Value Creation in the Pharmaceutical Industry
The Critical Path to Innovation

List of Contributors XVII

Foreword XXI

1 Introduction to the Book 1
Alexander Schuhmacher, Oliver Gassmann, and Markus Hinder

Reference 8

2 Global Epidemiological Developments 11
Stephan Luther and Peter Schmitz

2.1 Introduction 11

2.2 Model of Epidemiological Transition 12

2.3 Global Burden of Diseases 15

2.3.1 Trends in the Distribution of Disease Burden 16

2.4 Infectious Diseases 20

2.4.1 (Re-)emerging Infectious Diseases 23

2.4.2 Neglected Tropical Diseases 26

2.5 Noncommunicable Diseases 29

2.6 Antimicrobial Resistance 32

2.7 Dynamics 35

References 38

3 The Value of Pharmaceutical Innovation: Concepts and Assessment 45
Sam Salek and Paul Kamudoni

3.1 Introduction 45

3.2 Concepts and Definitions of Value 46

3.3 Stakeholder’s Perspectives on Value 47

3.3.1 Drug Regulatory Agencies 47

3.3.2 Health Technology Assessment 47

3.3.3 Patients 49

3.3.4 Prescribers/Clinicians 49

3.4 Recent Developments Influencing the Definition and Assessment of Value 50

3.5 Recommendations: Implications for R&D 51

3.6 Discussion 52

3.7 Conclusion 56

References 57

4 A Review of the Pharmaceutical R&D Efficiency: Costs, Timelines, and Probabilities 61
Alexander Schuhmacher, Oliver Gassmann, and Markus Hinder

4.1 Introduction 61

4.2 The Historical Perspective 62

4.3 The R&D Phase Model 63

4.4 The Low R&D Success Rates 63

4.5 The Long R&D Time Intervals 67

4.6 The High Cost of Pharmaceutical R&D 71

4.7 The Reduced R&D Efficiency 73

4.8 Can an Increase in R&D Value Compensate the Reduced R&D Efficiency? 76

References 78

5 Financing Pharmaceutical Innovation 81
Sviataslau Sivagrakau

5.1 Introduction 81

5.2 Measuring Innovation: Categories of New Drugs 84

5.3 Productivity of Pharmaceutical Industry throughout Time 86

5.4 Measuring the Cost of Developing New Medicines 87

5.5 Funding Drug Development: a Global Endeavor 91

5.6 Public and Private Funds: Complementary Finance for Drug Development 95

5.7 How Commercial Drug Development Projects Are Financed Today: Big Firms, Small Firms, andTheir Cooperation 97

5.8 Public Health Economics and Financing Pharmaceutical Innovation 99

5.9 Conclusion 101

Acknowledgment 102

References 102

6 Challenges and Options for Drug Discovery 107
Werner Kramer

6.1 Introduction 107

6.2 Paradigm Shifts of R&D Organizations 108

6.3 Productivity of Drug Discovery 109

6.4 IsThere an Innovation Gap in Biomedical Research? 111

6.4.1 To Go for First in Class or Best in Class 112

6.4.2 HowWe Define Medical Innovation? 112

6.5 Why Did Drug Candidates Fail? 113

6.5.1 Why Is the Dropout Rate So High in Early Clinical Development? 115

6.5.1.1 Drug Behavior In Vivo: Role of Transport Proteins 115

6.5.1.2 Hypes and Lack of Scientific Thoroughness 116

6.6 Implications from the "Lessons Learnt" for Future Drug Discovery Research 123

6.6.1 Organization of Drug Discovery and Development 123

6.6.2 Elucidation of the Physiological Validity of a Target for the Human Disease 125

6.6.2.1 Extensive Inquiry of (All) Published Data of a Target or Pathway 125

6.6.2.2 Integrative Knowledge Management 127

6.6.2.3 Demonstration of the Involvement of a Target in Human Disease 128

6.6.2.4 A Stringent and Comprehensive Test Sequence 132

6.6.2.5 Translational Clinical Trials 135

Acknowledgment 136

References 136

7 Translational Medicine: Enabling the Proof of Concepts 141
Gezim Lahu and John Darbyshire

7.1 Introduction 141

7.2 Translational Medicine and Its Role/Value in Early Development 143

7.3 Knowledge Generation 144

7.4 Types of Data, Experiments, and Tools Needed to Move from Basic Research to Early Clinical Development 144

7.4.1 Dose Selection 145

7.4.2 Animal Models 146

7.4.3 Fraction of NOAEL and Efficacious Dose 149

7.4.4 Allometric Scaling and PBPK 150

7.4.5 Physiologically Based Pharmacokinetic Models PBPK 151

7.4.6 Pharmacokinetic and Pharmacodynamic Modeling 151

7.5 FIM (Dose Escalation and MTD) 153

7.6 Proof of Concept (PoC) 154

Summary 156

References 157

8 Preclinical Safety and Risk Assessment 161
Paul Germann and Rob Caldwell

8.1 Introduction 161

8.2 Test Systems 161

8.2.1 In Silico Analysis 161

8.2.2 In Vitro Experiments 162

8.3 Case Study: hERG Assay 163

8.3.1 In Vivo Experiments 164

8.4 The Preclinical "Package" during the Development of an NME 165

8.5 Factors Influencing the Preclinical Data Set 166

8.5.1 Timing and Costs 167

8.5.2 Intended Clinical Application Route 167

8.5.3 Treatment Duration and Treatment Frequency 167

8.5.4 Clinical Indication 167

8.5.5 Ongoing Changes of the Regulatory Landscape 168

8.5.6 New Drug Formats 168

8.6 Translation into Humans:The "TherapeuticWindow" 169

8.7 Influence of Intended Therapeutic Use on the Risk Assessment (RA) 169

8.8 Deep Dive Case Study: Safety Assessment of Biological Drug Formats 170

8.9 NBE Case Study 1 175

8.10 NBE Case Study 2 175

8.11 Carcinogenicity Risk Assessment for Marketed Drugs 176

8.12 Treatment Duration 178

8.13 Conclusion – the "Art" of Preclinical Safety: Summarizing the Concept of Hazard Identification and Description, Risk Assessment, and Risk Management 179

Acknowledgment 179

Disclosures 180

References 180

9 Developing Commercial Solutions for Therapeutic Proteins 183
Galina Hesse

9.1 Introduction 183

9.2 Developing Commercial Solutions for Therapeutic Proteins 184

9.2.1 Defining a Target Product Profile 184

9.2.2 Developing Formulations for Therapeutic Proteins 186

9.2.3 Testing Formulations for Therapeutic Proteins 188

9.2.4 Development of Primary Containers 188

9.2.5 Development of Application Systems 190

9.3 Quality by Design 192

9.4 Examples for Innovations in Manufacture of Sterile Pharmaceutical Products 194

9.5 Summary 197

List of FDA/ICH Guidances Referenced 198

Disclaimer 199

References 199

10 The Evolution of Clinical Development: From Technical Success to Clinical Value Creation 203
Markus Hinder and Alexander Schuhmacher

10.1 Introduction 203

10.2 CD: Changes and Challenges 204

10.2.1 Clinical Endpoints: From Symptom-Oriented Endpoints to Hard and Predefined Endpoints 204

10.2.2 Determination and Quantification of Risks 205

10.2.3 Assessment of Medical Progress in Context of Available Therapeutic Options 206

10.2.3.1 EbM 206

10.2.3.2 Health Economics, Pharmacoeconomics, and the Fourth Hurdle 207

10.2.3.3 Results of These Changes and Challenges 208

10.3 Technical Success and Clinical Value Creation in CD in the Future 208

10.3.1 Established and Novel Approaches to Determine the Dose–Exposure–Response Relationship 210

10.3.2 Comparators 212

10.3.3 Patient Stratification to Increase Treatment Response and Benefit and Reduce Risk 212

10.3.4 New Operational Tools to Succeed in Trials with Increased Complexity, Special Populations, or Large Size 213

10.3.5 Collaboration and Outsourcing as Tools toWork in Networks 214

10.3.6 Collaboration across Sectors and Industries to Boost the NextWave of Innovation 215

Disclaimer 218

References 218

11 Translational Development 225
Nigel McCracken

11.1 Introduction 225

11.1.1 Legacy 226

11.2 Translational Development 227

11.2.1 TP 228

11.2.2 Translational Toolkit 229

11.3 Dose Optimization 230

11.3.1 Physicochemical Properties 231

11.3.2 Target Affinity and Selectivity 231

11.3.3 Clearance 231

11.3.4 Prediction of Human Dose 232

11.4 Pharmacogenomics 233

11.4.1 Patient Segmentation 233

11.4.2 Disease Segmentation 234

11.4.3 Utility 237

11.5 Biomarker Development 238

11.5.1 Biomarker Activities 239

11.5.2 Assessing the Opportunity 239

11.6 Systems Pharmacology 240

11.7 Rational Drug Development 241

11.8 Concluding Remarks 242

References 242

12 Forty Years of Innovation in Biopharmaceuticals – Will the Next 40 Years Be as Revolutionary? 245
Mathias Schmidt, Sanjay Patel, Petter Veiby, Qiang Liu, and Michael Buckley

12.1 Introduction 245

12.1.1 The Value Proposition of Biologics 246

12.1.1.1 The Patient Perspective 246

12.1.1.2 The Pharmaceutical Industry’s Perspective 248

12.1.2 Biosimilars: A Blessing or aThreat to Innovation? 250

12.1.3 Further Innovation in Biologics – Incremental or Revolutionary? 252

12.2 The Evolution of Biologics Manufacturing 252

12.2.1 Introduction 252

12.2.2 CHO Cells: The Industry Workhorse 253

12.2.3 Protein Production Strategies 253

12.2.4 The Impact of Increasing Titers on Manufacturing Facilities 255

12.2.5 Protein Purification Platforms 256

12.2.6 Conclusion: WhatWill the Next 40 Years of Innovation Bring? 258

12.3 The Evolution of Alternative Scaffolds 259

12.3.1 Novel Small Protein Scaffolds 260

12.3.2 Single-Chain Fragment Variables and Diabodies 260

12.3.3 Single-Domain Antibodies 261

12.3.4 Nonantibody Scaffolds 261

12.3.5 Bispecific Single-Chain Fragment Variables and Diabodies 263

12.3.6 Other Bispecific Antibody Formats 264

12.4 Antibody-Drug Conjugates 265

12.5 The Next Wave of Biologics 270

12.5.1 Orally Available Biologics 271

12.5.2 Biologics That Enter the Cytoplasm 271

12.5.3 Biologics That Pass the Blood–Brain Barrier 272

12.5.4 Translational Medicine as Driver of Innovation 272

Disclaimer 273

References 273

13 Vaccines: Where Inertia, Innovation, and Revolution Create Value, Simultaneously and Quietly 277
Pierre A. Morgon and Hannah Nawi

13.1 Introduction 277

13.2 TheWorld of Vaccines 278

13.2.1 What Are Vaccines? 278

13.2.2 Current Vaccines Are Mainly Prophylactic: Curative Vaccines Are Emerging 278

13.2.3 Drivers to Immunize: Individual and Collective 280

13.2.4 The Pivotal Role of Recommendations 280

13.3 The Vaccine Market: Substantial, Fast Growing, with Intense and Concentrated Competition 281

13.4 The Vaccine Industry: Domination of the Heavyweights, for Now… 282

13.4.1 Barriers to Entry: From R&D Risk to Capital Intensiveness 290

13.4.2 Five Forces Analysis: Competitive Intensiveness and Downstream Hurdles 291

13.4.2.1 Acceptability 291

13.4.2.2 Accessibility 292

13.4.2.3 Availability 293

13.4.2.4 Affordability 293

13.5 New Vaccine Developments: Strategic Trends and Why Innovation Is Needed All along the Value Chain 295

13.5.1 Where Is Innovation Needed? R&D 296

13.5.2 Where Is Innovation Needed? Manufacturing and Product Improvement 301

13.5.3 Where Is Innovation Needed? Acceptability 301

13.5.4 Where Is Innovation Needed? Accessibility, Both as a Function of Supply (Availability) and Logistics 302

13.5.5 Affordability and Sustainability 303

13.6 WhereWill Innovation Come from? Strategy and Players 304

13.6.1 Take-Home Messages 305

References 306

14 The Patient-Centric Pharma Company: Evolution, Reboot, or Revolution? 309
Pierre A. Morgon

14.1 Introduction 309

14.2 Health, Always… 310

14.3 The Mission of the Healthcare Industry 310

14.4 Megatrends Affecting the Strategic Scorecard of the Healthcare Industry 312

14.5 Focus on the Societal Trends and Their Consequences for the Management of Healthcare Innovation 314

14.6 The DNA of the Healthcare Industry: R&D and the Management of Innovation 316

14.7 Societal Expectations for Personalized Medicine 318

14.8 New Players Contributing to Information Management to Substantiate Value Propositions for NovelTherapies 319

14.9 The Role of the Key Stakeholders in Shaping a New Regulatory Framework 323

14.10 The Consequences for the Healthcare Industry in Terms of Governance and Capabilities 325

14.11 The Sustainable Path Forward for the Healthcare Industry 329

14.11.1 Take-Home Messages 331

References 332

15 The Pharmaceutical Industry is Opening Its R&D Boundaries 335
Alexander Schuhmacher and Ulrich A. K. Betz

15.1 Introduction 335

15.2 Open Innovation versus Closed Innovation 336

15.3 Business Models in an Open Innovation Framework 341

15.4 Open Innovation Processes 342

15.5 Capabilities and Attitudes Enabling Open Innovation 344

15.6 Open Innovation in the Pharmaceutical Industry 345

15.6.1 The More Traditional Elements of Open Innovation 345

15.6.1.1 Target Scouting 345

15.6.1.2 Research Collaborations 346

15.6.1.3 Drug Licensing 346

15.6.1.4 Outsourcing 348

15.6.1.5 Joint Ventures 349

15.6.2 The Newer Concepts of Open Innovation 349

15.6.2.1 New Frontier Science 350

15.6.2.2 Drug Discovery Alliances 350

15.6.2.3 Private–Public Partnerships 351

15.6.2.4 Innovation Incubator 351

15.6.2.5 Virtual R&D 352

15.6.2.6 Crowdsourcing 353

15.6.2.7 Open Source Innovation 355

15.6.2.8 Innovation Camps 355

15.6.2.9 Fluctuating Open Teams 356

15.7 New Business Models in View of the Potential of Open Innovation 356

15.7.1 General Trends in the Pharmaceutical Industry 356

15.8 Outlook 358

References 359

16 Out-Licensing in Pharmaceutical Research and Development 363
Oliver Gassmann, Carol A. Krech, Martin A. Bader, and Gerrit Reepmeyer

16.1 Introduction 363

16.2 Performance-Based R&D Collaborations on the Rise 364

16.3 The Impact of Collaborations on the Value Chain 365

16.4 Generating Value from Pipeline Assets by Out-Licensing 367

16.5 Pharmaceutical Companies’ Resistance toward Out-Licensing 372

16.6 Managing Out-Licensing at Novartis: A Case Study 372

16.6.1 Out-Licensing as a 10-Step Process 373

16.6.2 Out-Licensing Contract Design 375

16.6.3 Structure of the Out-Licensing Collaboration with Speedel 375

16.7 Future Directions and Trends 377

References 378

17 Trends and Innovations in Pharmaceutical R&D Outsourcing 383
Antal K. Hajos

17.1 Introduction 383

17.2 Drivers to the Use of Outsourcing 383

17.2.1 Overview on the CRO Market 383

17.2.2 Core versus Noncore Activities 387

17.3 Genesis of Outsourcing in the Twentieth Century: From Commodity to Contribution 388

17.3.1 Outsourcing Portfolio and the Move to Full-Service Provision 388

17.3.2 Globalization and the Emerging Market Hype 389

17.3.3 Procurement Takes over the Outsourcing Function 391

17.4 Current and Future Trends in Outsourcing: From Contribution to Innovation 392

17.4.1 How Has Outsourcing Itself Innovated and What Are the Future Trends? 392

17.4.2 How Does andWill Outsourcing Contribute to Innovation? 394

17.5 Discussion and Conclusion 395

References 398

18 New Innovation Models in Pharmaceutical R&D 401
Alexander Schuhmacher, Oliver Gassmann, and Markus Hinder

18.1 Introduction 401

18.2 Some AttemptsThatWere Recommended in the Past 402

18.3 The Increasing Pipeline Size 403

18.4 The Reduction of R&D Investments 404

18.5 The Opening of the R&D Processes 407

18.6 The Challenge with the Return on Investment 411

18.7 Changing the R&D Processes Is Not Enough 412

18.8 What Is the Best R&D Model? 413

References 414

19 The Influence of Leadership Paradigms and Styles on Pharmaceutical Innovation 416
Aubyn Howard

19.1 Introduction 417

19.2 What Is Your Concept or Model of Good Leadership? 419

19.3 Approaches to Leadership Modeling and Profiling 420

19.3.1 Personality Types 421

19.3.2 Behavioral Preferences 421

19.3.3 Developmental Stages 421

19.3.4 Competency Frameworks 421

19.4 The Developmental Approach to Leadership Paradigms and Styles 422

19.5 Inner and Outer Leadership 424

19.6 Dynamics of How Leadership Paradigms Evolve 425

19.6.1 Magic–Animistic 426

19.6.2 Impulsive–Egocentric 427

19.6.3 Conformist–Absolutist 428

19.6.4 Achievement–Multiplistic 429

19.6.5 Pluralistic–Relativistic 430

19.6.6 Evolutionary–Systemic 432

19.7 Leadership at Different Levels within Pharma 433

19.8 Optimizing Innovation in Different Organizational Models and Cultures 437

19.9 How DoWe Support the Development of Evolutionary Leaders? 439

19.10 What Does It Mean to Operate from the Evolutionary Paradigm? 440

19.11 Leadership and Personal Mastery 441

19.12 Building an Evolutionary Bridge to Release Innovation 442

19.13 Conclusions 445

References 446

20 The Role of Modern Portfolio Management in Pharma Innovation 449
Joachim M. Greuel and Axel Wiest

20.1 Introduction 449

20.2 Challenges in R&D and the Origin of Pharmaceutical Portfolio Management 450

20.3 Goals and Metrics of Portfolio Management 451

20.4 Portfolio Management as Enabler of Innovation 456

20.5 Modern Portfolio Management Integrates In-House R&D, Business Development, and M&A 457

References 458

21 Patent Management Throughout the Innovation Life Cycle 461
Martin A. Bader and Oliver Gassmann

21.1 Introduction 461

21.2 The Changing Role of Patents: From Legal to Strategic 462

21.3 The Patent Life Cycle Management Model 467

21.3.1 Exploration 468

21.3.2 Generation 469

21.3.3 Protection 469

21.3.4 Optimization 470

21.3.5 Decline 470

21.4 Example: Managing IP Rights at Bayer 471

21.5 Concluding Remarks 472

References 473

Index 475

Prof. Dr. Alexander Schuhmacher is a professor for R&D management, Vice Dean of the Faculty of Applied Chemistry and Senator at Reutlingen University. And he is Director for R&D performance metrics and business model innovation at Bioscience Valuation. Before joining the academic world, he worked 14 years in the pharmaceutical industry in various functions in R&D, such as in R&D portfolio management and strategic planning. He studied biology at the University of Constance (Germany), Pharmaceutical Medicine at Witten-Herdecke University (Germany) and he is also a graduate of the Executive MBA program at the University of St. Gallen (Switzerland).

Prof. Dr. Markus Hinder studied medicine at the Universities of Heidelberg, Paris and Zürich and obtained a doctoral degree in pharmacology from Heidelberg University.  After graduation he trained in clinical pharmacology, cardiology and emergency medicine. Before joining Novartis he held leadership positions in clinical pharmacology, translational medicine, clinical development, medical affairs and project management. Markus is a professor at Cardiff University/ Hochschule Fresenius, reviewer for several journals and associate editor for the Journal of Translational Medicine.

Prof. Dr. Oliver Gassmann is a Professor for technology and innovation management at St. Gallen University, where he chairs the Institute of Technology Management. His teaching activities include several executive MBA programs. He has written or edited 18 books and published more than 300 journal articles on technology and innovation management. Until 2002 he headed the R&D department of Schindler. The main focus of his research lies in open innovation and global innovation processes. He is the 1998 recipient of the RADMA Prize and in 2009 was elected among the top 50 researchers by IAMOT, the International Association for Management of Technology.