What is the future of pharma?

The global pharmaceutical industry has made a major contribution to society but faces an uncertain future as many of its blockbuster medicines fall over the patent cliff and the economics of healthcare becomes an ever-hotter political potato. Dr Brian Smith believes the industry needs to change to reacts to this challenge.

Evolutionary economics not only accounts for the history of the pharmaceutical industry but also by bringing together all of the changes happening now, it can be used to predict the industry’s future. The pharmaceutical industry is not simply evolving, it is co-evolving with both its scientific and sociological environments to create a new ‘fitness landscape’, or a set of habitats that will dictate the emergence of new business models and the extinction of old ones.

Changes to the perception of value of healthcare from clinical outcomes to the best health-economic outcome will drive changes in the customer landscape with three key groups of customers emerging:

• The rich will use their wealth to prolong and enhance their lives
• Organisational payers, such as governments and insurers, will only provide core services
• Mass consumers will sacrifice consumer goods to co-pay and self-medicate

There will also be changes to how that value is created within the industry itself. Three fields will emerge companies that technologically innovative, those that are hyper-efficient or those that generate customer trust. As a result, the market will fragment into a number of diverse habitats each of which will demand a different set of capabilities and all of which will be unlike today’s pharmaceutical market. This fragmented market will drive the shape and structure of the industry as business models evolve to fit the new market environment. The existing business models of big pharma, speciality and generics, are not well adapted to these new habitats. Today’s firms will therefore adapt or die and the net result will be a sector populated by about seven new, distinct and largely non-competing business models.

Two of these will be easily identifiable ancestors of today’s industry. The Genii – the closest to today’s big pharma – will be smaller in size than today and will push technological capabilities to new extremes, combining pharmacological, materials and information technology to provide therapies of science-fiction-like power. The Monster Imitator – similar to today’s generic companies, however they will make their ancestors look small, inefficient and costly. These two groups will be much more polarised than at present. The innovative capabilities of the Genii will be so much greater than the other pharmaceutical firms as to be incomparable, while the low-cost efficiency of the Monster Imitators will mean their pricing will not be comparable to other pharmaceutical firms that seek to add value in some way. The other business models will be focussed on customer management capabilities and each will be so distinctive that they will co-exist in adjacent but different market niches.

These future pharmaceutical firms will also be structured differently from today’s companies. They will have smaller, more specialised but more networked business units and outsource to extremes.

To survive in this new future, the leaders of firms who work in the sector now will have three decisions to make: which market to operate in, what capabilities and structures they will need to develop in order to adapt to that market and how they can adapt faster and more effectively than their competitors.

Dr Brian Smith, Adjunct Professor at SDA Bocconi in Milan and Visiting research fellow at the Open University, will expand on this hypothesis and suggest how modern companies might adapt, evolve and survive in future at the BIA UK Bioscience Forum on 4 October and in his latest book The Future of Pharma.

BBSRC is bridging the gap between basic science and its exploitation.

How do you bridge the gap between research and commercialisation? Make the most of the wide range of opportunities available, says Dr Celia Caulcott, Director of Innovation and Skills at the Biotechnology and Biological Sciences Research Council (BBSRC).

Research is the driving force behind UK bioindustries, which is why BBSRC is committed to helping bridge the gap between basic science and its exploitation. BBSRC programmes provide skills, networks and time to enable a new idea to reach its greatest potential. We do this through a range of schemes that encourage enterprise and create an innovative environment. The breadth of these schemes allows researchers to explore the commercial potential of their work at every stage of development.

Building networks is important for innovation and BBSRC Research and Technology Clubs help to ensure the exchange of knowledge between the science base and industry, while also strengthening and developing the community. The Bioprocessing Research Industry Club (BRIC), for example, is a successful partnership between BBSRC, EPSRC and a consortium of leading companies to support innovative bioprocess-related research, including that needed for the manufacture of complex biopharmaceuticals.

Collaboration is also key. Our Industrial Partnership Awards (IPA) is an excellent example of collaborative working and forging important links. These are science-led, standard grants where an industrial partner contributes at least 10% of the cost of the project, indicating the strategic relevance of the project.  For example, researchers at the University of Sheffield and Syngenta have combined academic structural biology expertise with the company’s development of new chemicals, thanks to an IPA. The partnership advanced understanding of how molecular structure determines the activity of herbicides, and offered the industry the opportunity of novel targeted compounds capable of killing weeds that have become resistant to conventional herbicides.

As research topics become of greater relevance to companies, BBSRC uses the LINK scheme to fund pre-competitive academic/industry projects.  These can be in any area of BBSRC science, with industry and government funding the research 50:50, the industry contribution being in cash or in kind.  Such projects offer the opportunity for companies to work closely with the research base in areas that are not core to their business, but greatly add to it.

And of course, where an idea needs further development before commercialisation can occur, schemes like Follow-on Funding and Enterprise Fellowships come into play. Our Follow-on Funding enables researchers to undertake activities essential to preparing a robust business plan and securing further funding to progress commercially. This helps to take an idea through to the stage at which the route to commercialisation is clear and marketable. Enterprise Fellowships provide financial support to innovative researchers at the very early or pre-seed stage of turning research outputs into a commercial proposition.

The BIA’s UK Bioscience Forum in October is the perfect platform to highlight how we invest in collaborative research with industrial partners in the science base and industrial laboratories, enable access to specialist facilities and equipment, and allow academic and industrial researchers to exchange ideas and experience by moving between the two environments and cultures.

At the BIA’s UK Bioscience Forum, we hope to show you how these schemes are creating a culture for successful innovation. Our recent BBSRC Innovator of the Year 2012 winner, Professor George Lomonossoff, will also be joining us to help champion our research and talk about his award. His safe and accessible way to make proteins in plants has been readily adopted by both academic labs and commercial companies. We hope you will come and find out more.

Citizens’ Innovation Funds to bridge the “valley of death”

 

Today the BioIndustry Association launched our report on Citizen’s Innovation Funds (CIFs). We believe that CIFs have the potential to raise hundreds of millions of pounds which will help innovative companies – across all sectors – to survive the much discussed “valley of death” to support innovation in the UK and to ensure UK science is developed here.

What have we proposed?

We have proposed that the UK government introduce CIFs, a tax-advantaged investment scheme providing, for the first time, an opportunity for the general public to invest in innovative UK companies. By introducing such a scheme the government would become an enabler, rather than a provider, of much needed investment in innovative companies.

Our CIF concept is based on the hugely successful French fonds communs de placements dans l’innovation (FCPI) scheme and as such it would broadly replicate a scheme which has already been shown to work. To date, the French scheme has raised more than €6 billion from the French public which has been invested in more than 1000 companies.

The introduction of a similar scheme in the UK would capture the crowdfunding mood of the British public and provide a practical way of unlocking their patriotic potential by investing in the innovative businesses which are essential for our nation’s economic future. In our report we estimate that £300 million of investment could be unlocked a year from the scheme creating over 1500 new jobs in the knowledge economy.

Why are CIFs needed?

Many innovative companies in the UK face an ongoing challenge of identifying where their next funding round will come from. These companies are often sold at the earliest opportunity, rarely maximising the potential for development and denying investors the best return on their capital. This leaves commentators bemoaning the lack of a “British Google”, a “British Apple” or a “British Amgen”.

There are numerous government reports which highlight the value of innovative sectors to UK growth and we are fortunate to be world leaders in a number of sectors. However, lack of capital is having an effect on the number of products and technologies that are being commercialised here. In biosciences, for example, there are examples of companies being forced to relocate due to lack of funding. We are losing British science overseas and as a result the UK does not reap the benefits in terms of employment and tax revenues. Clearly when this is happening and we are unable to translate our world leading science due to lack of funds the government needs to get involved.

In December 2011, the UK government published an Innovation and Research Strategy for Growth and a Strategy for UK Life Sciences. Both documents identified the challenges of translating research into commercial application, particularly due to a lack of funding – the so-called “valley of death”.

The BIA has spoken to government, representative of other innovative sectors, banks, venture capital fund managers and other stakeholders about CIFs and met with a uniformly positive response from all the interested parties.

We feel that the report we have published today answers their questions and we look forward to working with them to bring this proposal to fruition. Most new legislative proposals presented to government are modelled on estimates; however our CIF proposal is based on more than 10 years of data from the French FCPI scheme.

Did the FCPI scheme work?

The data from the French scheme suggests that the FCPI funds have been good news for innovative companies in France. Compared to their non-FCPI-backed peers, FCPI-backed companies:

• file three times as many patent applications
• show faster growth in revenues
• increase exports quicker
• employ more people

Not only did the FCPI scheme help support a new generation of innovative French companies but it also engaged the population with those companies and, with the tax advantages taken into account, FCPIs have produced positive returns for investors.

How would the CIF scheme work?

The BIA has proposed that CIFs would be easily available through high street banks, Independent Financial Advisors or other regulated distributors and represent an opportunity for the general public to engage with the innovation economy. Investors would be able to invest up to £15,000 each year and would receive an income tax break upon investment and a capital gains tax break on any returns.

The CIF funds would be run by FSA-licensed fund managers, who would invest at least 60% of the fund in innovative companies and the remaining 40% freely, e.g. in bonds, stocks etc. We have proposed that CIF investors must hold their investment for five years (except in some specified circumstances e.g. death) for the tax break to remain valid and to ensure the right balance is met between the investor and the need to support companies.

Conclusion

The BIA is not asking government to give a hand out to innovative companies. We are asking them to give innovative companies a hand up by introducing Citizens’ Innovation Funds. This will enable the crowdfunding of a new generation of companies and speed the commercialisation of their innovative products and services.