “biotech-like” organizations inside the larger corporate framework 18
Based on Harvard Business School Case Study #9-605-074.
INNOVATION R&D STRATEGY: CASE STUDY 2 – WYETH Key strategy: Metrics based centralized approach
Wyeth senior management saw poor R&D productivity rooted in poor decision-making and misaligned incentives
Solution: standardized development process, metrics and performance
Precise numerical targets (12 new clinical candidates /year), financial rewards tied to to them, structured development process, specified milestones and reviews for every program
All projects would follow the same process
Core Hypothesis (Processes): Make R&D process more predictable by a more “repeatable” process, setting clear performance objectives, and by clarifying decision-making
Project advancement governed centrally19
Based on Harvard Business School Case Study #9-607-008.
INNOVATION R&D STRATEGY: CASE STUDY 3 – NOVARTIS Key strategy: Science first; decentralized
In 2002, Novartis opened a research laboratory in Cambridge, MA to be close to a thriving ecosystem of biotechnology Cos & leading academic institutes
Under the auspices of the Novartis Institutes of Biomedical Research (NIBR), headquartered in Boston
NIBR, an autonomous organization, reports to Novartis CEO, has 6 sites Focus areas determined by NIBR are based on two basic criteria: large unmet medical
need and an opportunity to develop deep biological insight Aalysis of market size and net present value were explicitly rejected as criteria for
project selection at the research phase!
Core Hypothesis (All elemnts): improved scientific knowledge of the disease & MoA would allow better decision-making about drug candidates to advance, and this would ultimately reduce attrition
Strategy addressed architecture (separate NIBR), people (locate where the talent is), process (establish proof of mechanism in well-defined patient populations first), & portfolio (select projects based on scientific attributes)
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Based on Harvard Business School Case Study #9-608-136
RECOMBINANT PROTEIN PRODUCTION: SOURCES OF VARIATION BETWEEN MANUFACTURERS
Mellstedt H et al. Ann Oncol 2007;19:411-419
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The 2012–2019 patent cliff is highlighted in yellow
PERIOD OF MARKET EXCLUSIVITY FOR THE TOP TEN SELLING BIOLOGICS
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Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408
A GENERAL STRATEGY DIAGRAM FOR A SUCCESSFUL ENTRANCE INTO BIOSIMILARS MARKET
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Calo-Fern´andez B et al (2012) Pharmaceuticals 2012, 5, 1393-1408
The requirement for key capabilities varies with the market maturity: from brand-driven in short term to price-driven in long term
Global sales for three blockbuster chemical drugs: Effexor, Lipitor and Plavix.The solid coloured lines represent the annual sales of the product until 2011; the dottedlines represent a projection of the sales for the following years based on Effexor’s drop inrevenue drop (see Appendix). The shadowed areas correspond to the patent expiration yearas indicated in the legend (data from: [2,3]).
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Evolution of global sales for the top ten branded biologic drugs from 2004 to 2011.The products below account for 37.6% of the total biologics market value, adding up to 53.4billion USD in 2011 (data from financial statements 2004–2010 and [10–15]).
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Inserted subfigures are Pfizer’s biosimilar capabilities before the acquisition of Wyeth and the contributions of this deal
PFIZER’S BIOSIMILARCAPABILITIES AFTER ESTABLISHING THE STRATEGIC DEALS
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Company Products/technologies/services in the market Business model
Main sector Advinus Theraputics, Bangalore and Pune
Metabolic disorders, inflammatory diseases, neglected diseases Hybrid
Avestha, Bangalore Agbiotech and transgenics, biosimilars Vertical
Bharat Biotech International, Hyderabad Recombinant drugs, cardiovascular diseases, vaccines Product
Bhat Bio-Tech India, Bangalore
Recombinant proteins, diagnostic markers Hybrid
Bharat Serums and Vaccines, Mumbai Plasma derivatives, monoclonals, hormones, serums.. Product
Biocon, Bangalore Industrial enzymes, recombinant protein therapeutic products and human growth hormone Vertical
Biological E., Hyderabad Diagnostics, combination vaccines, antitetanus and antisnake venom sera Vertical
Dr Reddy's Laboratories, Hyderabad
Infectious and parasitic diseases, oncology, immune disorders, endocrine, nutritional and metabolic diseases, ..
Vertical
Gennova Biopharmaceuticals, Pune Hi-tech molecules in nephrology, oncology and
cardiology segmentProduct
Indian Immunologicals, Hyderabad Pediatric and childhood vaccines, DNA-based vaccines,
animal- and human-health productsProduct
Indian biotechnology database (http://www.indianbiotech.com/in/db/index.php).
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CONCLUDING REMARKS Strategy entails a systematic approach to make an R&D
organization more competitive and effective Consistent and coherent choices across architecture, processes,
people, and portfolio seem to give a reliable and successful strategy
Different companies pursued different strategies to essentially address the same problem differences were largely rooted in different “core hypotheses” (bets) on the
underlying root cause of non-productivity of R&D Innovative biotech companies have been enjoying bonanza times
since1990s following good R&D strategies Biotech biosimilar companies position themselves to enter
biosimilars market by acquiring or developing R&D, manufacturing, supporting activities, marketing or lobbying ca
Thus capability-benchmarking is the key for any company planning to generate value from the biologics patent cliff
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